Tenure security is bigger than longer leases

It is slowly dawning on most people that renting is the future for everyone but the Baby Boomers. As coined by Shamubeel and Selina Eaqub, this is Generation Rent. The limp response is not to think about inter-generational equity or ways of radically shifting our housing policy but one of simply talking about mild reforms of tenancy law.

The problem according to groups like the Auckland Property Investors Association (APIA) is not the rising inequality of wealth between property owners and tenants, or the inequitable tax policies and unsustainable financial markets which support this inequality, but just that tenants have insecure tenure. APIA’s answer is that tenants should be offered longer leases in exchange for taking on more of the bills – like rates and insurance. This of course is common practice in commercial leasing.

In response, and to his credit, Housing Minister Nick Smith is wary of such self-serving ideas from landlords. He has pointed out that longer term leases - known as fixed-term tenancies - are already possible under the Residential Tenancies Act 1986. The reality is that landlords seldom offer such options except where demand is likely to be seasonal – as with student accommodation, and so they look to tie tenants into leases over the slack period.

Dr Smith has also expressed his hesitation at allowing landlords to shift costs suggesting that such practices in the current tight rental housing market will soon become the norm. He has, however, indicated that he is open to setting up a working party involving tenants, investors and social organisations to look at changes in our tenancy laws.

Our tenancy laws are well overdue for an overhaul but responding to the crocodile tears of landlord groups pleading the case for longer leases apparently for the sake of tenants is hardly the way forward. The need for reform is based on two underlying problems.

The first and perhaps the most compelling problem is the imbalance of power between landlords and tenants. This is especially so in tight housing markets such as those in many parts of the North Island. This is not a willing buyer/willing seller scenario of the proverbial competitive market. Often it is the ‘beggar and the king’ version where perhaps appropriately named landlords have significant market power over tenants and especially poor tenants. This market power is reinforced by tenancy laws which provide tenants with little protection from random eviction and threaten weak sanctions against landlords where they act unlawfully and ignore the law. For example fines for an unlawful act vary from a pathetic $200 where a landlord fails to keep adequate records to $4000 for unlawful discrimination. Of course proving things like discrimination is very difficult and getting any sort of just process through the Tenancy Tribunal is difficult because of rules around representation.

The second problem is that some tenants are ratbags – they sometimes trash flats and houses and leave quickly owing rent. The media abounds with stories of ripped off landlords and filthy, dodgy tenants and there is even a whole TV programme – ‘Renters’ which is dedicated to extending the myth of always reasonable landlords and their agents being done over by tenants. Stories of dodgy and unscrupulous landlords are rarer especially if you discount the recent excellent work by TV3’s Lisa Owen in exposing slum landlord Debbie Iskandar renting garages out to families in South Auckland.

The fact is that there are bad tenants and bad landlords and as often happens in life they find it easy finding each other. Current tenancy law and tenancy management practices seem aimed at facilitating such unions and we end up expecting or at least anticipating poor behaviours from both landlords and tenants.

Instead we should have tenancy laws which expect better behaviours and better standards. Ideally we should ban open ended or so-called periodic tenancies which provide landlords with an easy ability to evict tenants. Tenancies should have a minimum period of at least one year and offer tenants’ rights of renewal perhaps at updated rents which are pegged against general inflation or wage increases - as opposed to market increases. Sanctions and penalties especially, against landlords acting unlawfully, should be much higher in order to act as a real deterrent from poor behaviours.

While renting and small scale landlordism might become the most dominant form of tenure over the next few decades, there isn’t a vast array of reasons to leave our 30-year tenancy laws as they are. Tenants need a place to call home and the purpose of investing in residential property should become that of providing a good quality services and not of making quick untaxed capital gains.