Twyford PhilRESIDENTIAL TENANCIES (PROHIBITING LETTING FEES) AMENDMENT BILLFirst ReadingHon PHIL TWYFORD (Minister of Housing and Urban Development): I move That the Residential Tenancies (Prohibiting Letting Fees) Amendment Bill be now read a first time. I nominate the Social Services and Community Committee to consider the bill. Around half of all New Zealanders are renters. This Government is committed to making life better for them and this bill is a down payment on that commitment. Banning letting fees will save renters up to $47 million a year. I think the first thing to say about letting fees is that they are unfair and they have no economic rationale. It's a significant cost on families at a very expensive time. When someone's taking on a new tenancy they have to find often two weeks' rent in advance and four weeks' bond and to add the equivalent of a week's rent plus GST to that for many families risks pushing them into financial hardship. In a market like we've seen in Auckland in recent years and in fact in many other parts of the country where landlords have been cashing in on a rising market with some frequency renters have often faced having to move even as frequently as once every few months or once every year. The costs associated with moving including removal costs as well as rent in advance and bond and to then slap a letting fee on top of that can act to keep families in poverty and certainly to prevent aspiring homeowners ever building up enough savings so that they could contemplate taking on a mortgage. The fee is supposed to cover the costs of advertising a property conducting open homes and vetting potential tenants. These are services that are provided to the landlord. The contractual relationship is between the landlord and the letting agency but somehow the existing law allows the fee for those services to be charged to a third party: the tenant. Now in what other area of law are two parties contracting with each other for an exchange of services allowed to charge a third party? It's an anomaly in the law. The existing provisions of the Residential Tenancies Act specifically prohibit the charging of key money. Landlords are not allowed to charge key money. It's a quaint old-fashioned term for a fee that landlords used to charge tenants just for the privilege of being able to secure a tenancy agreement. That's prohibited under the Residential Tenancies Act and what this bill does is it actually closes an inconsistency and a loophole in the Act and it treats letting fees in exactly the same way. Someone said to me last week that letting fees are basically like a supermarket charging you for the privilege of going into the store so that you can buy their goods. That's a perfect analogy. There is no justification for letting fees. In reality there's no relationship between the letting fee and the costs of letting a property. It's pretty standard for letting fees to be set at the equivalent of a week's rent plus GST. Now rent varies from city to city and from suburb to suburb and for different kinds of houses the rent varies but the letting fees are set regardless of the cost of the services that the letting agency is providing for the benefit of the landlord. There is no competitive tension on the amount charged. It's just a week's rent. What this bill means is that landlords will be able to shop around for the cheapest or best property manager or letting agency and that will bring some competitive tension to the property management sector. That's probably the reason why Barfoot and Thompson who are one of the biggest property management companies in Auckland came out publicly in support of this bill. Hon Judith Collins: No they didn't. They're against the bill. Hon PHIL TWYFORD: Ms Collins who I'm pleased to see followed me from transport to housing and urban development—and it's nice to see Ms Collins taking on the responsibility of being the National Party's spokesperson on housing and urban development. Her main contribution to this debate seems to be to suggest that letting fees will just increase the rent. First she ignores the fact that even if we accept for argument's sake that landlords will try to pass on the cost that currently is being sheeted home to tenants through these letting fees if landlords do try to recoup those costs then rents will go up a few dollars a week. Now even if that was the case—and we don't expect it will be—that would surely be better than tenants being whacked with a letting fee that's the equivalent to an entire week's rent all at once up front at the very moment when they can least afford it when they're having to fork out for removal fees for bond and for rent in advance. So I guess it's some time since the Opposition spokesperson on housing was renting properties. Let's look at what happened in Scotland. In 2012 when they banned letting fees in Scotland there was no evidence that it led to any increase in rents. The UK housing advocacy group Shelter did research on this. They found that only 2 percent of landlords in Scotland increased their rents after letting fees were banned there.Hon Judith Collins: For goodness' sake it's Scotland. Hon PHIL TWYFORD: If Ms Collins is interested in doing some further reading on this subject there are many good sources and I would recommend the Reserve Bank of New Zealand who noted in a recent report that rents are driven primarily by supply and demand. Landlords are not in a position simply to take a cost-plus approach to setting rents. There are so many other variables out there in the market not least the actual supply of rental properties in the market. Treasury has also concluded that and I quote Experience in other countries shows no clear evidence that banning letting fees will lead to increased rents." That seems pretty clear to me. I would note that the UK Government of Theresa May—now that's a Government that's far more committed to the idea of compassionate conservatism than Ms Collins is. The UK Conservative Government also introduced a bill recently to ban letting fees. Their reports—the reports that were written in the UK at the time—noted that there was no evidence that their bill would lead to an increase in rent.Under the current legislation private landlords cannot charge tenants a letting fee. So tenants can experience different up-front costs depending on whether they rent from a property manager or a property management company or a letting agency. What this bill does is it amends the Residential Tenancies Act so that no one can require a tenant to pay a letting fee or any other fee at the start of a tenancy. If there are genuine costs that are incurred in the course of a tenancy—for instance by renewing a tenancy or breaking it early changing the terms of the tenancy and that's done at the instigation of the tenant—then those costs can be passed on to the tenant. But what this bill does is it puts all tenants whether they are working through the landlord letting the property or a letting agency on an equal footing.If someone does charge a letting fee in contravention of this legislation then the Tenancy Tribunal may order exemplary damages of up to $1000. This is the same maximum threshold for charging key money. Since it's a similar thing it makes sense that it's treated in exactly the same way. The tenancy compliance and investigations team at the Ministry of Business Innovation and Employment has a role to ensure compliance in the tenancy market and this will become part of their brief to ensure that the prohibition on charging letting fees is enforced.This is a down payment on the Government's commitment to make life better for renters and we are about to commence public consultation on reforms to the Residential Tenancies Act that are designed to modernise that archaic legislation to give more rights to renters to make life better for renters to encourage more security of tenure. We're going to look at things like making it easier for tenants to have pets to make a house a home. We're going to look at getting rid of no-cause terminations. We will make life better for renters. Thank you."