Banning letting fees is likely to save residential tenants $47 million a year

Property

Residential tenants moving house will no longer pay letting fees from December 12

1st Nov 18, 4:54pm by Greg Ninness

Landlords and letting agencies will no longer be able to charge tenants letting fees from December 12.

Parliament has passed an amendment to the Residential Tenancies Act banning the charging of letting fees to tenants.

Housing and Urban Development Minister Phil Twyford estimates tenants pay about $47 million a year in letting fees, a cost which landlords will likely now have to shoulder themselves.

Letting fees are typically around one week's rent, and are usually paid up front by tenants when they sign up for a property, along with a bond of up to four weeks rent and two week's rent in advance.

Along with moving expenses, that means tenants can face upfront costs of several thousand dollars to move into a rental property.

Those costs can be crippling for people on lower incomes, particularly if they have to move reasonably frequently.

"This will make a real difference to struggling families," Twyford said.

Although the change will increase landlord's costs, they will have a financial advantage not shared by most of their tenants.

The letting fee is likely to be a tax deductible expense, making the cost more bearable for them.

But that would be unlikely for most tenants, who would have to wear the full cost of the letting fee in most cases.

The change will take effect just in time for the peak new year letting season, with a tractional surge in the number of people moving homes after the Christmas break.

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108 Comments

by Nzdan | 1st Nov 18, 4:59pm 1541044766

I’m a little confused though. I’ve seen people claiming that it’ll just get lumped into the rent which makes sense, but if a Landlords goal is to make money why aren’t they already charging more in rent (by a similar magnitude as the letting few equates to)? Where’s the limit?

by Boatman | 1st Nov 18, 5:33pm 1541046790

@Nzdan , you may be correct in that there is only so much that the market will absorb in terms of rent ceilings , but I have already heard that agents will be charging all manner of fees :-

Upfront registration fee of $500 (like when you sign up for a gym membership )
Credit check $345 plus GST
Lease documentation fee $500 plus GST
Background checks $250 plus GDT
Key money $300
Breakages and damages deposit $700
Bond for non -payment of rent :- four weeks rent
General costs and disbursements $75 plus GST

Watch this space .............

by MisterB | 1st Nov 18, 5:39pm 1541047191

They would only be charging the landlord that, as extra bonds - whether key money, breakage deposit, pet deposit, etc - are all prohibited. The max is the 4 weeks bond.

https://www.tenancy.govt.nz/rent-bond-and-bills/bond/charging-a-bond/

by Nzdan | 1st Nov 18, 5:49pm 1541047779

But if you make it too hard for tenants then how will the Landlords pay the mortgage?!?

by Chairman Moa | 1st Nov 18, 6:29pm 1541050155

If you start charging the tenants for unreasonable fees. Don't under-estimate the tenants, they can easily payback the landlord for being a bit rough on water taps, use cheap loo papers etc.. it's called karma.

by NorthernLights | 2nd Nov 18, 5:35am 1541090128

With the downturn in RE sales it’ll be back to gouging the landlords & tenants for bread & butter
Personally I’ve managed property myself for over a decade & the rest with competent property managers
The secret is to always do your homework on the tenant before you sign any lease agreement
Sadly few private landlords do enough checking and are usually after the money as soon as they can get a willing tenant
Ditto tenants must check up on their prospective landlords by talking to neighbours / local court / internet
It really will save time money & heartache by all party’s carrying out due diligence 1st before signing a lease

by RickStrauss | 2nd Nov 18, 10:30am 1541107823

Letting fees by another name, eh. Will be interesting to see how that plays with the law.

by sadr001 | 2nd Nov 18, 12:48pm 1541116118

The market regulates the max that a landlord can charge (because other landlords offer their property for less), when you make it so that costs rise for all landlords then all landlords raise rents on new tenants because they have good reason to believe that all other landlords will do the same. This causes median rents for the area (based on new bond data) to rise which means that at rent reviews landlords who do not have new tenants will also charge more because they worry that if they let the rent on their property fall behind the market then in the event that the government caps rent increases they will be stuck permanantly below the market. (The Government pondering rental law changes encourages landlords to revise rent upwards prior to any potentially adverse new law comming into effect.). I am personally quite content with the rent I get now but concern about potential new regulation caused me to investigate the market rent for my existing properties, which led me to discover that one of them is currently priced 14% below market median for comparable dwellings in the area despite the property being of above median value. Fear of being trapped behind the market may yet drive me to put the rent up to median despite liking my current tenants. Unintended consequences...

by Nzdan | 2nd Nov 18, 12:44pm 1541115892

But not all Landlords use a Property Management company. I suppose this legislation does send a pricing signal though so regardless of whether a Landlord uses a management company or not, it's likely we could see an increase in rents.

At worst, my bet is that we see a one off upward spike in rents and that's it. When the changes die down and it's no longer part of living memory then we're back to market forces.

by THE MAN 2 | 1st Nov 18, 5:13pm 1541045602

Let’s just hammer the landlords Mr Twyford!
Just because you haven’t been successful financially.
Mr Twyford should not be able to dictate how a business operates.
Reality is that this coalition is self destructing.
Watch this space!!!!

by mfd | 1st Nov 18, 5:33pm 1541046788

Of course the government can define how a business can operate. It's one of the main reasons for having a government. Are you against all consumer protection rules, environmental regulations, fair advertising rules and anti-monopoly rules as well? Or is it only a problem when they are legislating against your business?

by MisterB | 1st Nov 18, 5:45pm 1541047522

Too many landlords do not view themselves as a business (they like to think of themselves as saviors), except when claiming tax benefits.

Every business faces regulations - car rental companies can't rent out unsafe cars, credit contracts have provisions for fee justification, tradies have health and safety laws, factories can't just dump their pollutants into a stream, supermarkets can't sell poisoned produce etc. These regulations for land lords seem a fair value exchange, given power imbalance at play on a fundamental human need of shelter. If they don't like the rules, don't enter that business

by sadr001 | 2nd Nov 18, 11:48am 1541112531

Plenty of very affordable rentals in the Hawke’s bay and they are short several thousand fruit pickers. The right to shelter should not be equated to a right to demand shelter wherever you feel like settling down.

by PropertyPrices2Fall | 1st Nov 18, 5:52pm 1541047926

Sorry mate, you're just not having a good day

by NorthernLights | 2nd Nov 18, 5:40am 1541090442

Who calls themselves THE MAN 2 anyway ? Ha!
Next thing you’ll be blaming the government for the coming downturn
There are various ways to achieve property rental success
Try converting your garage into accommodation
It’s an Auckland tradition

by saving4AUhouse | 2nd Nov 18, 8:24am 1541100254

Who calls themselves THE MAN 2 anyway

Someone really confident about their masculinity and who they are as a person, I'd wager.

by Grendel | 2nd Nov 18, 9:32am 1541104344

"Someone really ~~confident~~ defensive about their masculinity and who they are as a person, I'd wager."

I fixed it for you, you're welcome.

by Sluggy | 2nd Nov 18, 9:21am 1541103691

Interesting that you think Twyford is doing this because of jealousy/ some personal Vendetta against landlords because he doesnt own enough houses to be "financially successful"

Next time you see him, dont shake his hand, that will learn him.

by gordon | 2nd Nov 18, 10:18am 1541107097

National has already self destructed The Boy. Labour has eight years to go. Get used to it. I thought nothing could affect the housing market. Looks like governments can. Your financial knowledge is certainly very limited hence your putting all your eggs in the wrong market.

by Boatman | 1st Nov 18, 5:25pm 1541046326

They may not have to pay the letting fee , but it will be built into the rent .

You can be 100% sure of that .

by Pragmatist | 1st Nov 18, 5:57pm 1541048225

If they could charge more rent they already would be.. at most it adds $5/week to the next rent rise. But don't worry Boatman, its your taxes paying it via accommodation supplement in many cases. Just get ready for the govt to dig deeper into your pockets to fund the landleeches. :)

by refactornz | 1st Nov 18, 6:34pm 1541050459

Individual landlords are limited in how much they can increase rents due to competition with other landlords. But if the cost base increases for all/most landlords then there's a shift upwards in the market price.

by BuyLowSellHigh | 1st Nov 18, 6:59pm 1541051978

I think you’ve hit the nail on the head here.

If the price of flour went up, you’d expect the price of bread to go up as well. You wouldn’t expect the price of bread to stay the same “because bread producers already charge as much as they can for bread and would be charging more already if they could just increase the price.”

Rent is very price inelastic, so an increase in the cost of providing a rental is more likely to be passed on to the consumer than is the case for most other products/services.

by nymad | 1st Nov 18, 7:31pm 1541053887

If rents are very price inelastic, why is this not already exploited?

by BuyLowSellHigh | 1st Nov 18, 8:10pm 1541056204

Edit: I see you’ve edited your comment and deleted the part where you claimed there is a “huge excess supply of rental property“

It is already exploited to the maximum extent possible. Rent is expensive in most of NZ’s cities. Where is there a huge excess supply of rental property?

Govt funded stocktake of New Zealand housing earlier this year found ”The private rental housing market appears to be under considerable supply side pressure on account of high house construction costs, high house prices and low yields.”

https://property.trademe.co.nz/market-insights/rental-price-index/rents…

by nymad | 1st Nov 18, 8:16pm 1541056569

"It is already exploited to the maximum extent possible."
Okay. So that means rents can't increase?

"Where is there a huge excess supply of rental property?"
Auckland region has around 4k properties for rent currently on TradeMe. Seems like an excess of supply to me...

Don't use TradeMe property data. It's non transacted data.
Use MBIE data - that's actual bond data.

by BuyLowSellHigh | 1st Nov 18, 9:16pm 1541060177

Why did you edit your comment and delete your claim that there is a huge excess supply of rental property?

No, it doesn’t mean that rents can’t increase. There will be an increase in landlord’s costs more or less across the board, so there will be an increase in rent across the board. See earlier comment explaining this. Not that complicated.

Trade me data is sound, but MBIE data shows similar trends.

by nymad | 1st Nov 18, 8:29pm 1541057361

Because, as we can see, I thought it might confuse you.
Your comments generally exhibit a lack of comprehension of anything other than simple means or medians.

"No, it doesn’t mean that rents can’t increase."
So why did you say rents were as high as possible currently?

There are a few differences between MBIE and TradeMe indices.
Additionally, they are simple mean/median indices which are crap.

https://www.tenancy.govt.nz/rent-bond-and-bills/market-rent/difference-…

by J.C. | 1st Nov 18, 8:13pm 1541056389

Rent is very price inelastic, so an increase in the cost of providing a rental is more likely to be passed on to the consumer than is the case for most other products/services.

Wrong. If rents increase, that is consumption lost to other consumption (h'hold incomes are fixed). That means that consumer prices are forced downwards or else consumption is forgone (in the case of the latter, consumer prices are forced down). When prices are forced down, this impacts business revenue and incomes. Rents are not inelastic as there are price constraints. Your argument is based on renters being able to spend up to 100% of income on rent. It's bollocks.

by BuyLowSellHigh | 1st Nov 18, 8:35pm 1541057717

Sorry, but you are wrong. See NZIER’s study ‘New Zealand’s love affair with houses and cars‘

The price response characteristics of owner occupied and rental housing are also, not surprisingly, somewhat different. The demand for both housing types are price inelastic but the demand for rental housing is only half as elastic as it is for owner occupied housing (-0.5 compared to -0.9, approximately).

by nymad | 1st Nov 18, 7:26pm 1541053579

I'm still not convinced about whether this cost will be passed on.
IMO the most likely result is that is should put downwards pressure on rents due to the fact that the removal essentially removes a huge barrier to relocation for tenants - their switching costs are lower, meaning higher price sensitivity of tenants.

Given that the landlords are now incurring this fee, it's also likely that property managers will start competing on this cost - the effect being lower 'letting fee' costs and less cost to pass on.

So, net effect is lower effective rents due to reduced letting fees and higher demand elasticity.

by Laminar | 2nd Nov 18, 2:02pm 1541120520

Doubtful it will have any tangible impact on rents in either direction. The biggest impact will be agency profits falling as they lose ground to private listings. The direction of loss is from Agencies, to land lords to tenants. Tenants cant lose more than they do already so they are odds on winners, landlords should slightly lose and agencies should take the hardest hit.

by nymad | 2nd Nov 18, 11:49am 1541112570

So, the effective cost of renting decreases then?

by Laminar | 2nd Nov 18, 12:45pm 1541115913

Certainly ought to, just unlikely to reduce actual rent.

by Nzdan | 1st Nov 18, 7:50pm 1541055009

Who knows? Landlords may decide it’s not worth using property management companies anymore if they can’t have the costs directly passed on to the tenant, regardless of whether they can just jack the rent up.

It’s not a service all Landlords must have....given around 80% of Landlords only have 1 rental.

by Sluggy | 2nd Nov 18, 9:26am 1541103974

"around 80% of Landlords only have 1 rental"

Is that a real stat ? Thats a lot of accidental/mum and pop landlords - maybe, do you have any stats on the number of landlords ?

by Nzdan | 2nd Nov 18, 10:05am 1541106327

Yes. See below. The stats are 3 years old but it's the most recent stat I have found.

https://fyi.org.nz/request/2838/response/9085/attach/3/signed%20respons…

by Conrad | 2nd Nov 18, 10:54am 1541109296

Pretty much a perfect Pareto distribution. I wonder who the nearly 300 landlords are with 201+ properties each

by sadr001 | 2nd Nov 18, 12:08pm 1541113706

To name a few: Housing New Zealand, Ministry of Defence, Ministry of Foreign Affairs, The Goodman Trust, Precint Properties, Westfield New Zealand, Department of conservation, possibly many social housing providers, etc...

by NorthernLights | 2nd Nov 18, 5:45am 1541090752

Pragmatic so very true
I always knew half of my rental income was coming directly from taxpayers
The corollary to that was I was providing a roof over the head for young kiwis
Sadly Western governments have failed to encourage more births and so you see the need for immigrants to fill the gapping hole in the population demographics
Either import or stagnate & eventually die as a country
So hug an immigrant a day

by the Joneses | 2nd Nov 18, 11:44am 1541112279

"The corollary to that was I was providing a roof over the head for young kiwis"

Did you simply buy existing houses? If so how is being a financial middleman really providing anything at all for others?

"Either import or stagnate & eventually die as a country"

You know there are plenty of places where you can go to that are overpopulated, but you will find that people living there all want to come here... Or do you not care what NZ ends up like after you have gone? Do you not have kids?

Your comment opitimises everything I dislike about baby boomer landlords. Only caring about the money pile in their retirement fund, no regard for others or what future NZ looks like, or any care about what they actually contribute to society. Well done...

by NorthernLights | 2nd Nov 18, 5:47am 1541090844

good day kiwis

by RickStrauss | 2nd Nov 18, 11:16am 1541110598

Even assuming that's the case, that is a much better result for the renters financially in the short term (lower moving costs), and it disincentivises the nasty tendency of some property managers to churn tenants unnecessarily. It should encourage more stable long-term tenancies, better for both landlord and tenant. Win-win.

by Laminar | 2nd Nov 18, 11:39am 1541111961

Agencies do not seek to churn tenants, The steady 7-9% from clipping rent has way better margin than the fuss of chasing some letting fees.

by Pragmatist | 2nd Nov 18, 1:14pm 1541117659

Indeed, there is actual work involved in chasing letting fees, whereas just clipping the ticket on good tenants in good houses is much easier.

by Tui12 | 1st Nov 18, 5:55pm 1541048135

How on earth can something be “built into the rent”? Why would a landlord not build as many costs into the rent as they can already? The rent price is set by supply and demand that is Econ 101 at Uni very basic Sir. BTW well done to the Government for abolishing this abhorrent real estate agent price gouging long overdue.

by paashaas | 1st Nov 18, 7:15pm 1541052929

"Why would a landlord not build as many costs into the rent as they can already?" - they do of course.
Now they could add to it as the tenants are not paying letting fees - and have a bit more money in their pocket.
Econ 101 at Uni very indeed basic - shame it is beyond your abilities.

by Fritz | 1st Nov 18, 7:30pm 1541053843

Overly simplistic

by bw | 1st Nov 18, 7:47pm 1541054836

The friction cost of a tenant moving is now that much less? So what might have been a disincentive to move, no longer is? Tenants will now have more freedom to apply that 'extra' money in their pocket; a collective $47 million, against moving fees; a better-located accommodation; less travel time etc. What this does is puts more pressure on a landlord to keep their tenant. It's what happened in Australia years back when they abolished negative gearing - landlords lost a benefit and were desperate to keep rent, any rent, coming in to cover the unexpected cost.

by Fritz | 1st Nov 18, 7:53pm 1541055198

Exactly. Well put

by J.C. | 1st Nov 18, 8:16pm 1541056574

Well expressed, except the NG abolishing. Actually, it still exists. It's an upcoming election issue. But now the property market is potentially in freefall, who knows.

by paashaas | 1st Nov 18, 8:22pm 1541056926

The first part of you argument is circular ( assumes that the 47M is NOT added to the rents ; the tenants get to keep it and have more freedom to move as a consequence. ) ; the point is that it will likely be eaten up by rent increases .
The second part of the argument ( take money away from the landlords through tax changes or alike and the rent will drop ) is just absurd.

by Battinz | 2nd Nov 18, 7:09am 1541095776

You realise the difference between a one-off and recurring cost?

by bw | 2nd Nov 18, 9:20am 1541103605

Absurd? Rent DID drop in Sydney when Negative Gearing was removed. I know! I was a landlord there through that period and the last thing I wanted was an empty rental with no tax offset. So I did what others in my surroundings did - competed to keep my tenant. Yes, NG was eventually restored after the campaign raged by the RE industry against it ( landlord saw their rents fall?) but I'll ask you if you are a landlord:

"If tax changes threaten to leave your properties empty ( for whatever reason), what will you do? Put your asking rent price up, or drop it to get an income stream?"

Hoping that 'landlords will stick together' and force general rent rises is the absurd concept.

by Laminar | 2nd Nov 18, 11:40am 1541112041

I dont understand, how would tax changes leave rentals empty?

by rastus1 | 1st Nov 18, 9:00pm 1541059206

Well an aquantance has just been given notice. Once again, just prior to xmas and after getting her kids settled in another school. I only hope that the govt gets in and starts looking after these people....it's a disgrace that a landlord can do this. Detestable bunch of leaches ...epitomised by the attitude of the man.

by Nic Johnson | 2nd Nov 18, 3:48am 1541083735

The trouble with residential tenancy in New Zealand is that 50% of the time a tenant moves in only to find out 24 months later that the landlord was actually not in it for the long term but wanted to play 'pass the debt parcel' for a couple of years. Evidence is everywhere, any town or city where large parts of the sale market are of houses only purchased in the last 2 or 3 years. However, now that the music has stopped for many on the capital gains wagon, they will be left 'holding the debt parcel' and are likely to be landlords for a hell of a lot longer than was originally planned. More longer term landlords competing for tenants will make any chance of 'passing on costs' pretty much impossible in an already very inelastic market (Tenant Servicing already maxed out). This crash in the credit supply is going to be a doozy to watch, be interesting to see if it effects attendance at the meat raffle on Tuesdays... Will the landlords still want to buy their bottle of wine, or will they just turn up for a ticket for the chance of another free meal.

by Nic Johnson | 2nd Nov 18, 4:14am 1541085253

Anyone else getting the advert for 23 Couldrey Crescent come up next to this article... It says it all really, and first time I've seen a property advert here on interest with a big red price slash against it.

'Was $1,200,000, Now $1,138,187' - It's a bit early for the Black Friday Sales. Boxing Day Sales perhaps? Nah, Easter? Reckon that will still be far too early.

https://www.youtube.com/watch?v=7hx4gdlfamo

by Free Popcorn | 2nd Nov 18, 9:12am 1541103148

Nic Johnson - Yeah interest makes me laugh. Did you see the advert for buying Australian apartments ? Those Australians developers must be getting real desperate if they are trying to off load there crap to other countries. My question to interest is do you believe it is now a good time to buy an Australian apartment ???

by Conrad | 2nd Nov 18, 11:06am 1541109966

What's with the weirdly specific new price? Or is it a currency conversion from renminbi?

by Robt | 2nd Nov 18, 6:57am 1541095022

You show me any business that doesn't try to maximize pricing to maximise profit. Too high pricing and sales drop so try to strike a happy medium. landlords no different.Rent too high and tenancy days drop so strike a happy medium. Move past the rubbish that they are doing it as a service and accept that most landlords charge as much as they can profitably charge. And so they should. There's really not much room to move rents up. It could well be that property is simply too expensive in our low wage economy.?I think there could well be some negotiation with property management companies and landlords, watch that space. It's the property managers in many cases have been making the most profit of anyone.

by ChChHelp | 2nd Nov 18, 8:32am 1541100773

Landlords fall in two categories: a minority that manage the properties themselves and the majority that appoint the services of a property manager. The ban of a letting fees will have as effect that the large group of landlords, which still need to pay for the services of the property managers, will try to recover the cost by increasing in the medium term the weekly rent. As there is a shortage of rentals, and will continue for some years, practically the effect of the ban will not improve but worsen the tenants situation.

by Nzdan | 2nd Nov 18, 8:46am 1541101601

Do you have some sources for your minority/majority claim?

It doesn't seem logical, given that in 2015 79% of Landlords only had 1 rental property and 17% of Landlords had between 2 - 5 properties. You're suggesting that the majority of 100,000 landlords would prefer to sacrifice some margin on the 1 rental property that they do own than manage it themselves.

https://fyi.org.nz/request/2838/response/9085/attach/3/signed%20respons…

by Pragmatist | 2nd Nov 18, 9:22am 1541103748

FYI, the 3 landlords I know self manage the properties, tho two of them have employed letting agents to let the properties out. I would not be surprised that if it comes to paying ~$600 out of their own pockets or doing the letting themselves they decide to let the properties themselves. The other one is far too cheap to ever pay a property manager.. or a proper tradesman if he can avoid it.

by i am not a nimby | 2nd Nov 18, 8:45am 1541101528

$47M savings to tenants. who is fooling who?

by Jaf | 2nd Nov 18, 8:47am 1541101655

In the past many landlords could not give a damn for letting fees as they were not the ones paying.They also could not be bothered that their property manager was churning good tenants just so as to clip the ticket for another round of letting fees.

But, with letting fees now being fished out from the landlord's pocket, expect them to be more diligent in supervising their property manager's actions.

by theglc | 2nd Nov 18, 9:22am 1541103720

Good move! well done Labour/Greens/NZF

letting fees didnt exist 25 years ago, no need for them to exist now. All costs should be included in what the Landlord rents the place for, that in normal business practice. If that raises the rent to become noncompetitive with the house being rented down the road by someone who isnt using a property manager, then you need to change you business model or margin.

by Robt. | 2nd Nov 18, 9:32am 1541104372

Price is always determined by supply and demand. As long as there is excess demand against supply for rentals there will be room for rents to rise. As long as there is room for rents to rise, additional costs can be passed on.

by JimboJones | 2nd Nov 18, 3:34pm 1541126084

If there is room to raise rents then why not keep raising them until there is no more room? You don't need additional costs to raise rent...

by Ezy | 2nd Nov 18, 10:01am 1541106079

Today on Trademe:

12976 Auckland properties for sale
4174 Auckland properties for rent

Supply issues? I don't think so.

by Sluggy | 2nd Nov 18, 10:27am 1541107649

The next logical comment

Demand Issues --- Probably not
Price issues --- Coming right up
Debt Issues --- fer sure

by PropertyPrices2Fall | 2nd Nov 18, 2:46pm 1541123167

Ezy Pzy... NO...

by Laminar | 2nd Nov 18, 3:24pm 1541125442

Doesn't that mean that something like only 2% of rentals are available? That sounds very tight.

by nymad | 2nd Nov 18, 3:31pm 1541125860

Not when you consider the ~33k dwellings that aren't occupied.

by Retired-Poppy | 2nd Nov 18, 10:39am 1541108382

Try as they may to pass this cost on, Landlords will struggle to make this one fly. They're already charging what they can get away with now - its a Landlords instinct.

by BuyLowSellHigh | 2nd Nov 18, 11:39am 1541111940

Vogel's is changing as much they can get away with for bread at the moment. If the price of flour went up due to a shortage, would you expect this increase in the cost of production to be passed on to the consumer by them and the other bread producers? Or would you instead say that they are already charging as much as they can, so why would they be able to charge more after a flour shortage?

by nymad | 2nd Nov 18, 11:48am 1541112488

Great. Another overly simplistic perspective.

Sure, if all producers incurred the same exogenous cost increase you would expect the burden to be relative to the elasticity of demand.

Not all landlords are subject to this cost shift, however.
So, because rents are not perfectly elastic, they will either share the burden with their tenants (decreasing the effective cost of rents as renters now no longer face the full letting fee cost) or try to price their property higher than the competition (that has a lower cost structure).

by sadr001 | 2nd Nov 18, 12:23pm 1541114624

How about if the supply of electricity from renewable and currently active sources were to be insufficient to meet current electricity demand, would you expect the generators at Huntley to come online? If so would you expect the price of every unit of power sold (by all generators) whilst Huntley were online to be charged at a rate set by the cost of generation for the highest cost generator online at the time or would Huntley charge less because people can not afford to pay more due to power prices already being as high as they can be?

by nymad | 2nd Nov 18, 12:49pm 1541116162

This is an incredible simplification of the power market, but I'll try to explain it for you..

Unless there is some artificial distortion (Genesis a few years ago, for example) all zero marginal cost generation is bid at zero in the system - wind, geo. Even a lot of hydro. However this isn't truly zero marginal cost due to opportunity costs involved. You can look this up for yourself.

The market then estimates the nodal cost of energy based on the bids offered and the demand required at each GIP/GXP.
So, agents in a competitive environment such as this offer prices that are relative to their own marginal cost structure in order to maximise profit - Essentially those supplying at a lower cost want to supply at maximum capacity or up until some theoretical limit. Hence, they offer generation capacity at marginal cost as a basis of competition to achieve this.

by BuyLowSellHigh | 2nd Nov 18, 12:27pm 1541114864

Rent price demand isn’t perfectly inelastic, but it is very inelastic (PED = -0.9). This is well documented. Just because not all landlords charge a letting fee at the moment doesn’t mean that the cost now incurred by those that do won’t be passed on to tenants.

by nymad | 2nd Nov 18, 12:36pm 1541115411

Get your story straight.
The estimated price elasticity of rental accommodation was ~ 0.5, not 0.9. It's not well documented - it was one study you pointed to, done for all of New Zealand, with 2004 data.

In any case, my point still stands - the burden of the increased cost will be shared between the renter and landlord due to no perfect inelasticity. Thus, given the effective rental cost should decrease..

by BuyLowSellHigh | 2nd Nov 18, 12:55pm 1541116532

Haha! Now you are just demonstrating that you don't understand how price elasticity coefficients work. Just have a read of the report. Accommodation (especially rental accommodation) is very much a necessity, hence the low PED figure. I'm sorry, but your point most certainly does not stand.

by nymad | 2nd Nov 18, 1:35pm 1541118929

Okay. Fair. I did read them the wrong way around.
I thought of them in modulus terms.

But the point still stands - they are not perfectly inelastic, so an increase in costs must be shared.

EDIT: Wait, no it is you reading those around the wrong way - those estimates are the coefficients for the model - you don't read them as normal PEDs. It was you reading them incorrectly.
-0.5 was the coefficient for a change in demand, given a change in price for rentals. -0.9 was for houses, so I was right. 0 is the asymptotic bound so the higher the estimate, the more inelastic it is.

by BuyLowSellHigh | 2nd Nov 18, 1:19pm 1541117989

The cost will be shared, but not equally. The fact that price demand is very inelastic means that tenants will incur a large proportion of the additional cost while landlords incur a small proportion.

by nymad | 2nd Nov 18, 1:33pm 1541118806

So their effective rent decreases and their switching costs are also eliminated.
Sounds like the tenants are the winners.

by BuyLowSellHigh | 2nd Nov 18, 1:56pm 1541120176

What!? Why would their rent decrease? The letting fee will be passed on to them through higher rent.

by nymad | 2nd Nov 18, 2:02pm 1541120573

So do you not want to apologise for misreading the paper you quoted?

Well, BLSH...Let us simplify this for you. Because, well. You are BLSH.
One period case:
Before legislation: Total tenancy cost = weekly rent + 1*letting fee
After legislation: Total tenancy cost = weekly rent + tenant share * letting fee

Result: Effective cost of tenancy is lower due to cost of letting fee being shared relative to elasticity of demand.

by BuyLowSellHigh | 2nd Nov 18, 2:26pm 1541122006

Not sure what I misquoted. I think I quoted the report directly. I'll have another look, but regardless, which of the following points do you disagree with -

- Rental price demand is very inelastic (you previously said "If rents are very price inelastic, why is this not already exploited?", suggesting you don't believe rent is price inelastic)

- because of the price inelasticity, a very high portion of the additional cost will be passed on to tenants

- rents will increase (not "effective rent decreases" as you claim above)

- any reduction in burden on renters in terms of total amount paid will be very low

by nymad | 2nd Nov 18, 2:26pm 1541122016

"Rental price demand is very inelastic (you previously said "If rents are very price inelastic, why is this not already exploited?", suggesting you don't believe rent is price inelastic)"

Not at all.
I simply asked how is it that this dynamic isn't already exploited - do you have any evidence that recent rental reform has increased costs to tenants substantially?
Smoke alarms? Insulation?
They haven't appeared to have any effect on rental price volatility, despite being direct costs to landlords..

by BuyLowSellHigh | 2nd Nov 18, 2:51pm 1541123461

Dude, we both know you are backtracking, just like when you deleted your claim that there is a huge excess supply of rentals.

If you thought rent was inelastic you wouldn't of said "If rents are very price inelastic why is this not already exploited?". It is obvious you were implying that it isn't inelastic because if it was, it would've been exploited already.

by nymad | 2nd Nov 18, 2:52pm 1541123524

Literally how stupid do you look right now.

by BuyLowSellHigh | 2nd Nov 18, 3:00pm 1541124041

Having run out of feeble arguments, you resort to this. Have a good weekend.

by nymad | 2nd Nov 18, 3:06pm 1541124413

Given you can't seem to answer any questions, it's you who looks pretty feeble.

by PropertyPrices2Fall | 2nd Nov 18, 3:10pm 1541124618

Have a good weekend BHSL... take care of your renters...

by BuyLowSellHigh | 2nd Nov 18, 3:20pm 1541125229

Cheers, will do.

by gingerninja | 2nd Nov 18, 3:28pm 1541125696

You guys are outdoing Gordon and TM2 for bromance.

by Robt | 2nd Nov 18, 3:44pm 1541126657

as the successful politician said, "Bull&^$t baffles brains"

by PropertyPrices2Fall | 2nd Nov 18, 3:55pm 1541127316

hahaha.. sorry, just couldn't help laugh out loud...

by Nzdan | 2nd Nov 18, 4:23pm 1541129028

Let's see if we can get the replies down to 1 character per line!

by PropertyPrices2Fall | 2nd Nov 18, 4:26pm 1541129188

with me replying to you and you reply back, we'll get there!!!

by Nzdan | 2nd Nov 18, 5:04pm 1541131462

What’s everyone’s plans for the weekend?

I’m going to be digging down behind the house at end of our driveway so we can compact, base course and shingle an area for extra parking space. Not sure what we’re going to park there yet though.

by Pragmatist | 2nd Nov 18, 5:11pm 1541131884

Slept in this morning, washed the car, about to vacuum the car, then play at picking stocks later.

by Nzdan | 2nd Nov 18, 10:59pm 1541152787

Sounds mint.

by Retired-Poppy | 2nd Nov 18, 12:30pm 1541115059

BLSH, are Vogel's the only bread maker? As you're first time Landlord, are you already losing sight of your competition? I gather you are a negative geared Landlord then?

by BuyLowSellHigh | 2nd Nov 18, 2:33pm 1541122422

Vogel's aren't the only bread maker, but an increase in the cost of flour would affect competing bread makers. I'm not a first time landlord. Positively geared.

by PropertyPrices2Fall | 2nd Nov 18, 2:53pm 1541123603

Simple solution to all this bickering!!!..

If housing was AFFORDABLE, then landlords wouldn't have the issue of taking on this extra cost..

So.. lets all join hands and help house prices to come down... (phew problem solved).. hahaha

by Property Leader | 2nd Nov 18, 8:38pm 1541144290

So Phil knows that $47 million is spent on letting fees. That equates to around 117500 payments if the average rent is $400 per week. The average rental lasts two years so letting fees are being paid on 235000 tenancies. Taking into account the fact that a number of independent property managers do not charge letting fees we are looking at perhaps 300000 out of 450,000 rentals in NZ are managed. So go figure Phil what you have just done to the market.

by b21 | 3rd Nov 18, 1:41pm 1541205676

This cannot be anything but good news: letting fees are just a way of charging someone for a service that didn't request. And as the article says, the fact that they are usually around a weeks rent is because the law sets that limit, otherwise they'd try to squeeze even more from the part of the deal that is the most unprotected. For most landlords this should not make any difference as they would be happy not having to change tenants often so wouldn't need to charge this anyway.