Letting fee ban ‘long overdue’

Legislation banning letting fees should have happened long ago – growing numbers of Kiwis are regularly facing expensive moves as renters, a Palmerston North tenants’ advocate says.

Manawatu¯ Tenants’ Union coordinator Kevin Reilly said people were getting squeezed out of the housing market and into a seminomadic life as renters, and they were facing large costs each time they moved.

Once everything was taken into account, moving into a new rental could cost an average Palmerston North family about $2400, he said.

The Government has a bill before Parliament to end the practice where charges are applied to assign tenancies.

‘‘This long overdue ... [it] keeps us in line with other similar countries around the world,’’ Reilly said.

He said Scotland banned letting fees in 2012, and despite warnings there from critics that it would raise rents, it had been shown to have no significant effect on weekly rents.

Housing and Urban Development Minister Phil Twyford said the letting fee ban was the first of a raft of reforms Labour aimed to make to improve life for renters.

That included legislation limiting rent increases to once a year, and improving security of tenure.

‘‘There are significant costs associated with moving to a new rental policy, which many families are now forced to do every year,’’ Twyford said.

Twyford said new tenants could face up to four weeks’ bond, two weeks’ rent in advance and one week’s rent as a letting fee – plus moving costs.

Tenancy Services put the median market rent for a threebedroom Palmerston North house at $320 per week.

So, the home’s upfront cost for a new renter would be $2240 plus moving costs.

Palmerston North landlord Shane Storey didn’t believe a letting fee ban would have much effect, for landlords or tenants.

’’It’s a sound political play,’’ he said.

‘‘It sounds good, it looks good, but in practice the market will rebalance and it’s not going to change anything.’’

Storey said many landlords would likely raise rents or otherwise recover the letting fee costs, if they ended up having to take it on.

However, he could see the case for the bill.

Letting fees were essentially a charge for a service, listing a house for rent, and it should be paid by the landlord, he said.

‘‘But being a landlord, of course, I don’t want to pay it, and I know tenants don’t want to pay it either.

‘‘Really, the market should sort it out. If a real estate agency advertises they won’t charge tenants letting fees, and they do better than [agencies] that do, eventually that’s what everyone will do.’’

However, economist Eric Crampton of the Right-leaning New Zealand Initiative said rents probably wouldn’t rise if the bill was passed, particularly in areas where demand for rentals was already high.

And where landlords did add the letting fee into rent, the cost would be so low when spread over a year that it would be practically unnoticeable, he said.

Crampton said a bigger risk would be a potential exodus of landlords from the market as a growing number of new rules were heaped on them in a short time.

Manawatu¯ Property Investors Association president Pauline Beissel said some landlords had already sold their rental properties after the regulatory changes in the past year.