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16-07-2015

Warrant of fitness rejected

The New Zealand Property Investors’ Federation (NZPIF) is very pleased that Government has rejected the campaign to introduce a Warrant of Fitness (WOF) for all rental properties.

The following article outlines the background to the proposed WOF and why Government has rightly rejected it. The article also describes the regulations planned to take its place.

History of the WOF

The latest call for a WOF began in 2012, with a recommendation that it should be introduced in the Children’s Commissioner’s Advisory Group report on Solutions to Child Poverty.  This recommendation received national coverage and was included in reports from the Health and Maori Affairs select committees.

In January 2013, Nick Smith was appointed Minister of Housing, replacing Phil Heatley. Minister Smith announced in May that year, that the Government is to develop a Housing Warrant of Fitness system and trial it on Housing New Zealand properties. “This year, the Government is going to develop a Warrant of Fitness with the support of a Rental Housing Standards Forum" said Smith. “The Government needs to first get its own house in order. That is why the Housing Warrant of Fitness will firstly apply to the 69,000 Housing New Zealand properties.” Read more  

A forum involving Branz, Otago University, NZ Green Building Council, Beacon Pathway, local councils, Community Housing Aotearoa, community trusts, potential third-party funders, tenant advocates, and the NZPIF was established to help develop the Housing Warrant of Fitness.

It is fair to say that the NZPIF was a lone voice in the forum, being the only organisation against it. Having said that, the discussions were free and fair and many of the potential problems with a WOF were openly discussed.

At the same time, five local authorities field-tested a rental Warrant of Fitness developed by the Otago University Wellington Healthy Housing Programme (OU). The Mayors of these councils backed up the Children's Commissioner and wrote to the Minister of Housing in support of central government introducing a WOF.

 In 2014 Housing New Zealand Corporation (HNZC) trialled a broad package of Warrant of Fitness standards on a sample of 400 properties. The package was based on factors in residential properties which affect tenants’ health and safety, and was intended to inform Government decisions on rental standards. As such, the trial package included elements such as minimum height for balustrades, security stays on some windows to allow secure ventilation, and requiring more than one power point in living spaces.

In addition to participating in the WOF Forum, the NZPIF met with many organisations, including the Children's Commissioner, Otago Medical School professors Philippa Howden Chapman and Michael Baber plus Government departments.

The NZPIF's view was that a WOF:

  • was too expensive to administer,

  • would become more difficult to comply with over time as new regulations were added to it, resulting in higher rental prices and a reduction in rental property supply.

  • did not fully address the problems that some tenants were facing

  • introduced costs to the vast majority of tenants who didn't need it

    To address the Children's Commissioner’s concerns on the health of some tenants’ children, the NZPIF advocates the following solution. It is to focus on those in need, rather than on all tenants, and to deal with the specific issues that these children face.

    The NZPIF also believed that insulating a rental property provided a higher rental return and also encouraged tenants to stay for longer.

    As studies showed that Government saved $5 in health costs for every $1 spent on heating and insulation, the NZPIF also believed that subsidising insulation and heating was a good investment of tax payers’ money.  

    Rationale for not implementing a broad ‘Warrant of Fitness’

    In rejecting the rental property WOF, Nick Smith has said that "Government needs to focus on maximising the benefits of rental standards relative to compliance costs, and on avoiding the need to take rental properties out of the market unnecessarily. Reducing rental supply by requiring landlords to comply with impractical requirements would increase rents and create further hardship for low-income tenants. Taking into account the trial results and the results of cost benefit analysis, I do not believe there is a compelling rationale for requiring all residential rental properties to comply with a broad Warrant of Fitness." Read more   

    Government calculated that the compliance costs for a comprehensive ‘Warrant of Fitness’ regime similar to that for motor vehicles (with annual inspections) were estimated to be between $65 million and $135 million per year.  This was based on a range of $150-$300 per inspection, depending on the extent of WOF requirements and expertise needed. The NZPIF believes that the actual cost of the inspection would be considerably higher than this.

     “This package is a more pragmatic and efficient way of improving housing standards than a housing warrant of fitness scheme. Such a scheme would cost $100 million per year, or $225 per house for inspections alone, and these costs would be passed on to tenants in rents. This is money we believe is better spent on real improvements like insulation and smoke alarms”, said the Minister. Read more.

    Minimum standard regulations

    The RTA currently specifies that rental properties must be ‘provided and maintained in a reasonable state of repair’. Detailed minimum standards for all residential dwellings are prescribed in the Housing Improvement Regulations, which are fundamentally sound, but do not include insulation or smoke alarms, both of which are now standard for new properties.

    The briefing paper to parliament states that "Lack of insulation in rental housing contributes to poor health outcomes, particularly for children in low-income families, with long-term economic and social impacts. The BRANZ 2010 House Condition Survey, found that 43 per cent of rental properties had moderate to high levels of mould, compared with 25 per cent of owner occupied properties" says Smith. "The new requirements which I propose focus on insulation and smoke alarms, which are not covered by existing regulations (the Housing Improvement Regulations), and where there are clear benefits for tenants, landlords and taxpayers". Read more

    The NZPIF believes that as the benefits of insulation include reduction in health costs, then Government should accept some of the cost in providing the insulation. This could be in the form of grants that provide a genuine cost saving on the regular cost of insulation, regardless of whether an approved installer is used or not.

    Government state that there are still many rental properties that are not insulated. This is despite an increase in landlords taking up the current "Warm Up New Zealand: Healthy Homes programme" which targets low income households. The NZPIF believes that many rental have been insulated, but not as part of the previous scheme, which was deemed by many to be too expensive, even with a $1,300 Government grant.

    Government believes that a proportion of private sector landlords continue to be reluctant to insulate. Reasons include

  • a perception that the benefits of insulation accrue mainly to tenants,
  • a perception that retrofitting insulation is costly and/or disruptive,
  • high rental demand in some areas reduce landlords’ incentive to improve properties to attract tenants.

Based on limited information, officials estimate that approximately 270,000 private residential rental properties are inadequately insulated (including approximately 150,000 rental properties occupied by low-income tenants) and that approximately 120,000 rental properties do not have functional smoke alarms.

 

Because of this "Regulation is a logical next step" says Smith. These regulations will be achieved through a change to the Residential Tenancies Act (RTA).”  Read more

Smoke alarm standards will apply to all residential tenancies and insulation standards will apply to social housing first, followed by the remainder of the residential rental market by 1 July 2019.

Insulation requirements will only be in the ceiling and underfloor areas, not the walls. The insulation standard will be approximately equivalent to those introduced in 1978.

a.   Ceiling insulation (minimum thickness of 70 mm) must cover all the accessible ceiling area above habitable spaces (i.e. spaces used for daily activities). A garage is considered habitable space if it is used as a living space. Habitable spaces immediately above count as ceiling insulation (for example, in an apartment building).

b. A suspended subfloor must have underfloor insulation in reasonable condition, covering all the accessible subfloor area beneath the habitable spaces. A concrete slab counts as underfloor insulation, as does another habitable space immediately below.

Recognising practical constraints and wanting to minimise negative impacts on the supply of rental properties, the proposals include three exemptions from the insulation requirements:

a.      Properties where it is impractical to retrofit insulation due to the physical design of the property (for example limited space under the floor, or an inaccessible raked ceiling).

b.     Properties which are sold and immediately rented back to the former owner-occupier, for a period of up to 12 months. This includes properties acquired by the New Zealand Transport Agency for roading purposes, or by private sector developers.

c.      Properties where, within 12 months from the commencement of a tenancy, the landlord intends to demolish the property or to substantially rebuild parts of the property, and can provide evidence of having applied for the relevant resource consent and/or building consent for redevelopment or building work.

Notice of rental property insulation

The proposal also states that from 1 July 2016, all new tenancy agreements must include a statement from the landlord or property manager about the extent of insulation in a property (ceiling, underfloor and walls).

The statement must include the areas of the rental property that are insulated and the level of insulation. This is intended to help tenants make informed choices on their accommodation.

If a landlord fails to state the extent of insulation in the rental property, then they can be fined $500.

Where a tenant considers that a property does not meet the insulation standards (or existing requirements under the Housing Improvement Regulations such as functioning water supply), they can use the existing processes to take a case to the Tenancy Tribunal.

Failure by a landlord to state in a tenancy agreement the extent of insulation is to be an unlawful act, with a maximum penalty of $500. In addition, providing misleading information is also an unlawful act with a maximum penalty of $500.

Existing regulations

It is proposed that the Housing Improvement Regulations remain in force for both rental and owner occupied properties, with no changes. These regulations include ventilation and prevention of dampness requirements.

To improve landlord and tenant knowledge of existing requirements, an information campaign will promote the new standards, provide information about existing requirements and remedies available to tenants.  It will also include practical information to tenants about preventing dampness and mould.

The tenant education material is an excellent initiative that the NZPIF has been advocating for many years.

Implementation process

The table below summarises my intended process and timeframes.

Cabinet agreement to smoke alarm and insulation standards as a basis for public consultation. Agreement to strengthen MBIE enforcement powers.

July 2015

Policy announcement, with release of potential smoke alarm and insulation standards and supporting documents.

July 2015

Government Legislation Committee considers draft Residential Tenancies Amendment Bill

September/October 2015

Introduction of Residential Tenancies Amendment Bill

October/November 2015

Select Committee reports back and RTA Amendment Bill enacted

Early 2016

Public consultation on detail of smoke alarm and insulation standards

To be confirmed

Smoke alarm and insulation regulations finalised

May/June 2016

MBIE provides information about new requirements; transition period for landlords

2016 - ongoing

Smoke alarm regulations come into force for all residential tenancies. Insulation requirements come into force for HNZC and registered Community Housing Providers where tenants pay an income related rent. Insulation disclosure requirements come into force for all residential tenancies.

1 July 2016

Insulation regulations come into force for all remaining residential tenancies.

1 July 2019

 

Further NZPIF action

The NZPIF will continue to work on the proposed minimum standards, advocating for the following:

  • That the insulation standards remain at the proposed 1978 levels

  • That Government enhances the current insulation grant for low income households with children or elderly occupants so that it is available all over New Zealand and there is no expected contribution from landlords.

  • That a grant be introduced for new insulation installed into rental property, regardless of who installs the insulation. to reflect the health cost savings that Government will make and reduce rental price increases

  • That Inland Revenue will clarify that as insulation will be a requirement for letting a rental property, then the cost of insulation is a revenue rather than capital expense and therefore tax deductible.

     

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