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Should letting fees be abolished?

Should letting fees be abolished?

The NZ Property Investors' Federation (NZPIF) doesn't think legislation to prohibit the charging of letting fees is required.

"Our view is that whoever gets the benefit of the service should pay for it" says Andrew King, executive officer of NZPIF. "Sometimes, like now when it is difficult to get a rental property, it is the tenant who is getting the benefit but other times it is the landlord. It can be the landlord’s turn when it is hard to find a tenant or when the landlord employs a property manager to find a tenant on a casual basis".

Using last month's Bond Centre rental statistics, 46% of new lettings were by owner managers who cannot charge a letting fee. So tenants who don't want to or can't afford to pay do have a choice.

However, by prohibiting letting fees, this choice is being taken away from those tenants who are prepared to pay these in order to be a step ahead of some other tenants. By paying the letting fee they have a wider choice of property and less competition from tenants unwilling or unable to pay.

It is possible that those tenants previously willing to pay a letting fee may turn to offering a higher rental in order to put themselves ahead of other tenants. So we could see an increase in rental auctions initiated by these tenants.

This proposed policy of prohibiting letting fees will probably not have the same dramatic effect on rental prices as ring fencing losses, increasing the bright line test or a capital gains tax, but it will have some effect. The Government Regulatory Impact Statement on the subject estimates an increase in rental prices of a little under $10 a week, assuming a one year tenancy. However average tenancies are now 2 years and three months, so we could see the increase being at around $4 or $5 a week.

Paying all the moving in costs of a new tenancy is difficult, so even if rental prices do move up a little, spreading out the cost for tenants will still be a benefit for tenants.


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