Fixing the rental market

Alison rented her Christchurch flat for a year until she couldn’t stand the cold and damp any longer. There was mould growing on the ceilings and the flat was freezing, especially at night.

“I would often wake up at 2 or 3am because it was so cold,” she says. Her bed was piled with puffer jackets and sleeping bags in an effort to keep warm. The flat had a heat pump, but it didn’t work and it took several months for the property manager to get it fixed. Requests for other maintenance were often ignored.

Like Alison, more consumers are now stuck in the rental market as escalating prices make home ownership a dream. It’s no secret the quality of rental properties can leave a lot to be desired. But our survey found there’s a much higher chance you’ll get a bad deal if you rent through a property management company.

Key problems

The experience of tenants in today’s rental market varies hugely. A lucky 4 out of 10 renters in our survey reported living in quality digs that were warm and cosy. A similar number thought they were getting great value from their landlord.

On the other side of the street, it was a different story. Twenty-nine percent said their rental didn’t have good heating or insulation. Nearly as many (28%) reported doors or windows that didn’t close properly. A quarter said the property had mould that was difficult to remove or reappeared.

About 1 in 4 also reported their landlord had turned up unannounced, a breach of tenancy legislation. Close to 1 in 10 said they’d been charged unexpected fees during the tenancy and 6% hadn’t been given required notice of a rent increase.

Problems were significantly more likely to be reported by consumers who dealt with a property manager rather than a private landlord. Property management companies have been growing rapidly. Estimates suggest about 40% of rentals are in their hands.

We’ve previously reported on problems in this industry, which has attracted complaints from both renters and landlords for sub-par service and failing to get to grips with the basics of tenancy law. But it’s so far escaped regulation. Anyone can set up shop as a property manager, no qualifications required.

Our survey found tenants who rented through a property manager were much more likely to report their home lacked adequate heating and had mould that was hard to remove.

Tenants also reported property managers were more likely to delay getting repairs done. Forty-two percent said they’d made requests for repairs but were kept waiting for a response.

Just 35% rated their property manager’s service highly. In comparison, 54% of those with a private landlord were happy with the service.

Fear of repercussions

Tenants dealing with a property manager were also more likely to worry about the repercussions of making a complaint, fearing they’d be evicted or their rent would increase.

Across all renters, a significant proportion (35%) said they’d held off complaining about problems either because they thought their request would be rejected or they worried there would be comeback. Of those, 39% thought they’d get a bad reference while 37% worried their rent would increase.

Almost a third said they’d put off making a complaint because they thought they’d be given notice. One in 5 worried their lease wouldn’t be renewed.

Tenancy rules make it easy for this to happen. Periodic tenancies can be terminated by the landlord without reason with 3 months’ notice. Fixed-term agreements, which are favoured by property managers, expire at the end of the term with no automatic right to renew.

There’s often little room to negotiate the length of a tenancy: if you want the property, you have to take it on the terms offered or try your luck elsewhere. More than half of those who rented through a property management company had a fixed-term agreement of 12 months or less. Only 1% had leases longer than 2 years.

One in 5 renters were unsure where to go for help if they were being treated unfairly by their landlord. Among those who dealt with a property manager, only a third were confident they could easily find help if they struck problems with the company.

Fixing the market

Without changes to tenancy law, the problems identified in our survey are likely to grow as more consumers are locked out of home ownership.

The government has announced plans to set minimum standards for rentals. Regulations setting requirements for heating and moisture control are expected from July 2019.

Housing minister Phil Twyford has also announced a review of the Residential Tenancies Act, which has been largely untouched since 1986.

Based on our investigation, we’ve identified 4 changes that must be included in any law reform to ensure adequate protection for renters.

1. Regulate property managers.

Our survey provides further evidence that voluntary self-regulation of property managers isn’t working. Plans to include the industry in rules covering real estate agents were shelved by the last government. It’s time to dust off these proposals.

Regulation of this industry will also benefit landlords who put their rentals in the hands of property managers.

2. Improve security of tenure.

Renters’ fear of losing their home is one of the reasons why many don’t complain about problems. To protect tenants, legislation needs to limit the circumstances in which landlords can end tenancies without cause.

3. Blacklist unfair terms and fees.

Nearly 1 in 10 renters report being charged extra fees by their landlord or property manager. We’ve found these fees are often not disclosed upfront and are charged unfairly. We want tenancy legislation to include a blacklist of unfair terms and fees to make the rules clear.

4. Create an advocacy service for tenants.

In the landlord-tenant relationship, tenants are in a weaker bargaining position. We recommend establishing an advocacy service to help renters enforce their rights. Advocates would support tenants to get problems fixed and make sure landlords don’t ignore their obligations.

Knowing there was someone to support them would help give renters the confidence to speak out about problems.

Key facts

• 32% of households rent, up from 23% in 1991.
  
• Last year, rent increased by 2.3% and was a major contributor to the annual increase in the Consumer Price Index.
  
• Compared with homeowners, renters are more likely to be putting up with cold, damp housing. Just under half of renters report their home has problems with dampness or mould, compared with about a quarter of homeowners.
  
• 37% of tenants in our survey rented through a property management company or real estate agency, 59% rented through a private landlord.
  
• 38% had been renting for 10 years or more, 18% had been tenants for 6 to 10 years.
  
• 33% had a rent increase in the past year, 17% had seen their rent increased 2 or more times.
  
• 45% had periodic tenancy agreements, 41% had fixed-term agreements.
  
• 54% of tenants who rented through a property manager were on short-term leases of 12 months or less.