What do the latest tenancy law changes really mean?

Sunday, 14 April 2024

EXPLAINER: “No cause” tenancy terminations are set to return next year as part of a suite of tenancy law changes announced by the Government last week.

Concerns around the vulnerabilities of renters led the previous Labour-led government to carry out the biggest overhaul of tenancy law since the 1980s.

The most controversial of the reforms was the removal of landlords’ right to end a periodic tenancy agreement without a reason, with a 90 day notice.

It led to a huge backlash from landlords and property managers, many of whom thought it made it too hard to get rid of difficult tenants, and it became an issue both National and ACT campaigned on in last year’s election.

On Thursday, Housing Minister Chris Bishop said the Government would introduce a bill into Parliament next month that would make changes to the Residential Tenancies Act to “encourage landlords back to the market”.

But the legislation will reverse many of Labour’s reforms, and not everyone is happy about that, with opponents saying it will hurt tenants.

So what are the changes being made?

The headline change is the reintroduction of 90-day “no cause” terminations for periodic tenancies.

Under the current law, landlords have to give a reason, which meets specified criteria, to end a tenancy. When the new rules come into effect early next year, they will no longer need to.

Landlords will now only have to give 42 days’ notice when they want to move into a property themselves, or have a family member move in, or when the property is being sold.

They will also once again be able to end a fixed-term tenancy at the end of the term without a reason.

Currently, fixed term tenancies entered into from February 2021 automatically rollover to become periodic tenancies at the end of the fixed term.

And tenants will be able to end a periodic tenancy with 21 days’ notice, rather than the 28 days required now.

And why is the Government making these changes?

The changes are part of the National-Act coalition agreement, but Bishop says the previous Government “waged a war on landlords” which caused many to exit the rental market altogether.

“It caused worse outcomes for tenants: rents up by $170 per week since 2017, the social housing waitlist increasing by about 20,000 families, and thousands of families living in emergency housing motels.

“We’ve heard from many landlords that, without the backstop of 90-day ‘no cause’ terminations, they were unwilling to take a chance on a tenant who may, for example, not have perfect references or a steady 9 to 5 job.”

He says the changes are sensible, and pro-tenant, and will make it easier for mum and dad landlords to be part of the rental market.

That will lead to an increased supply of rental properties and apply downward pressure to rents, he says.

“These changes are part of the Government’s plan to create a well-functioning rental property market, which itself is part of the wider plan to solve New Zealand’s housing crisis.”

What do opposition politicians think?

Labour’s housing spokesperson, Kieran McAnulty, says the changes will not create a well-functioning rental property market, but they will make housing less secure for many people.

They will not help tenants as the Government claims, rather they just make it easier for a landlord to evict a tenant, or take a home off the rental market, he says.

“What we need is more houses. All we’ve seen from this Government is shifting the incentive back onto competition on existing stock which will see fewer houses built and house prices climb. This will lock people into renting, which is about to become less secure.”

Green Party Housing spokesperson Tamatha Paul says the playing field is uneven and the changes will further tip the balance in favour of landlords.

Tenants will constantly be on edge about whether they are secure in their home, and without the right to renew their lease at the end of a fixed-term many will be moving houses every year, she says.

“If we want renting to be seen as a long-term, viable option in Aotearoa, as it is in many countries with greater housing security, then we must make sure that renters can see their house as a home.”

But landlords must be pretty happy about it?

Auckland Property Investors Association general manager Sarina Gibbon says reinstating 90-day “no-fault” terminations to the landlord's toolkit was common sense, and a positive development.

While the removal of “no-fault” terminations was intended to give tenants more security, it had actually created a barrier for some people to get a rental in the first place, she says.

That was because landlords were less willing to rent on “riskier” tenants, such as people with pets and children or less than perfect credit histories.

“Restoring no-fault terminations will give landlords the safety net and insurance policy that they need to return their properties to the rental pool.

“This influx of available rentals could provide tenants with much-needed choice and potentially alleviate rental inflation pressures.”

The proposal to restore the old fixed-term tenancy rollover rule will also help as it will give landlords equal control to tenants and foster a more balanced rental relationship, she says.

Veteran landlord Andrew Bruce struggled to end the tenancy of a particularly anti-social and abusive tenant under the current law.

He followed the process to the letter and had five documented examples of the tenant’s behaviour, which was impacting on neighbours, when he went to the Tenancy Tribunal.

But the adjudicator found in the tenant’s favour, and Bruce had to go back to the Tribunal and through mediation before the tenancy was ended.

The experience left him disillusioned about the system, and very picky about who he rents to now, he says.

“So, obviously, I agree with the changes, but I do believe that for tenants who are more vulnerable, the changes are actually better for them.

“That’s because landlords are more likely to give more people a chance if they have a way to get out of a situation, like I had with a bad tenant.”

So what do tenants think?

Renters United spokesperson Luke Somervell says the changes could not come at a worse time for tenants as most were already struggling with the pressures of the rental market.

The situation is about as dire as it can get, as there is a shortage of rentals and rents continue to rise, he says.

“Tenants just want a safe and secure home where the rules are enforced fairly, and that is not unreasonable.

“But there is already a fundamental power imbalance between them and landlords, and these changes will just leave them with less security and fairness, and more anxiety and fear.”

These changes help out landlords but they will not improve tenants’ lives, and the Government should not pretend that they will, he says.

“Instead of this policy, we would like to see the establishment of an independent body to negotiate issues between landlords and tenants when they come up.”

Somervell has an unlikely ally in Property Brokers property management general manager David Faulkner, who is concerned about the repercussions of the return of 90 day “no cause” terminations for tenants.

He says the policy, while advantageous for landlords, will significantly compromise the security and well-being of tenants, particularly families and children.

“Being uprooted from their homes at short notice can have devastating effects, disrupting education, employment, and overall quality of life.'

The housing crisis and the economic climate mean vulnerable households are already under immense strain, and the policy will only worsen the challenges they face, he says.

“It could cause an atmosphere of fear and uncertainty among tenants, and deter them from asserting their rights or reporting issues with their accommodation.

“In turn, this could perpetuate substandard living conditions and inhibit constructive landlord-tenant relationships.”

Faulkner, who admits he is “overwhelmingly in the minority within our industry”, says the Tribunal needs to be more efficient and responsive, and there should be a streamlined eviction process for landlords dealing with problematic tenancies.

And will the changes really impact on rental supply?

CoreLogic chief property economist Kelvin Davidson says the changes will tip the balance in favour of landlords, and that may encourage more landlords to come on to the market.

That could lead to a few more rental properties being available than might otherwise be the case, he says.

“Anecdotally, I’ve heard that fears about not being able to remove a “bad tenant” have been a bigger concern for investors than other policies, but the changes are unlikely to be a game-changer in isolation.

“But when you look at a range of things, such as rents rising, LVRs set to loosen mid-year, interest deductibility coming back, brightline shortened, and now these changes, you start to get a combined influence that might be more meaningful.”

All these things are helpful for landlords, but the biggest hurdle for mums and dads investors right now is the large negative gap between rental yields, which are low, and mortgage rates, which are high, he says.

“Even with changes to tenancy laws, if you have to top up a new rental purchase by hundreds of dollars a week, the sums are still a bit tricky for a typical new investor.”

For that reason, Davidson doubts there will be a rush of investors on to the market this year.

But next year when other things, such as interest rates, start to fall in place, and the conditions improve, the numbers could pick up, and rental supply could start to increase more, he says.

What do you think? Email sundayletters@stuff.co.nz