Warning letting fee ban may backfire

Thursday, 1 November 2018

Housing Minister Phil Twyford announced a new bill to ban letting fees in March.

Renters' representatives say a letting fee ban will stop an 'an inherently unfair' charge being levied on tenants at a time when they could least afford it.

The bill banning letting fees on rental properties has passed its third reading and will become law.

Housing and Urban Development Minister Phil Twyford estimated the change could prevent the handover of up to $47 million in a payments he said were 'unfair' and had 'no economic rationale'.

It is common for tenants to be charged a week's rent plus GST as a letting fee, plus four weeks' rent as bond. Only property managers or landlords' solicitors are allowed to charge the fees at present. Property managers also charge landlords an ongoing percentage of the rent collected.

* Renters 'like letting fees', property investor group says**

Tenancy rights advocate Robert Whitaker, of Renters United, was pleased with the ban.

Robert Whitaker says letting fees charged tenants for a service given to landlords.

'Letting fees were inherently unfair, charging renters for a service rendered to landlords. They represented an additional cost at a time when renters could least afford it and the fact that they were almost always charged at the maximum allowable amount shows they had no connection to the actual costs of the 'service' offered,' he said.

But property managers said tenants would be in for a rent increase.

'We have already instituted rental reviews and it is highly likely they will be in excess of what the letting fee annualised would have been. This unfortunately impacts on longer-term renters but not much we can do about this,' said Kevin Edmunds, of Quinovic, in Thorndon, Wellington.

'Twyford is adamant that it won't lead to rent increases. Well he is just plain wrong. I am really not sure what planet he lives on.'

Bindi Norwell, chief executive of the Real Estate Institute (REINZ), agreed.

'Whilst banning landlords from charging tenants letting fees might help them in the short term, in the long run it's likely that these costs may be passed on to tenants via an increase in weekly rent. REINZ, alongside other similar industry bodies, outlined this point in our submission to the Select Committee.

'Additionally, our concern is that it may make tenants with shorter-term tenancy requirements, such as students or seasonal workers, less attractive to landlords making it harder for them to obtain rental accommodation.

'Given the current raft of legislation being directed at landlords, this may contribute to landlords' decision making to exit the rental market further reducing the available pool of rental properties and driving up prices. This has been highlighted by a number of property managers across the country now and we continue to call for a balanced approach to avoid harming the rental market in the long term.'

She said it would be better to regulate the property management industry than focus on individual issues such as leting fees.

Whitaker did not accept the argument that rents would rise.

'Rents aren't determined by costs, they are determined by what people are willing or able to pay, however much hardship that places them in. Where there is a supply problem like in Wellington we expect to see increases again next summer, but it's unlikely those increases will be any greater due to the law change.

'This ban only effects rentals let by property managers, which is a sizeable proportion in major centres but is still not the whole market and the rental market operates across all properties. Even if rents do rise due to this at least the cost will be spread across the tenancy, rather than as an upfront cost. Additionally, we think that getting rid of letting fees will bring a little more security to the market as managers will no longer have a financial incentive to churn tenancies annually.'