Housing Minister Phil Twyford backs select committee recommendation for start of letting fee ban to be brought forward to December 12

Phil Twyford by Jacky Carpenter.

Letting fees look set to be banned by the end of the year, as peak tenancy turnover season gets underway.

Housing and Urban Development Minister Phil Twyford supports a select committee recommendation to bring forward the start date of the ban to December 12.

The Residential Tenancies (Prohibiting Letting Fees) Amendment Bill, which had its first reading in Parliament in April, provides for the change to become effective three months after the Bill is passed.

However the Social Services and Community Committee wants it implemented sooner. 

It notes doing so will help maximise cost savings for renters who sign up to new tenancies over the busiest period between November and February.

Twyford agrees. He told interest.co.nz, “This is going to make a big difference for those looking for a new home during the peak house hunting season this summer.”

Currently there are no restrictions on the amount a tenant can be charged. The fee is typically equivalent to a week’s rent, but can vary.

The select committee recognises this means fees often don’t reflect the actual costs of assigning or setting up a tenancy.

Under the Bill, landlords or agents could face damages of up to $10000 if they charge fees for services provided in relation to a tenancy.

They can however seek reimbursement from a tenant for expenses “reasonably incurred” due to a tenant assigning, subletting, or parting with possession of their interest in a tenancy.

The select committee also urges the Government to introduce a regulatory regime covering letting agents, including property managers.

“We were concerned to hear about property managers checking potential tenants’ bank statements and to learn that nothing in the [Residential Tenancies] Act prohibits this,” it says.

Overall the Bill aims to ensure that the costs associated with letting a rental property are met by the landlord, rather than the tenant.

The other costs tenants have to fork out for are a bond and a payment of rent (often two weeks) in advance.

While Twyford is pleased the select committee backs his bill and agrees letting fees are “an unfair and unnecessary burden”, National opposes it.

It fears an unintended consequence is that landlords will hike rents, sell up, or list their rentals on Airbnb, avoiding the obligations of the Act.

National suggests an alternative to banning letting fees is making them more transparent so they reflect the real cost of the service provided.

It also notes the Bill adds to other new costs landlords will incur, further to the Healthy Homes Guarantee Act 2017 for example.

Here's Twyford talking about letting fees in March:

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75 Comments

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Excellent! The letting fee of one weeks rent (plus GST) was a greedy grab from people who can least afford it to begin with. The sooner the better in my view. Having failed to pass this cost onto tenants, many Landlords will be forced to self manage the tenancy, deal with the tenants face to face :-o

Or shoulder the fees themselves. Many will have to cover the costs of setting up a tenancy because of falling rental demand and prices and more competition from accidental landlords.

Tradme Rental Listings may be worth a watch, particularly as accidental landlords (unsellable houses because of leverage) start to add to the rental market. How many of Barfoots' failed sellers (33%) will look to rent if they can't get their sales price?
Auckland - 4013 rental listings
Nationally - 8485 rental listings

Yes, really impressed with this decision and so glad they are moving quickly to implement it.

Fully support getting rid of letting fees. I never understood why a tenant should have to pay the costs of marketing the rental house. Not to mention how incompetently managed that process is, if it costs a week's rent + GST.

Then again I also never understood why anyone would be stupid enough to want to buy a house and rent it out to someone. If you must own real estate why not buy a REIT like normal people and save a fortune on management fees, rates, insurance, maintenance, and head ache. These small time landlords are a truly odd breed.

@Canton just how do you think the person doing the work should be paid ?

Or their commercial costs be covered ?

The letting agent requires a desk in office accommodation ( usually rented) , they do online checks which take time and cost money , they draft the lease for which they pay the ADLS for copyright fees , and then have the time and attendance of arranging the landlords signature arranging keys etc .

And of course the agent needs to put food on the table , so he or she needs a wage .

Anyone who thinks that this will be plain sailing should think again

As you know we already self manage, and get far better tenants in my opinion because we avoid the dodgier type tenants that a property manager would accept due to time constraints. These days with online it is easier to advertise and manage a for rent listing, taking initial enquiries by email only.

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In the past some property managers have kicked out good tenants just so that they can clip the ticket by another round of letting fees, admin fees etc from a new tenant. Often landlords have been indifferent towards this practice as its not them paying for these.

But, with letting fees etc now on the landlord, they would scrutinise with greater diligence their property managers' conduct in terminating tenancies or in their overall treatment of tenants.

Kudos to Labour ( esp. Phil Twyford) for addressing a problem that has long bugged the rental market.Ignore the noises from National & their vested interests.

"Overall the Bill aims to ensure that the costs associated with letting a rental property are met by the landlord, rather than the tenant."
I personally do not like letting fees. Property managers charge a fixed percentage of rent to landlords (e.g. 7-8% of rent) and then the charge service fees for every little thing they do. They really charge too much for the little amount of work they do.
However and at end of the day, it is the underlying dynamic of effective demand for rental properties that determine if landlords or tenants have a stronger position when it comes to the transaction. If it is a landlord market, rents will increase and a landlord will be in a position to add the letting costs into the rent. Alternatively, if it is a renters market, the bargaining power of renters will drive the rents down so these costs will not matter as such.
The only real way government can change the market is by increasing its presence as a landlord. Not by banning this, or requiring that etc. at end of the day if there are less number of rentals than renters, people will rent anything that they can. Under such circumstances, banning these "anything goes" landlords further shrinks the rental stock, thus more fuel for the fire.

The RE/letting agencies will simply drop the upfront fee. It was akin to extortion and landlords certainly won't be paying it - the only reason tenants did was because of the power imbalance (as is the case with all forms of extortion)..

That will be very good Kate. The property managers already receive 1 months worth of rent from the landlord. They then charge for their inspections (like $30 or $40 per visit) and charge 5% (or something) on top of every repair bill (all to the landlord). On top of that they charge 1 week of rent to the tenant! good grief. This is a right move to stop property managers to rip off tenants.

Hi Kate,

I use this letting agency to find tenants and I do the ongoing property management myself - https://tenantsource.co.nz/.

You say that the “letting agencies will simply drop the upfront fee... and landlords certainly won’t be paying it”. Tenant Source Ltd are a friendly bunch, but I don’t think they are going to work for free.

There is a lot of misinformation being put about blsh for whatever reason

Yes, you'll need to pay that yourself.

The RE/letting agencies that will drop the fee are those that charge a percentage of the rent on an ongoing monthly basis to manage the property for the owner.

Think of it like recruitment/employment agents. They don't charge the prospective employee for introducing them to a client/employer - rather if a temp assignment, they take a weekly fee (from the employer), or if a permanent placement, they charge a fixed fee (to the employer). The agent does all the same type of reference/background checking, assistance documentation and setting up of appointments for interviews on behalf of the candidate/employee and all at no charge to the candidate/employee..

As I say, the letting fee charged to tenants from property agents/managers simply reflected a form of extortion given there are fewer rentals than people wanting to rent them - hence creating a power imbalance.

Would you agree that businesses on-charge their recruitment costs to the end consumer, in the same way that all other costs associated with producing their good/service are?

As an aside, I’ve only ever used a recruitment company once, when I was over in the UK. They charged the employer a nominal fee, but took their fees mainly from me as a portion of my hourly wage.

[The UK recruitment company] took their fees mainly from me as a portion of my hourly wage.

Were you a temp placement? I'm guessing that might well be illegal here - as that's very much what was happening in these sorts of cases of exploitation;

https://www.radionz.co.nz/news/national/316529/immigrant-says-he-paid-fo...

In answer to your first question - recruitment costs are charged to (or if recruiting directly are expensed by) the employer. And of course, the expenses associated with doing business are (hopefully) recovered in full via the goods/services charged or sold. The problem with the residential rental property business is that the upfront capital costs are often so high that the business itself simply hasn't got any profit in it. So, yes, I can understand your concern about even this very small expense that you will now incur.

If you find yourself hard pressed due to this law change - sell the business.

I wasn’t a temp placement, and yes it may well not be allowed here.

Yes, I certainly agree that recruitment costs (and all other costs of business) are recouped by being passed on to the consumer through the price of the good/service. You earlier said that recruitment fees charged to a business would be the same in principle as letting fees charged to the landlord. So you’ll agree then that the letting fee (just another cost associated with delivering the rental) will be passed on to the consumer (the tenant) by the business operator (the landlord) through the end price (rent)?

I’m not hard pressed by the law change. My point is simply that the cost will be passed on to tenants through higher rent, and that letting agents won’t work for free. Property managers also won’t just bear this cost for the sake of competition or charity. They charge the landlord every time they call a plumber or electrician in - they are no more likely to waive these fees for the sake of charity/competition than they are to waive the considerable cost of letting a property. Any that do would recoup this through higher rates/commissions charged to the landlord, which would ultimately be passed on to the tenant through marginally higher rent.

Rental demand is very price inelastic, so the likelihood of costs being passed onto the consumer is very high.

Can't agree more BLSH. One of my tenants recently requested for another 12-month extension and we have promptly increased the rents by $35/week due to the recently added ceiling and underfloor insulation for that property. It was done and dusted by our PM within the hour probably due to it's amazing location 5 mins walk to the beach ;-)

Mind you $35/week is not that much considering it's only equivalent to 2x flied lice meals at the Flying Horse Chinese Takeaway.

I really wish Chinese people had better dictionaries. 天馬 is a Pegasus in English. I've also seen it translated at takeaway shops as "Sky Horse".

Pegasus is the name of one particular divine winged stallion from Greek mythology. You allude to that by capitalizing the name in your comment.

Don't play dictionary warrior with me. It's used all the time to refer to flying horses in general.

天马行空,你满意了吧?

Didn't know what idiom, I thought they just loved flying horses.

Also write english here dude.

You were a temp in the UK? I always thought you were kind of a high roller, surprising to hear.

What industry are you in?

No, wasn’t a temp. I set up a Ltd company over there and I got a recruitment agency to find me work. It works out quite well as I could charge consultant fees and had to pay very little tax. I was the director and employed myself as the only employee. The director (me) payed me minimum wage, which is subject to a very low tax bracket. The remaining income was paid to the director (me) as a dividend, which is also subject to very little tax. Pretty common for people working over there to do this. No holiday or sick pay though and I had to pay for my own indemnity insurance. And no, I’m not a high roller, never sold a property.

Lets just get this out of the way early.

Rents will increase if Landlords costs increase, doesn't this tax loving government understand this.

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Show us the proof for this.
If anything, the nature of rental data suggests that landlords actually have very little market power.

The most likely result is that the arbitrary letting fee BS is dropped all together by competing property management firms.

Exactly.

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1. If rent is to increase to cover this 'cost' (assuming a genuine cost exists) then it's good for the tenant as it is spread over a long period rather than being an up front lump sum.

2. If it's spread over a long period, it's good for the tenant and landlord as it results in more stable long-term renting, as the property manager is no longer incentivised to turn good tenants over in order to collect another letting fee.

3. The Scottish example suggests there are certainly limits to how much this fee could be passed on, as it's still limited by the ability of the market to afford rents.

Research it carried out in 2013 found that just 2% of landlords increased rents specifically because of the fee ban.

The Scottish government said the ban had helped tenants, and pointed to figures published this month showing that two bedroom private rents in Scotland had increased by 1.0% in the 12 months to September - the smallest annual increase since the information started to be collected in 2010.

Source

The outstanding question is really: Has the letting fee been covering a genuine cost for services that isn't covered by the landlord's 7-8% property management fee, or has it just been an easy cash grab?

We are private landlords and therefore have never been able to charge this fee.

Personally think that letting agencies should be able to charge this fee.
It can be a very time consuming exercise getting new tenants in place.
Firstly there are so many tyre kickers and wasters, and sometimes you make an appointment and they just don’t turn up.
Secondly after vetting the applicants which can take quite a lot of effort, then there is all the paperwork that is needed to be completed, collecting the bond and first weeks rent, doing the initial property check etc.etc.
So the one weeks rent is not a helluva lot for the effort that property managers charge

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Property managers are already being paid for their property management services. One of those services is renting out the house. The landlord's payment is not just for the occasional drive-by once over.

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Indeed, the property managers should be able to charge this fee.. to the person that hired them, the landlord.

As a landlord I pay for lawnmowing, rates, maintenance, repairs and insurance. Do you think I eat this cost out of the kindness of my heart? No, all of this is reflected in the rent. Letting fees will simply be added to this list.

How many long term tenants do you have? What sort of tenure would you expect out of a tenancy?

If you see value in having an expensive outside firm manage your rental, then you are obligated to foot that cost, not the tenant. Also why on earth did you become a landlord? Do you like the headache of renting to meth heads? Strange investment idea.

With over 300 rentals under my control you can be 100% sure the costs of letting will be built into the rent at the earliest opportunity. There are large costs in letting a property such as multiple viewing appointments, checking back grounds, down time between one tenant and the next plus many more. These all cost in time and money.
My estimate would be around $10 per week every week per average tenancy by way of increase. Watch this space.

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What's wrong with your business practice that you haven't been factoring these costs into what you charge landlords for property management services already?

Seems like a basic flaw in your business model.

Regardless, it's better for renters to have that fee spread over the long term rather than the short term, and it also incentivises better behaviour from property managers in their not being encouraged to churn tenants unnecessarily.

And the Scottish example suggests you might not be as lucky with passing on supposed costs as you think: http://www.bbc.co.uk/newsbeat/article/38092539/letting-fees-ban-how-it-w...

The question is really to what extent these are extra costs that aren't covered by property management commissions, vs. an easy extra double-dip just because one can.

Interesting.

When we rented our place there was one viewing, no background checks done (none of our referees got called, so they either accepted the letters on face value). Old occupiers moved out one weekend, we moved in the following weekend. $10/week is way to much to just cover the letting fee. A couple of bucks rolled into the next $10/week rent rise seems more realistic.

The landlord or property manager should have spent more time doing credit checks. Their insurance policy would have a clause to require due diligence. Ten years ago there were no such clauses. Times have changed.

[ Abuse removed. Ed ]

Abuse was a bit strong a word! Just poking fun at a silly name. But warning received :P

nice link, Pumbaa & a naan piggy

[ completely unnecessary personal abuse removed. That type of comment is just not needed here. Ed ]

..300 rentals. So you want $156 k per anum because you can't hold your tenants for a reasonable length of time?

Says it all .....

Cap the fee at say $200.
Isn’t unusual to pay an application fee for loans etc to cover the administration cost. There is time that goes into getting a property rented out. Businesses always pass costs on to customers directly or indirectly or they eventually fail. Having the cost included in the rent is a stupid idea. If they put the rent up $5-10 week and I stay there for 8 yrs then that is far more that one weeks rent. If tenants are constantly moving properties for no good reason then the cost of vacancy etc increases too.

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How much do property buyers pay the real estate agent of the seller they purchase from?

@Rick Strauss ................. buyers pay all of it , its just sleight of hand to suggest Sellers pay the commission .

Basically part of the purchase price you pay is used to pay the agent.

Yes and part of the money I pay to the supermarket for food goes to advertising agencies. But I would never expect to pay an advertising fee on top of my grocery bill.

The buyer pays the sale price either way. It's the seller's decision about how much of that sale price he or she wishes to pay to other suppliers for services, rather than doing it him or herself.

Well, we have ourselves a working experiment here, whatever the outcome. If rents rise in line with landlord costs, that will show up. If it causes an increase in the ex-rentals flushed out onto the market because it's all become too hard for owners, that will show. If nothing much happens in average rents, rental availability, or houses on the market, that will show.

Have patience, let it run (in French, laissez-faire.)

I'm a private landlord, when letting properties, I mention that no letting fee applies because I'm such. Without exception, this has always raised the eyebrows of the potential tenants, as clearly some private landlords do. Best selling point ever! Scrap them, because they're of no value to the tenant, or keep them because I'll use it to my advantage - makes no difference to me, but makes a world of difference to impoverished or struggling tenants.

Its also a completely unjustifiable fee model that's used - 1 weeks rent. A fee should reflect the admin overheads involved, therefore it should be fixed (e.g. cost of a credit/background check, cost to process applications, hold a viewing etc) How is it justifiable that its more of an effort (cost) to let one house over another?

Actually looks like I'll be moving house right around that time. We'll see how much it affects rent. I already see a lot of places in Auckland advertising 'no letting fees' though.

Have seen a few in Auckland advertising one week's rent free, too.

I've always thought it was a little odd. A tenant and a landlord enter into a business agreement. However only one side of the transaction costs are recovered from the other party? Imagine if the Tenant sent the Property Manager a bill for the costs of hiring a trailer, petrol, and their time moving?

Reading the article and comments clearly there is a lot of support for demonising landlords and legislating against their interests. Consider the Landlords position - multiple tenant applications is time consuming but Landlord or agent is not able to be remunerated for time spent. Time to evict tenant for non payment or damage etc so long as to increase the losses already incurred and no insurance for damage unless provably to be deliberate. Renting is an income source just like employment so tipping the balance of power too far one way only results in the party so disadvantaged exiting the game so carry on Phil Twitford and be surprised at the unintended consequences that hopefully result in consigning your Govt to the wilderness for decades.

I would say say more slumlords exiting the game to make room for FOB is a win-win situation for NZ, sorry.

For FOB? First 'ome buyers?

Fresh Off Boat.

Apologies, my comment makes it look like I've had a stroke...

Oh poor me, running my ‘business’ is time consuming, and I only made half a mil in tax free capital gains recently. Wont someone think of the poor landlords...

..nah the pendulum needs to swing right back against landlords. They are ticket clippers providing nothing. Their existence due to wff and tax breaks. Time to go and get a real job guys...you've sucked our communities and neighborhoods dry for too long - ably assisted by the banksters of course.

Some people seem to think that a letting fee is just an arbitrary charge that is imposed for no good reason, and that doesn’t cover any actual cost. There is a cost, running into the hundreds of dollars, associated with advertising, hours spent doing open homes, responding to enquiries, doing the background check, sorting the tenancy agreement, lodging the bond, arranging handover etc. Letting agents and property managers won’t just do this for free. Anyone that thinks this cost isn’t real, or is going to be absorbed by landlords and not passed on to tenants is simply wrong.

Don't exaggerate. Feel free to provide some facts to support your claim.

Which claim? I made quite a few in there!

@Nzdan , So are you suggesting the letting agent works as a volunteer as they would do at the Hospice shop ?

Good luck with that idea

Do they not receive a commission as a portion of the weekly rent?

Of course it's real, and in the future will either come from a letting fee charged to the landlord or from increased property manager fees. Presumably either way, rents will be increased a little to compensate. The real benefit is less up-front, one-off costs when moving. Many tenants don't have a couple of grand sitting around idle to cover the costs of moving from housing that is no longer fit for purpose (either a poor quality property/landlord, or a no-longer convenient location). Reducing friction is a good thing.

Twyford clearly does not understand the law of agency in the services sector , agents always put 2 unrelated parties together whether they are selling Insurance , Airline tickets , or leasing real estate

So if I sign up with an Insurance agent why should some of my premium go to paying the agent , when the insurance agent is working for the Insurance Company ?

Or if I sign up with a Travel Agent why should some of my payment go towards their commission ?

Quite simply , there are 100 ways to get around this

Documentation fees
Registration fees
Credit check fees
Administration fees

And of course just add 5% to the rent

Off topic, but do we really need the 'Read more' accordion to hide extra long replies? It adds a layer of unnecessary clicks to the otherwise normal reading flow here.

With you on that one, less clicks the better & people can already direct their eyes much faster down or stop reading with less energy than moving in to click the read more. All it is for is to break the flow & for website owners who might want to collect obscure data about how often people click those things, (in essence not many as the energy cost of clicks inhibit engagement often). Similar experiences like security warnings, ToS etc researchers have shown that people in general prefer to take the path of the least energy cost. If you are hiding part of the comments by higher energy cost UI design it does far more censoring of comments rather than allowing equitable & informative discourse.

Funnily enough end of statement clipped "If you are hiding part of the comments by higher energy cost UI design it does far more censoring of comments rather than allowing equitable & informative discourse."

This article suggests that up to 3/4s of the profits of some small property management companies comes from the letting fees;

https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=121...

"What we believe will happen is a number of smaller companies will either disappear, go insolvent or sell to bigger companies - which to a degree isn't such a bad thing."

All costs associated with rentals are ultimately passed on to tenants in the form of rents. And just like with fuel tax, those who have least will feel it the most. That's Labour's hidden strategy. (Hidden, because they don't realise this.)