A Balanced View Of Private Property Investment
Dr Muriel Newman
Speech to Wellington Property Investors Association, 7:30pm,
October 29, 2001, Royal Society Building, Wellington
Thank you for inviting me here tonight to address your monthly Wellington Property Investors' Association Meeting.
Private property investors play an important role in society, providing for the housing needs of the majority of those families, who don't own their own home. The last census showed that there are some 315,000 rental housing units in New Zealand. Of these 230,000 are owned privately, 70,000 are owned by the state and 15,000 by local authorities.
Last year the Labour-Alliance Government brought in income related rents for state house tenants. Since this move meant the re-introduction of privilege, through cheaper rents for those who have the state as a landlord rather than those who do not, it is not a policy that ACT can support. Touted as a means of abolishing poverty, some 40,000 out of an estimated 310,000 low-income families now pay income related rents, with the other 270,000 receiving financial assistance through the accommodation supplement. Listening to the government, one could be excused of believing it was the other way around - that the majority of families had income related rents rather than a small minority.
Income related rents, as was predicted, is leading to the inevitable growth in waiting lists - the numbers have grown to some 10,000 at the present time, and will continue to rise.
During the term of the last Labour Government, with Helen Clark as Minister of Housing, income related rents caused the waiting lists to grow to over 50,000. Overcrowded families lived in garages and shacks in order to move themselves to the top of the waiting list queue. As a result of it all getting out of control, the Labour Government introduced market rents and a forerunner to the accommodation supplement.
By going back to policies that didn't work, but sound compassionate, the government has revealed it is only interested in power. That is also, I believe, the fundamental reason for the Minister of Housing's announcement that the government will crack down on private landlords. He has responded to complaints by tenancy advocacy groups about housing issues by talking tough about bad landlords and promising to bring in harsher penalties against them. His aim is to win voter support from hundreds of thousands of tenants, who will think that he is looking after them.
The question that needs to be asked, however, is how big really is the so-called problem of `bad' landlords? Is the problem so widespread that the government can justify bringing in legislative or regulatory change to laws effecting hundreds of thousands of law abiding New Zealanders in order to punish a handful of poor landlords?
The Tenancy Tribunal, the state agency which deals with disputes which landlords and tenants cannot sort out between themselves, receive on average 40,000 applications a year. Of those, only 3,000 or so are filed by tenants against their landlords. Over 90% of all applications are by landlords against tenants, mostly for damage to the property or failure to pay the rent.
According to the Minister of Housing, of the 3,000 applications to the Tenancy Tribunal filed by tenants each year, only 300 or so were complaints about work needing to be done on the property they were living in. The Minister hasn't made it clear how many of these landlords were the government or local authorities. He acknowledges that most landlords readily comply with the Tribunal's orders, and has stated that a government report "found no evidence that the current legislative standards for rental housing were too low or flawed. Instead the problems seem to be in administering and enforcing the legislation".
For the minority of landlords who are derelict in their duty, severe penalties already exist. The recent case of a landlord being fined $40,000 by a local authority for providing substandard housing illustrates the extent of their enforcement powers. The Tenancy Tribunal can also issue orders and award penalties of up to $12,000.
If the Minister carries out his threat of regulating for stiffer penalties on landlords, he would be targeting an estimated 180,000 residential property investors, in order to punish maybe 15-20 `bad' landlords. That action would bear the hallmarks of a crusade against private landlords. It would send the message that this government intends to treat all landlords as criminals. It would be an example of extremely poor governance, using a sledgehammer to crack a nut.
What the Labour-Alliance government doesn't appear to appreciate is that rental property is a significant investment. Property investors chose property because it creates wealth and provides for their retirement. According to the ASB Bank, property is the second most popular investment option after managed funds; an estimated $42.5 billion has been invested into the privately owned rental property market. The last thing an investor would want to do is to devalue their investment. Rather than risking undermining the equity in their property, most landlords are only too willing to sort out tenancy problems as soon as they occur.
On the basis of information available, the government's call for tougher penalties against landlords appears to be a rather one-sided affair, driven largely by tenants' advocacy associations and housing lobby groups. Organisations representing property owners and landlords allege that not only has the government failed to inform them of proposed changes to housing legislation, but that the Minister of Housing has even refused to acknowledge their correspondence.
This is simply not good enough. The Minister of Housing has a responsibility for all housing matters and a duty to promote balanced solutions to perceived problems. His proposed changes to the Residential Tenancy Act, which appear to focus on these issues, also propose major changes to the legislation effecting boarding houses in order to bring them under the auspices of the RTA. I understand the changes that are being proposed could effectively make the running of boarding houses too difficult, and would rob society of an important residential option.
Private property owners must be active and vigilant in seeking to make submissions on these issues. If they don't, the point of view of tenants' advocacy groups, will dominate the parliamentary process, and there will be no balance.
The Government needs to recognise that private landlords offer affordable accommodation to hundreds of thousands of New Zealand families, many more than the government could ever hope to house with its state housing supply. In light of this partnership, it is also surely the role of government to help prevent disillusionment by landlords who feel that the government doesn't care about their concerns. The problem is that if too many landlords decided to sell out of the more problematic lower end of the housing market, it could result in a worrying shortage of rental property.
The major problem expressed by landlords, who provide for this end of the housing market, relates to tenants who disappear after having defaulted on their rental payments, or after causing damage. As a result, such cases usually appear before the Tenancy Tribunal where a court order for rent arrears or damage is issued. However, it then becomes the responsibility of the landlord to provide to the court with the address of their former tenant for the purposes of debt collection. The problem is that when that former tenant is a beneficiary, the Department of Work and Income refuses to provide details of their new address, citing the Privacy Act as their reason.
This situation is clearly ridiculous. As a party that upholds the rule of law, ACT will look at amending the Social Security Act 1964 to enable the department to provide address details to a court officer for the purpose of collecting debts. Surely, to withhold that information, in the present manner is tantamount to aiding and abetting the miscarriage of justice.
There is a further issue of concern to landlords that needs to be addressed, and that relates to giving beneficiaries who rent a house from a private landlord the same ability to have their rent deducted at source as they have if their landlord is the state. ACT would look at extending the automatic deduction mechanism to all beneficiaries who rent, just so long as they are in agreement and complete the appropriate authorisation forms.
For some time, there has been a call by tenancy advocacy groups for a certificate of fitness for rental properties. In light of the fact that the RTA already requires landlords to keep their property in good order, and there is no clear evidence that such a measure is necessary, ACT would vigorously oppose increasing the regulation of rental properties through the introduction of certificate's of fitness.
What ACT would like to see however, is more effort being made to address issues relating to unsafe housing where owner-occupiers are at risk of fire, ill health or other negative consequences. A recent spate of house fires, which cost the lives of children, have highlighted the dangers of owner-occupied substandard housing. A recent report on the issue confirmed that over 90% of housing that fell into that substandard category was owner-occupied, a matter that must be of concern to local authorities. It is however important to recognise that the cost of bringing these houses up to a safe standard, should be the responsibility of the homeowners themselves, not ratepayers or taxpayers.
That is why ACT strongly opposes the government's new Special Action Housing Zone Scheme. The SHAZ scheme as it is called, has given 70 applicants who own homes that they have allowed to fall into disrepair, with collapsed verandas, rotting floorboards and the like, interest free grants of up to $50,000 which don't have to be repaid and are written off after three years. Giving taxpayer's money to people to spend on their own private housing, without having to pay it back, is bad enough, but this scheme sends absolutely the wrong signals. The message SHAZ sends is that if you are a responsible home owner, you have to spend your own money fixing your property, but if you are not, the government will bail you out.
Since the government has taken a hands-on approach to housing, it is imperative that it keeps a balanced view. It should ensure that both tenants and landlords alike know their rights, and understand their responsibilities and obligations. Further, since housing a nation needs private sector involvement, rather than attacking landlords, the government would be wise to work alongside them.