Richard Woodd is president of the Taranaki Property Investors’ Association. The veteran investor has seen a lot of change in his years as a landlord. But the raft of new regulations brought in by Government in recent years has led him to ditch his long-term rentals and switch to short-term holiday homes.

Woodd says with the exception of the Covid-19 lockdown, business is booming. And the move to holiday rentals has allowed him to escape the expense and stress associated with the Healthy Homes standards and the significant changes to residential tenancies legislation.

“I have personally sold five long-term properties in recent years. And changes to regulations have definitely been part of the reason.”

On February 11, phase two of the Residential Tenancies Act (RTA) came into force. It is no longer possible to remove troublesome tenants with a no cause 90-day termination (possibly the most contentious change to the Act), nor is it possible to move someone on once their fixed-term tenancy expires.

These, and the raft of other changes aimed at shoring up tenants’ security and the health of Kiwi rental homes, may be well-intentioned. But they have changed the property investment landscape significantly. NZ Property Investors’ Federation predicted a 20% exodus of investors from the market after the new laws were passed. The Act changes are still fresh, granted, but the figures aren’t reflecting this yet. In fact, the most recent mortgage data from the Reserve Bank indicates the opposite has been happening; year-on-year data in November 2020 saw a nearly 65% increase in new commitments to investors.

Recouping Losses

Nevertheless, many landlords are already seeing changes impacting both themselves and tenants. While you’d be hard pressed to find a property investor who’d be comfortable renting out a cold, damp home, the

‘Out of 30 applicants in the short-list, 28 said that they had to move because their house was being sold, demolished or the owners were moving back in’ NICKY SMITH

Healthy Homes standards are having some unintended consequences. Andrew Bruce is a well-known Auckland investor, with a tenant focus. The expenses associated with bringing an old hotel complex in Hamilton, occupied by “very price driven tenants”, up to standard meant that he had to make some hard decisions.

“The tenants had to vacate while the upgrades were taking place. And due to the costs associated with the renovations, and bank servicing requirements, the rents had to be raised.

This priced the previous tenants out of the complex – most of them are now in social housing.” It’s an unfortunate reality; the requirements are expensive and investors have to recoup their losses, which raises the rents.

Huge Demand

The impact of the Healthy Homes standards is being seen across the country. New Plymouth property investor Nicki Smith says that the response to an ad for a three-bedroom home to rent was so overwhelming, she had to close the ad after 24 hours and 100 applicants. And the vast majority of those who made the short-list were moving because their current rental was being sold.

“Out of 30 applicants in the short-list, 28 said that they had to move because their house was being sold, demolished or the owners were moving back in,” she says. “I really feel that a lot of investors are being pushed out of the market due to the expenses associated with the Healthy Homes standards.”

Antisocial Behaviour

Other legislative changes are also causing issues for investors. The consequences of the removal of the no-cause 90-day termination rule are already revealing themselves at the Tenancy Tribunal.

Bruce recently had an unfortunate experience after an antisocial tenant, whose behaviour included public nudity, racked up six separate antisocial behaviour notices.

“The law stipulates that you need to have three examples of antisocial behaviour within 90 days, but I decided to test out the system and see what happens, so I made sure I had more than that.”

The building manager documented these six incidents, with dates and times, as per the Act requirements. However, the adjudicator refused to accept this as evidence.

“I was told that this couldn’t be used, that the witness had to attend the hearing,” says Bruce. “Fortunately, we came to an agreement with the tenant and she left, but before that she went on to commit 16 acts of antisocial behaviour in three days.”

Bernard Parker from property management company Quinovic explains that the no-cause, 90-day notice was a useful tool for dealing with antisocial behaviour, because it offered a convenient (and safe) “out”.

“You were able to issue a notice and not tell the tenant why you wanted them to leave. The new requirements mean that three separate notifications must be made and given to the tenant, documenting the date, time and location of the behaviour. This could be putting neighbours or other people making the complaint in the firing line.”

One of the ways landlords will need to navigate the new rules and regulations is through excellent tenant selection. Many property managers are now asking for online applications, with detailed information, even before a home is viewed.

NZ Property Investors’ Federation chief executive officer Sharon Cullwick says that vetting new tenants needs to be an exhaustive process for landlords if they are to ensure a successful outcome. “Landlords will have to be extremely cautious and go beyond the normal checks. I would be checking Facebook profiles, plus people’s friends

‘Property investors will start buying off-the-plan and investing in new homes that are likely to attract tenants with higher incomes’ ANDREW BRUCE

and associates. You will need to do rigorous landlord reference checks, making sure that they are actually the owners of the previous dwellings the tenants lived in. Credit checks are also incredibly important.”

The removal of the no-cause 90-day notice means that tenants who may have previously been given a chance by landlords, are likely to now be overlooked.

“I hate the term ‘marginal tenants’ but there are a huge number of people who fit into this category who may not be given a chance anymore.” Bruce believes that the impact of the changes will start to play out increasingly in the months and
years ahead.

“Property investors will start buying off-the-plan and investing in new homes that are likely to attract tenants with higher incomes. And I think more people will look at commercial as an option, as the requirements aren’t as stringent.”

The final phase of the Residential Tenancies Amendment Act, which deals with tenancies ending due to family violence or physical assault of a landlord, is set to come into force in August. ■