Cosgrove Speech: Investing In NZ"s Housing
21 October 2007 Speech
Investing in NZ’s housing future - speech to the New Zealand Property Investors Federation Annual Conference
Time: 11.20am, Sunday 21 October 2007
President of the New Zealand Property Investors Federation, Martin Evans and Vice President Andrew King; Federation members; invited guests: ladies and gentlemen.
Good morning and thank you for the invitation to be here with you today.
There has probably never been a more dynamic time to be involved in the New Zealand property market. New designs of houses, townhouses and apartments that suit our changing way of life have been emerging on the market. Public expectations are changing in terms of how we want our new buildings and houses to perform, so they are energy efficient and cheaper to run for example. Recent years have also brought major house price increases and shifts in ownership patterns.
It could be argued that the stakes are higher than ever for those who invest in the property market, as owner-occupiers or as investment landlords. For many of those people, the purchase of a house is the biggest investment they will ever make, and it may be an opportunity that happens only once or twice in their lifetime. You want to get it right.
We are all aware of the heartache and financial loss than can result from investing in homes that leak or have been built poorly. And increasingly as a society we are aware of how important it is for our health and well being that the homes we live in or rent out, are warm, dry and comfortable.
I would like to outline for you today some of the key reforms this Labour-led government has embarked upon to ensure that our homes and buildings have been properly designed, built and inspected right, the first time. And we look to a carbon neutral future, the principles of sustainability that underpin that future relate directly to how our homes and buildings are constructed and operate.
In terms of investing right the first time, let’s start with the real estate sector.
Cleaning up the real estate sector
As Associate Justice Minister I will soon be announcing the Government’s final decisions on how it wants to reform the real estate sector. I believe reform is urgently needed, as evidenced by the frequent media reports on the latest rip-off by unscrupulous “land sharks”, and by the growing pile of mail I receive from the public and from good, honest real estate agents, who are sick of being dragged through the mud by those who run amok.
A range of problems currently exist with the disciplinary system for real estate agents under the Real Estate Agents Act 1976. The current self-regulatory system lacks independence, transparency and accountability. The risks associated with real estate activity include mishandling of funds, poor contractual advice, misleading representations, conflicts of interest, abuse of rights to access to property and misuse of information.
As I have said many times, the vast majority of real estate agents and salespeople are good, honest and hardworking. However I have serious concerns with the current structure whereby the Real Estate Institute of New Zealand (REINZ) is the gatekeeper for all complaints.
Recent cases have demonstrated how significant effort can be invested in investigating frivolous complaints, such as those made against the firm The Jones, while there may be significant delays in pursuing serious cases where consumers are ripped off by landsharks, with very little or no justice for affected parties at the end of the disciplinary process.
The statistics speak for themselves. REINZ has said that only nine of the 507 public complaints that it received between 2004 and 2006 were referred to the Real Estate Licensing Board – which is the only body with real “teeth” under the current structure, as it can suspend or strike off agents’ or salepeoples’ licenses. Added to these are also an unknown number of complaints that REINZ has received from the police, insurance companies and other agents, with no transparency as to the nature or outcome of those complaints.
It is little wonder that there is a growing perception of “mates looking after mates” in this sector.
It is essential that the regulatory framework governing the conduct and work of estate agents affords consumers - including investors like yourselves - a reasonable level of protection, deals swiftly and firmly of misconduct and raises the overall standards of the industry.
New Zealanders' greatest asset is often their home, so it is paramount that people have access to an independent, transparent and effective disciplinary process should they feel they have been done over or ripped off. I have proposed that the new structure will be funded by the industry, not the taxpayer, and the new complaints system will be at low or no cost to the consumer. As I mentioned, decisions will be finalised soon.
Property Law text
As Associate Justice Minister I am also pleased to announce that the Property Law Act 2007 has recently been passed and will come into force on 1 January 2008. Property law is of practical, day to day significance, through residential or commercial transfers and mortgages, and commercial leases.
If our property laws are deficient or people are uncertain about the law, the costs of carrying out business are increased, property rights can be at risk and there are greater chances of costly and unnecessary litigation.
The new Act is largely based on Law Commission recommendations that aim to create modern, more user-friendly legislation for people buying or selling property, mortgaging their property to raise finance, or entering into commercial leases of land. The Act clarifies rules that apply to dealings in land or personal property, including goods.
All of these reforms bring certainty for people and they also protect their rights over property transactions, as well as ensure the relationship between the parties to a lease is reasonable and fair.
While these reforms clearly look to a better future, the Government has also been working to bring certainty for those currently involved in the property market – as landlords and renters.
The private rental market is a vitally important source of housing in New Zealand. Since the Residential Tenancies Act 1986 came into force, the proportion of New Zealanders renting their home has increased, particularly among older people and families with children. Many of these people will either need or choose to rent for longer periods than they have in the past.
While the government has a range of initiatives in place to boost home ownership including Kiwisaver and Welcome Home Loans, the fact remains that the number of long-term renters is increasing. That means that you – as property investors – are an even more important player in our housing market.
Creating a stable rental market is crucial, not only for landlords who need reliable long term tenants who will look after their investment and pay their rent on time, but also for renters who want stability in their lives. Being able to put down some roots is important for our communities and especially for families, so children don’t have to be moved from school to school for example.
In this environment, it is more important than ever that the rights of landlords and tenants are clearly understood and that if problems arise, they are sorted out quickly.
The Government has taken steps since November 2006 to improve its tenancy advice and dispute resolution services.
The new measures include an extended phone advice service, easier-to-use Tenancy Tribunal application forms, a new phone mediation service for straightforward disputes, and the introduction of online applications to facilitate quicker case turnaround.
As a result, landlords and tenants are now finding it easier to get the advice they need, and to resolve disputes faster. This is important to help to support long-term, stable tenancies.
But legislative reform is still needed to bring the Residential Tenancies Act 1986 up to date with the needs of the modern rental market.
As Building and Construction Minister, I have been encouraged by the public response to a consultation on a wide-ranging review of the Act. Nearly 600 people have made written submissions, and more than 350 people have attended public meetings.
The feedback shows that while people feel that the current Act is working reasonably well, improvements need to be made to better meet the changing market that I have been talking about.
• A lack of knowledge about landlord and tenant rights and obligations due to barriers such as literacy problems, language and cultural barriers.
• The varied ability of landlords to manage property and tenants.
• The potential impact of this on the quality of rental accommodation, stability of tenure and number of disputes.
• The differing standards of rental housing and the poor condition and outdated amenities of some rental properties.
• Insecure tenures for the growing numbers of longer-term tenants – some of whom may now expect to be renters throughout their lives.
The review also found room for improvement in compliance, enforcement and dispute resolution, and about the length of time taken to resolve disputes.
The Government has listened to these concerns and has proposed changes to the Residential Tenancies Act would enable landlords to manage their properties more effectively while encouraging the development of a rental market that provides stable, quality housing to those who rent their homes.
A Residential Tenancies Act Bill is likely to be introduced into the House later this year. The reforms strike a fair balance to ensure the rights and responsibilities of both landlords and tenants are clearly spelt out and protected.
will enable the majority of tenancy disputes to be resolved
quickly, fairly and cost effectively by:
• Lifting the Tenancy Tribunal’s monetary jurisdiction to $50,000 from $12,000 and through new sanctions.
• Increasing the monetary threshold on the automatic right to use legal representation.
It will also introduce:
• Clearer and fairer processes for terminating and renewing tenancies.
• New rights of entry for appraisals by real estate agents and building inspectors
• Allowing landlords to recover reasonable debt collection costs incurred in enforcing Tenancy Tribunal orders through a private debt collection agency.
• And clarifying responsibility for outgoings such as electricity, rates and water.
To create more stable tenancies it is proposed that fixed-term tenancies that expire with no new agreement being signed will automatically become periodic tenancies. Fixed-term tenants will also be allowed to apply to end a tenancy early, in the event of a substantial and unexpected rent increase.
It is also proposed to allow some tenant breaches to become unlawful acts that can result in exemplary damages being awarded, as an alternative to eviction. This gives you, as landlords, more options. These breaches would include sub-letting, assigning a tenancy without consent, over-populating the premises or becoming a problem neighbour.
Another aspect of the Bill addresses the problem of what happens when a tenant damages a property. This issue arose after a case in Dunedin where some tenants were held liable for damage to a property that they had no way of preventing.
In order to rectify such an
unfair situation arising again, it is proposed that a
tenant’s liability for damage will be limited to four
times the weekly rent, if the tenant did not:
• Cause the damage intentionally or recklessly,
• And did not intentionally or recklessly encourage or permit another person to damage the premises.
Tenants won’t be able to hide behind flimsy excuses to avoid liability for damage, as they will have to prove grounds to the Tenancy Tribunal for limiting their liability. As is the case now, the majority of landlords will manage the risk of substantial damage through insurance, but it is likely four weeks’ rent will be sufficient to cover damage that doesn’t warrant a claim.
Another amendment would extend the Act’s coverage to more people who are renting, such as tenants in boarding houses. This would give them access to the same advice, information and dispute resolution services through the Tenancy Tribunal as other renters.
I would like to take this opportunity to thank all Federation members for your input into the Residential Tenancies Act review process that has enabled this Bill to be developed. Your contribution has invaluable, and I am sure we all look forward to the benefits this new legislation will bring.
All the reforms taking place in the building and housing sector are being done for a range of reasons – some social, some economic, some environmental.
Unit Titles Act
Changes to the Unit Titles Act, for instance, will recognise that people are living more and more in apartments, so we need legislation specifically to meet the needs of those managing and living within these complexes.
We want an easy, flexible system where the rules are certain and fair and where suitable decisions can be easily made.
We want to remove the concept, for instance, where one person who doesn’t want to spend money on upgrades can prevent the rest of the complex owners from investing in the common property. We want property management to be done on a long-term basis so the money is carefully spent for the good of all.
The bill amending the Unit Titles Act is nearing completion and may be introduced into the House later this year or early next year.
The updating of these Acts comes at a time when the government is working on a suite of reforms that are transforming the building and construction sector.
Those reforms include:
• licensing of building practitioners, to
ensure that people working in the sector are competent and
• the accreditation and registration of local authorities as building consent authorities, to strengthen building control at the critical consent processing and inspection stages
These reforms are important to you as property investors, as you want to know that the houses, units or apartments in which you invest have been designed well, built and inspected correctly, the first time.
NZ Energy Efficiency and Conservation Strategy
Last week the Government released its New Zealand Energy Efficiency and Conservation Strategy – a wide reaching action plan that has direct implications for home-owners and landlords.
It brings together many programmes to improve the quality of new and existing homes. For new homes, this involves improvements to the Building Code announced earlier this year that which are aimed at cutting the amount of energy needed to heat a home by 30 per cent.
The Building Code sets minimum performance standards for new homes and renovations, and from this November new houses in the South Island and the Central Plateau will need more insulation and probably double-glazing. Improvements to house insulation will take effect in most of the North Island in July 2008 and for the rest of the country from October next year.
This will add modest cost - $3000 to $5000 - to new homes, but these costs will be recouped through lower gas and electricity bills in three to seven years as well as adding to the capital value of the home. Homes built under the new standards are projected to save families between $760 (Auckland) and $1,800 (Dunedin) per year in lower energy running costs.
We are making it easier to install solar water heating systems across New Zealand. And new requirements for energy efficient lighting in new and refitted commercial buildings will save building owners around $8 million a year in energy costs nationally.
We are also consulting on a proposal that would make hot water systems in homes more energy efficient, and proposals for new energy efficiency standards for heating, ventilation and air conditioning systems in commercial buildings.
These measures come ahead of top-to-bottom review of our Building Code that is going on at the moment.
The homes of the future, and how they perform, will be key in attracting renters and future buyers. Take for instance energy efficiency. If the house you own costs 30 percent less to run than your neighbours, I believe it will attract a premium in the property market.
It will also be healthier to live in. Well insulated and drier homes with lower running costs are more attractive to tenants. Simply put, for landlords, investing in insulation is good business.
The government has a number of programmes to help. These range from subsidised insulation and heating retrofits for an additional 65,000 low income families in older houses by 2012 bringing the total to 100,000 properties by that time, to a interest free loans programme to cover upgrades for 70,000 homes by 2015, the detail of which is being worked on now.
The Government is also introducing a scheme to make it easier for landlords to demonstrate to the market, and realise, the added value of a well insulated home. It is the Home Energy Rating Scheme (HERS), and it will be launched in the coming months.
I urge you all to look into these options, and to upgrade your rental properties’ insulation if you haven’t already. We have a significant problem with rental properties lacking adequate insulation in this country.
The BRANZ 2005 House Condition Survey indicates that around 375,000 New Zealand homes have inadequate ceiling insulation and over one million have inadequate under-floor insulation.
Studies have shown that retrofitted insulation in the homes of people suffering from respiratory illnesses, such as the flu or asthma, was effective in improving their health, and reducing the number of days they took off work and school. In retrofitted homes, visits to the doctor by family members dropped by 19 per cent, admissions to hospital due to respiratory conditions dropped by 43 per cent, days off school reduced by 23 per cent and days off work by 39 per cent.
Some people have been arguing that it’s important to have a stock of un-insulated, cold, damp houses as they are cheap for tenants to rent. Such an argument does a lot of damage to the reputation of good landlords. The argument is also wrong. How on earth is a home that costs a fortune in power bills and causes sickness and lost work days cheaper for tenants? We are not seeking gold plated upgrades – just a decent standard of living where people can keep warm and healthy.
The government is keen to support responsible landlords to improve the quality of our housing stock. To this end we will meet up to 55 per cent of the cost of insulation improvements in older homes occupied by low income tenants. Not only is this the right thing to do economically as you will add amenity value to your home, but providing a warmer, dryer healthier home is the right thing to do for your tenants.
The government is putting its money where its mouth is with its programme to retrofit its housing stock. Since 2001 the Housing Corporation has completed retrofits in more than 15,000 properties at a cost of $23.6 million. The Corporation is currently achieving 2,000 to 2,500 retrofits per year. And a further 6,645 retrofits are planned over the next three years.
The reforms we are making recognise that every New Zealander should live in a good quality home that is warm, dry and healthy – and ideally, cheaper to run. More efficient houses and buildings are a triple win for New Zealanders’ health, our environment and for reducing our gas and electricity bills.
As landlords, you make considerable investments in your properties and it is important your interests are protected. As I have said, it is a balance, and tenants also have a right to stable and secure homes, and landlords who act appropriately.
The changes we are making, both the Residential Tenancies Act, and to the wider building environment, should result in better relationships between landlords and tenants and better homes for all New Zealanders.
I wish you all the best for the rest of your conference.