Home Sweet Home: How The Healthy Home Guarantee Bill Will Impact Rental Properties - 04/08/2016

The Healthy Homes Guarantee Bill which proposes a comprehensive set of standards for home heating, insulation, ventilation and indoor temperature has finally reached the select committee stage after a 61-60 vote in its favour at the first reading. This isn’t the first time the Bill has entered parliament after initially being shot down in March 2015. Ministers at the time  feared the bill would increase rents and decrease the amount of available rental housing stock especially at the more affordable end of the market. All at a time when we are already struggling with a housing shortage in New Zealand that is rapidly gaining worldwide attention.

National oppose the Bill in favour of their own which requires rentals without insulation to install it to established 2008 standards by July 2019. Minister for Housing and Building Nick Smith claims his proposed plan will have insulated a further 150,000 homes by July 1st 2019 than the Healthy Housing Bill would achieve. While praising the intentions of Labour, Act has joined the opposition to the Bill because they claim it “is a parade of faux compassion” that will “instead impose additional costs on the very people who cannot afford them.”

While there is support from all sides of the house for improving the quality of housing in New Zealand it is clear that Labour and National both have two very different ideas on the best way to go about fixing the problem. The Labour Party claim that without proper heating that insulation would simply be a waste of money. Meanwhile, the Government doesn’t believe it offers anything that isn’t already in the regulations apart from making landlords responsible for maintaining indoor temperatures. This is a provision National think is unworkable given the landlord has no control over whether or not the tenant uses any heating provided. National and Act favour a situation where all homes are well insulated but it is left to the individual to determine how much heating they want to pay for.

The Home Guarantee Bill’s Proposal

It is no surprise that the state of New Zealand housing is in dire straits. Over recent years there have been too many high-profile cases of deaths of Kiwi children due to the poor state of the accommodations. According to the University of Otago, our average indoor winter temperature is 2-5 degrees below what is recommended by the World Health Organisation. Rental properties, in particular, are in the most need of attention due to successive governments’ inaction on regulations that would make landlords responsible for providing housing that meets global standards of living.

The Bill itself highlights the fact that a combination of heating, insulation, and ventilation is vital to ensure that Kiwis are living in dry, warm, healthy homes and, if it passes, will ensure that every New Zealand rental home meets these minimum standards. While landlords currently have legal obligations under the Residential Tenancies Act already, there are no formal guidelines as to what constitutes warm and dry accommodation. According to Renters United, all New Zealanders have the right to live in a safe and healthy home. They believe that the enforcement of tenancy law is flawed and is largely self-regulated by landlords themselves leading to widespread noncompliance. Renters United propose a system of regular inspection supported by a licensing system for landlords similar to the current health inspections for restaurants. 

Under the new Bill tenants will still be responsible for reporting landlords who are breaking the law, but the new Bill will work together with the Ministry of Business, Innovation and Employment (MBIE), to set minimum standards for heating and insulation in all rental properties, with some exceptions, and will require all landlords to meet them.  

Currently, the legal requirements for New Zealand landlords under the Residential Tenancies Amendment Bill are:

  • Smoke alarms must be installed in all rentals from July 2016. Tenants are responsible for replacing batteries and notifying landlords of defects. There must be a minimum of one working smoke alarm in a hall or similar area, within 3m of each bedroom door.
  • All rental properties must have ceiling and underfloor insulation by 1 July 2019. Certain exemptions will apply to properties where it is physically impractical to retrofit insulation.
  • All rental properties must have a source of heating.
  • Landlords will be prosecuted by MBIE for breaking tenancy regulations. Tenants will also be able to take their concerns to the Tenancy Tribunal without fear of retaliatory evictions.

These new standards came into force in July 2016 for government-subsidised social housing, and apply from July 2019 for the rest of New Zealand rental properties, including boarding houses.

Rental House

Exceptions to the Rule and Other Concerns

Understandably, there are questions around plausibility of getting the work done within the 5 year timeframe, especially considering the obvious lack of “tradies” and builders in New Zealand. At present, the building industry is having trouble keeping up with the market demand of new builds due to the housing shortage in New Zealand. Moreover, there is a drastic shortage of building apprentices which is putting further strain on the construction industry. The requirement to meet the standards by all tenancy agreements made within a year of the Act will only make this supply and demand situation more difficult.

As the Bill stands, there are certain exceptions to be made. For instance, there are a large number of older houses and heritage buildings which are unable to be insulated. Currently, houses built before 2000 that don’t have insulation are not required to install it. These loopholes are not ideal and may enable landlords to opt out of the minimum requirements. An Act that concerns the health and safety of everyday New Zealanders should rule such properties unfit for tenant housing to truly protect vulnerable people.

It is worth noting that the Bill is not being implemented to vilify or punish landlords. The standardisation of housing regulations won’t necessarily result in increased rent for tenants as some have feared. While rents are rising faster than salaries in much of the country, landlords will continue to make the profits they expect despite spending some of these earnings on creating safer and healthier homes for their tenants. It has been calculated that these changes would increase rents by an estimated $6 a week if the costs are spread over 20 years. But, the New Zealand Property Investors Federation predict that rental prices will rise at the lower end of the rental market. They believe that “while some current rentals will already meet some or all of the standards…it will be the rental properties that don’t meet the requirements that will see the largest rental price increases.”

As the Bill stands, landlords face a cost of $84 per square meter to retrofit insulation plus additional costs to install a source of heating and fix any existing ventilation problems to bring the property up to standard, creating a significant capital cost for the majority of landlords. According to the New Zealand Union of Student Associations, the insulation costs don’t have to be paid overnight and with the current low-interest rates can be financed easily. They believe that “most importantly, this is a capital expense and any reasonable landlord should be able to amortise this cost over a number of years with the understanding that it is an investment into the building.” They add that insulation should be seen as a “base standard, not a value add-on.”

Nevertheless, for landlords in general, the Healthy Home Guarantee Bill is a potential blessing in disguise with Renters United claiming that the Bill simply makes up for decades of deffered maintenence and improvements. While the initial outlay for insulation and heating might be daunting, having the right heating, ventilation and insulation should increase the value of their rental properties, making any improvements a form of investment in the properties they own. In addition, a warm and dry rental property requires considerably less repair and maintenance – saving landlords money by removing the need to replace mould damaged window sills, walls and ceilings, mouldy curtains, and carpeting.

The issue at hand, however, is that the many high-grade rental properties already meet these standards and will require little attention while it is the vulnerable people already in unhealthy accommodation that will be faced with the biggest increase in costs.

FixingHealthyHome

Do We Need this Bill? A Question of Inequality

The Children’s Commission states that “more than half of all New Zealand children living in poverty are in private rental properties.” Living in a dry, healthy home is a basic human right and creating healthy indoor environments in Kiwi homes can be easily achieved by good quality heating and insulation, along with highly effective, filtered ventilation throughout the whole home.

The poor state of New Zealand housing has come to the point where thermals and extra blankets are common even during the day for people living in uninsulated, cold homes: in 2013 alone there were over 3000 hospital admissions for bronchiolitis, a respiratory infection in young children. More importantly is that these children are coming from low decile neighbourhoods, and from predominantly Pacific and Maori communities. As inflation continues to rise, more and more middle-income earners are turning to rentals, meaning New Zealand is becoming a nation of inter-generational renters and it is imperative to provide all citizens with healthy rental properties. HRV’s recently conducted State of the Home Survey highlights the role that poor housing conditions play in many of the 40,000 hospital admissions we see each year for preventable illnesses such as asthma. Other key findings worth noting include:

  • 72-79% of Renters are more likely to throw another blanket on the bed, wear warm socks and thermals to bed, and sleep with their heads under the duvet 
  • Renters took on average 3.6 sick days annually compared to the average of 3 days
  • 40% of renters would like their landlord to make their property healthier.
  • Almost 1/3 of renters move out of a property because of the cold, damp and mould

Unfortunately, the reality is harsh: Kiwi children are dying – 15 children die per year because of the poor state of New Zealand’s housing. However, it’s not just children who are suffering. Cold, damp, mouldy houses are associated with New Zealand’s high rates of asthma and respiratory symptoms and infections. We also have some of the highest rates of infectious diseases such as tuberculosis and rheumatic fever, especially in the Maori and Pacific communities due to the overcrowding in our rental properties. In New Zealand, families share their home with extended relatives to save money which leads to overcrowding. 

According to the OECD, living in healthy housing is one of the most important features of living well. But, as a result of unaffordable housing, overcrowding issues, and poor housing stock, more than 300,000 New Zealand families are living in unacceptable housing conditions. We have some of the least affordable housing in the developed world, with Auckland 5th on the list of unaffordable cities to come out of a survey of 1,360 cities worldwide. Even London fared better than Auckland! As rents and house prices in New Zealand continue to increase, an average house can cost six to eight times higher than a household’s income. Three times is considered affordable, which explains why home ownership is decreasing. In 2013, 64.8 percent of households owned their home, down from 66.9 percent in 2006. Compare these figures to the fact that in 1990 76% of Kiwi's owned a home and you will understand the importance of providing suitable rental properties to New Zealanders.

Who Is the Act Really Protecting?

Historically speaking, the Residential Tenancies Act 1986 was created to make landlords provide tenants with safe and healthy homes. These requirements are set out by various laws and bylaws that are supposed to ensure that landlords provide and maintain rental properties in a “reasonable state of repair”. The Act requires landlords to provide properties in a reasonable state of cleanliness, however, due to the vague nature of the wording, these guidelines have not been easy to enforce.

The recent State of The Home Survey found that:

  • 39 percent of renters have contacted their landlord because their house was cold, damp or mouldy.
  • Nearly a quarter of landlords contacted by tenants discussed the issue but did nothing.
  • A further 32 per cent of landlords contacted by tenants either did not respond or said the house was fine.

Yes, the Act reinforces that landlords comply with all requirements, but in practice, the tenants often have to do much of the reporting which in itself can be daunting and deterring.

For example, a tenant can apply to the Tenancy Tribunal for a work order if their landlord will not meet their responsibilities for providing a safe and healthy home, but the process can be costly and it can take a long time. Because of this, many groups such as the Child Poverty Action Group, are calling for a warrant of fitness scheme that would ensure rental houses meet the fundamental standards of living: safety, hygiene, heating, insulation and ventilation.

Otago Property Management recently implemented such a system and it is the first of its kind in New Zealand. Their warrant system gives ratings for heating, insulation, ventilation, energy and safety and provides audits with more detailed information about each property's performance within selected categories.  The warrant system gives tenants confidence about rental properties, and landlords benefit from having their properties proven to be of high calibre, resulting in a better quality of tenant and less turn-over. An MBIE commissioned report has proven that this approach increases landlord compliance by up to 90%.

More so, the cost-benefit analysis estimates a total benefit of a billion dollars over a 20-year period from introducing such a scheme.  Currently, New Zealand taxpayers subsidise landlords by $987 million (over a 20 year period) because the substandard housing leads to massive costs in the health system. Energy efficient, safe, insulated housing saves taxpayers hundreds of millions of dollars. This is in addition to the following:

  • $422.6 million of health benefits
  • $21.1 million of energy saving benefits

When Might We See The Healthy Homes Bill Passed?

All parties agree they want to see all New Zealanders warm, dry, healthy and happy but have two very separate visions for how to achieve this goal. 

The Healthy Homes Guarantee Bill seeks to benefit all New Zealanders through placing the responsibility squarely on landlords to maintain healthy standards of living for their tenants. Supporters of the Bill argue that in addition the benefits to the tax-payer by subsidising healthcare costs for those in unhealthy rental homes that landlords will also do better in the long run by raising the value of their properties and attracting better quality tenants. 

Opponents however claim that while the Bill has good intentions forcing landlords to maintain minimum temperatures is impractical and will be slower to implement. They also predict the bill will cause an increase in rents for those in at the lower end of the market and who already struggle with everyday costs. 

With only one vote separating each side the bill will be hotly debated through the current select committee process. The select committee is scheduled to finish their report by the start of November with the second and third readings to follow in 2017. With such passion shown by both sides already about the state of our housing it is likely that the topic will still be a contentious point in the lead up to the 2017 general election. 

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