Power to the tenants: re-claiming the rental market

By Ellipsister (Co-Ed.)

The housing crisis does not stop at home ownership. It is about rents. It is about landlords. And it is about tenants.

Like many in my generation, I am a serial renter. In fact, we (my whānau) currently pay rent in two places because I commute between Auckland and Wellington. Although, I only pay rent for a room in Wellington, and not an entire house. That I am in a position to commute is a privilege that very few others can afford. I get that. However, despite my privilege, my experience and the similar experiences of others is not irrelevant simply because of the wider reaching social impacts of the housing crisis on low-income families and earners. We need to get on the same page. The reality is that it is situations like mine – those of middle income that contribute to homelessness and not in the way you might think.

 The spectrum

Talk of the housing spectrum from homelessness to home ownership is common in policy circles. But it is flawed. The spectrum is not linear and treating it as such perpetuates the problem. A major assumption from policymakers and political parties alike is that if we just build more houses (supply) and make finance more readily available to prospective buyers then bingo! Everyone will have a home. We just have to look to the US sub-prime lending that led to the 2008 GFC to see the horrible consequences of that kind of an initiative. We need to understand that the housing crisis is as much about rules and the distribution of power, as it is about supply and finance.

 The middle

In the past, the housing cycle saw people move into their own homes, or upgrade their rentals as their incomes increased creating financial security. The housing crisis that began in Auckland and its cancerous spread to other regions has created a short circuit in that cycle. For my generation, only those people whose parents can help can continue on that cycle. The rest of us languish in dilapidating properties, unable to save for our own homes due to the excessive rental prices we pay, unable to upgrade to suitable rentals because we are priced out of the next rung on the ladder, and often unwilling to move because value for money properties no longer exist. This means that we – the middle-income earners – have captured the affordable rental and created a rental scarcity for low-income earners. We are the group who in practical terms not only prevent low-income whānau accessing affordable rental homes, but exacerbate the growing levels of homelessness.

I know it’s not right to talk about middle income earners moving into nice homes so that low income families can access their left over rundown rentals. I’m not proposing that we only find solutions for middle income earners. I am highlighting that part of the problem lies in the rental space and the short-circuiting of a cycle that has operated to minimise homelessness. Ignoring the hamstringing of middle-income earners prolongs the problem of homelessness, inaccessibility to suitable rentals, and the unequal share of power held by landlords.

 The key issues for renters

Some general themes that consistently arise for renters include:

  • Move in costs: These upfront costs usually involve –
  • 2 weeks rent (up to 4 weeks max) as bond;
  • 2 weeks rent in advance; and
  • 1 weeks rent plus GST as a letting fee.

For a middle-income family, the rent will often be around $500-700 per week. This amount of rent signifies these families could conceivably service a mortgage of their own. But even on good income, people don’t generally have over $3,000 just sitting around that makes it possible for them to move and given the rental costs, are not in any position to ‘save’ the 20 percent deposit needed to make them eligible for a mortgage.

For the record, I’m not interested in anecdotal policy qualifications of ‘I saved X while doing A, B and C, so everyone else is just lazy and stupid’. I mean it’s great that the system worked for those of you who think like that. You clearly had the privilege of some particularly favourable conditions. But by your own admission, it’s not working for the majority of other people. Evidenced by your view that people who don’t experience the world as you do are, um stupid and lazy.

  • Affordability:  Price is the key determinant for whether a renter will tenant a rental property. We know that rental prices vary for homes of similar size and quality and we understand that major price discrepancies are often associated with location. But this isn’t always the case, and despite some reports claiming rents are not increasing we renters are seeing spikes in prices on properties without any maintenance or upgrade. The reality is that a 3-bedroom hardy plank shit box with no upgrade since it was built in the 1970’s will now sting the renter over $500, a price that only a few years ago would get you a new build or renovated rental.
  • Quality:  Renters want and need a property that is warm, dry, safe and functional (i.e. no outstanding major repairs). What is on offer is often uninsulated (or depleted insulation), damp homes in need of some fundamental repairs (e.g. wiring, light fittings, plumbing, joinery) and upgraded furnishings such as carpets, curtains, wallpaper or paint.

 

  • Tenancy agreements: Tenancy agreements are an annoying but necessary part of being a tenant. They protect both the tenant and landlord. However, it is the landlord who will ultimately determine if the lease is for fixed or periodic tenancy. Being bound to a property for a fixed term and liable for rent if you find a more suitable property before your lease expires means that people cannot move unless they can afford to service two rental properties. Fixed term arrangements are intended to provide certainty, but they don’t they minimise the choices a renter can make.

 

Power to the tenants

rental policy

Requiring the letting fee to be payable by the Landlord not the tenant

One means of giving power back to tenants would be to amend the Residential Tenancies Act 1986 to require landlords to pay the letting fee not the tenant. See the Tenancy Tribunal website.

The work done by the letting agent, is for the benefit of the landlord. It is grossly unfair. A tenant should not have to pay a fee that deals with administrating a property that they do not own, for work that was undertaken prior to them obtaining quiet enjoyment of the property.  Landlords should not be allowed to pass on administrative costs to tenants. If they don’t want to advertise the property themselves, then that is their choice, not the tenants choice.

Implementing a rent cap and a star rating for rental properties

Like others, I have been thinking about the viability of rent cap, and the idea of a star rating for rental properties was brought to my attention in the weekend. Restricting the price and developing a robust rental property criterion gives rights back to tenants who spend a large proportion of their incomes paying rent, or in many cases, someone’s mortgage.

We know that rent is just too high and even those on good incomes are finding rentals increasingly unaffordable. While Christchurch is reported to be experiencing a reduction in rent prices, with some landlords offering a week’s free rent, Auckland and other parts of the country are ridiculously expensive and there are no signs of cooling off.

A rent cap could provide the right lever to keep people in homes that are affordable, and combined with a star rating could incentivise landlords to maintain and repair rental properties thereby improving the quality of homes in the rental market. It could be either a temporary or a permanent measure. It could include provisions for market or inflation adjustment.

I’m not going to speculate here about what the rent cap should be. However, the process might involve a price band where rental values are based on the star rating they receive from an independent property assessor.

The star rating could align with the housing Warrant of Fitness (WOF) standards. For example, a home that fully complied would receive a 5 star rating and be able to charge rent at the top end of the band. A property that only complied with part of the WOF standards and received a 1 star rating would only be able to charge at the lower end of the band. This would also give tenants an ability to negotiate the rent required to tenant the property.

I note that price bands should vary depending on location, and that should be a factor in establishing the price bands.

A groundrent for despicable landlords

A property that did not meet any WOF standards, could be deemed uninhabitable. If the landlord refused to meet those standards and left the property vacant, then the government could apply a groundrent to cover the social cost of taking a property out of the market. Doing so could help bring about stability, by ensuring vacant properties were not used to create an artificial scarcity that drives up house prices.  The intention would be to disincentivise landlords from simply land banking and encourage them to either repair the property to WOF standard, or sell it.

We need a real world solution for a real world problem not an ideological driven rant that narrows the field of investigation and subdues innovation.

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