Olly Newland responds to 'Generation Rent' crisis, calling for the govt to incentivise rental property investors to get life-long tenants

Property investor Olly Newland is calling on the Government to incentivise residential landlords to sell extra long-term leases to tenants keen to “rent for life”.

He says encouraging investors to be driven by long-term cash flows, rather than capital gains, will up the supply of longer-term rental properties, demanded by the increasing number of people who want to enjoy the benefits of living in their own home, without buying their own home.

Newland makes this suggestion in the wake of economists, Shamubeel and Selena Eaqub, calling for tougher regulation of the rental property market in their new book, ‘Generation Rent: Re-thinking New Zealand’s priorities’.

The Eaqubs say exuberant property prices are causing an increasing number of people to be forced to rent. They say renting needs to be made a more desirable option, so renters aren’t stigmatised and pushed to the margins of society.  

Newland agrees with the Eaqubs in the sense that he acknowledges “renting will become a way of life for many people – whether they choose to, or whether they’re forced to”.

However he says we should create a system where people can rent for life.

He suggests a tenant pays the landlord a “goodwill” premium of say $50,000, as a form of refundable bond, to rent their property for 20, 30 or 99 years, for example.

Like a commercial lease, the tenant is responsible for maintaining the property’s interior, while the landlord is responsible for maintaining the exterior.

The tenant can do all the painting, picture hanging, and kitchen renovating they want to make the place feel like their home.

Furthermore, they can have the peace of mind knowing they’re not going to get booted from their property when the landlord gets an enticing offer for the place.

If the landlord sells the property, the existing conditions of the lease would continue under the new ownership.

Conversely, if the tenant leaves the property, they could on-sell their lease or the landlord could buy it back. Yet Newland says landlords should still have the right to refuse tenants they deem unfit to take care of the property.

Newland says tenants will also have to return the property to the landlord in a similar state they received it in, as is the case in countries like Germany and Switzerland.

'There should be a reward'

Rent will be adjusted throughout the duration of the lease in accordance with market rates.  

“There should be some advantage – possibly tax, possibly something else – for a person who buys a property and rents it out for a long period of time”, Newland says.

“There should be some sort of reward or return… You are handing over your property, and any capital gain is locked away.”

Other than a tax-break or other financial incentive that would need to be on offer, Newland says landlords will be able to take a more hands-free approach to property management.

“It’s a pain as a landlord to be rung up at three in the morning, because the stove [in your rental property] isn’t working, or light bulb isn’t working. It’s nuts! The tenants wore the stove out or burnt the bulb out, so they should replace it, and the rent should reflect it.”

Furthermore, Newland says tenants will take better care of the property if they feel they can take some ownership of it.  

“I think you’ll find the psyche of tenants will change if they can rent a place for life”, he says.

Newland says property investment firms and syndicates would be best placed to enter into such “rent for life” agreements.

“It’s a good time for some brave person to form syndicates to buy rental property on a large scale and rent it out long term.

“The important thing is to make sure people have a “Home” with a capital “h”, so they don’t live in something like a motel.”

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

We welcome your comments below. If you are not already registered, please register to comment or click on the "Register" link below a comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current Comment policy is here.

23 Comments

What works in Germany won’t work in NZ. They have good social welfare and high taxes and a low cost of living. NZ is pretty much the opposite. Renting for life is financial suicide in NZ.

tobacco Germany:$20NZD/140g New Zealand:$160/140g
toothpaste Germany $0.6NZD/tube New Zealand:$4.5/tube
Mozzarella cheese Germany $2.50(NZD)/300g New Zealand $18/300g
Milk Germany $1.1(NZD) New Zealand $2.1
School Germany: Free New Zealand: Expensive
University Germany: Free New Zealand: Very Expensive
Dentistry Germany: Free(check-ups) New Zealand: Very Expensive indeed

We all already 'rent' for life. Whether it's called rent or interest-to-the-bank or interest on capital applied, forgone....we rent. What Olly Newland is suggesting is another variation on the same theme, and one worth a look. What is different with each of those 'rents' is the taxation treatment of what we live in.

No he’s just justifying the status quo, and advocating more of the same. Today in our tea room a boomer who always complains about how poor she is was boasting that she's making 3/4 million dollars per year in capital gains on all her rentals. There’s the problem right there! There's now a whole generation on New Zealanders who are completely fuc$#ed. They have no chance of competing with cashed up boomers and Chinese money paying 850K+ for 2 bedroom units in Auckland. Here's an article from the UK guardian which articulates the problem.

http://www.telegraph.co.uk/finance/property/11656027/The-plight-of-the-a...

Why not propose something which actually might make a difference.
Make landlords pay the entirety of the accommodation supplement.
Ring fence property to stop negatively geared tax deductions against personal income.
Clamp down hard on foreign investment in existing residential properties.
Allow some tax benefits for private home ownership.
Take away some tax benefits for landlording.

I understand your frustration. But the sad fact is, the more regulations we have, the more that they can be avoided! I guarantee you that whatever changes are made to the rules re property they will be circumvented before the ink is dry on whatever paper it is written on. What Olly Newland is suggesting is that the amount of ink is reduced - one contract; once, for say 25 years. Whatever happens in the meantime become less of a problem to both side. Oh...and your tearoom chat? Capital Gains are worthless until they are cash in the bank. Whatever may or may not happen to asset prices from here, any that have not been cashed in are worth an uncertain real future value. Many people don't fully appreciate how 'at risk' their present day wealth' is.

Then how come places like Singapore can do it with legislation then?

The answer lies in the fact that he politicians want to be "seen" to be doing something, but want a way out so that they can realise the wealth on THEIR OWN property investments.

Millennials Have No Hope Of Buying A Home In These... http://www.zerohedge.com/news/2015-06-08/millennials-have-no-hope-buying...

I can rent Olly a a real good property for life if he pays me enough and his life is short.....

Kiwichas, you may be disappointed.
I am assured he has two of everything and all working.

This arrangement will suit some landlords and some tenants, and it will not be suitable for other landlords and other tenants. As far as I can see there is no informational or regulatory barrier that prevents landlords and tenants who would both like a long-term relationship, from finding each other and agreeing such terms.

$50k just to secure the contract? What sort of a tenant would that suit?

Fine if we are talking about cutting the banks and foreign finance out and reducing the cost to rent.
But that will never happen, so long term renters should own.
If this was not true, why own rentals?

The UK may be addressing their version of accommodation supplements.
From the FT; Benefit cuts threaten buy-to-let landlords’ income http://www.ft.com/intl/cms/s/0/991b46ac-0b7a-11e5-994d-00144feabdc0.html...

As I understand their government proposals, total accommodation supplements would be grossed up, and paid to beneficiaries as part of a benefit- although there would be winners and losers in terms of total payments compared to now. However much of this total amount the tenants paid in rent would be up to them to negotiate with their landlords. The FT's assumption is that this process will put a cap on rents at the low end and in fact pressure them downwards. Quite how they propose to cope with London vs the rest is unclear- a bit like Auckland and the rest here. Whether they actually make the change, and what its effects will be is also unclear.
Will be worth watching though, as the accommodation supplement/landlord subsidy here seems like a forever escalating ratchet process. If change works in the UK, then you would expect it to be looked at closely here.

Hmmmm - does NZ proportionally deficit spend this much subsidising buy-to-let landlords?

.....the UK, which paid £24bn in rent subsidies in 2013/14, double the amount a decade ago and the equivalent of £1 in every £4 in Britain’s budget deficit. Read more

Seems tribute payments to potentially disaffected voters escalated.

"This rent inflation is rapidly becoming a fiscal issue for the Government, given it spends more than NZ$2 billion a year handing out accommodation supplements to private landlords and Income Related Rents to Housing NZ. Taxpayers throughout New Zealand already provide subsidies for more than half the rental market, and that proportion is higher in Auckland. Taxpayers in Gore will be subsidising landlords in Mt Albert at an even greater rate and rents and prices surge."

https://www.hivenews.co.nz/articles/880-opinion-a-city-unmoored

National rubbishes claims bigger rent subsidies would just pump up rents

"If you went along with the Labour party argument you'd be abolishing all assistance for accommodation and we are certainly not doing that. I'm surprised. Many families are absolutely reliant on the Income Related Rents and on the accommodation supplement. In fact we pay the accommodation supplement for 40% of all private rentals in New Zealand and we are certainly not going to be doing away with that," English said.

http://www.hivenews.co.nz/articles/743-national-rubbishes-claims-bigger-...

Pretty obvious these subsidies inflate rents and house prices significantly, as does any Govt subsidy.
I well remember when Muldoon removed the subsidies for LPG conversions in the late 70,s, the cost of conversion fell by 60%+
Which is why the landlords now want the Govt to pay for tenants heating bills; the tenant will be able to afford more on rent...

Good to see that what I and a few like me have been saying for quite some time is finally getting through

govt policy and regulation can provide any property market we wish

http://parispropertygroup.com/blog/2013/occupied-paris-property-forthcom...

For buyers wanting a rental property, an occupied apartment can be 10-25% cheaper than an empty apartment, depending on the rental amount, the length of the contract, and the tenant’s age. It’s also a plus with mortgage lenders, since borrowers receive a rental income from day one. And an existing tenancy avoids the property standing vacant while seeking a tenant.

Here too, French law has to be taken into account. Tenancy contracts for unfurnished apartments run for three years (if the owner is an individual) or six years (if a company). Tenants over the age of 70 with limited means have the right to stay in the apartment or the landlord has to provide an alternative. For furnished apartments, the minimum contract runs for one year.

At the end of the term, owners can repossess the apartment only if they want to live there; sell it; or if the tenant has breached the contract terms. The French parliament is considering a law that will, if voted, increase security of tenure for tenants.

Paris is no Auckland, or is it the other way round?

Hang on, so we managed to save enough for our 20% deposit (before LVR rules, much to the surprise of the banker trying to loan us way more ) got squeezed out to semi-rural in Taranaki (relocating out of Wellington) which is where we could afford to buy something habitable. And now you want some handouts from us to prop you up Ollie? Get lost!

Yep, if Olly has his way you will have to save up for a deposit on the loan you will need to buy his lease(noose??).
i wonder if Olly would pay tax on his proposed fee??
Why should Olly not be paying the tenant instead for the right to house sit and maintain his capital gain for life??

#

Why do you want to treat the next generation like this? They're coming out of uni loaded up with debt just to earn a meager living, then you want to saddle them with a $50k debt just to have a bit of rental security, then you want to hit them with market driven rents to keep them in place.

These ideas are the work of a bitter, malicious and twisted mind.

Here's another idea - build enough houses, restrict foreign ownership and tax landlords on speculative gains. Let the young buy a property just like the baby boomers did.

Ollie, nothing is "for life" any more.

I just learnt several minutes ago that now University papers/qualifications expire after 8 years !!!!
That's a lot less that it takes the loans to expire!
more scams to feed the machine