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The Heat Goes On

The Heat Goes On

Compliance – it’s boring, but if you try to ignore it, you could be hit in the pocket, warns Aaron Tunstall.

By: Aaron Tunstall

1 September 2018

We all know there’s a lot of new legislation making property investors nervous. The compulsory insulation is fine, the smoke detectors are in place, and hopefully all your rentals are warm and dry. However, it may not end there. Under the Healthy Homes Guarantee Act 2017, the Government now has the power to create standards – with which you must comply – for any of the following:

  • Heating
  • Insulation
  • Ventilation
  • Moisture ingress
  • Draught stopping
  • Drainage

That’s a lot of ways that the regulations could mess with the market. The one that is most likely to be regulated is heating: there’s been a lot of speculation that heat pumps could be made compulsory. We have a large management portfolio and we manage a lot of apartments: more than 1,000. Trust me when I say that heat pumps and apartments are not a great combination. Firstly, apartments are far more likely to be too hot than too cold. Second, how do you install it? A heat pump unit needs to be fixed to the outside of a building and many apartments don’t have access to the outside. Those that do may not have space on a deck to accommodate a heat pump unit. Then there’s the issue of making a hole in the side of an apartment building; buildings often specifically prohibit owners from making those types of changes. We have one example of a building in Auckland that specifies heat pumps must not be installed.

‘We have one example of a building in Auckland that specifies heat pumps must not be installed’

That may mean we need to provide another heat source for apartments, but any plugged-in heat source will result in the owner being responsible for that appliance. As tradies will tell you, health and safety regulations mean cords need to be checked regularly by an authorised person – it’s known as “test and tag”. This has the potential to add compliance costs for owners. It’s hard to figure out a good, reliable source of heating that will be cost-effective in an investment apartment.

Higher Rents?

Insulation is a minor issue in apartments because once again they run hot rather than cold. There’s a lot of insulation provided simply by having apartments on either side, above and below you. However, we are meeting a lot of new clients who don’t know that they need to provide an insulation statement when a new tenancy agreement is signed. The penalty for failing to provide a statement, or providing a false one, is a $500 fine. Luckily the legislation allows for a statement to say no insulation can be installed, which is the case in quite a few apartments. The process of getting someone to certify the insulation isn’t cheap, which is another extra cost.

Will that translate into higher rents? The NZPIF has long argued that it will. However, we know there is a natural limit to what tenants can afford to pay – there’s been slow growth in wages over the past decade. With the switch to letting fees being paid by landlords, the whole picture is changing for property investors.

I know compliance is a boring topic but it’s also an important one. You should be thinking hard about how much it’s going to cost you to ensure your property is warm, dry and safe. If you can’t afford it, sell your property. Because the pressure on non-performing landlords is only going to increase and you don’t want unhappy or unwell tenants. Even if you don’t have a conscience about your tenants, the prospect of having your name dragged through the press and on social media should have you thinking twice about failing to comply.

Aaron Tunstall is the general manager of award-winning Impression Real Estate, which specialises in property management and sales and manages over 1,750 Auckland apartments.