It has long been anticipated amongst the ranks of property managers that in due course there will be more and more properties managed by fewer property management companies. As well, there will be fewer private landlords. Why? Increased legislation and tenants who are well-versed in the art of renting and knowledge about their rights and obligations. It would seem now though, that there might be a new property manager stepping into the Wellington market. If re-elected, Justin Lester has publicly stated that, as news breaks of Wellington’s rents soaring over Auckland’s for the first time,Wellington City Council will intervene in the Wellington housing market to provide more affordable housing. According to Homes.co.nz, Auckland’s median rent sits at $627 per week, with Wellington’s currently sitting at $658 per week. But how would the Council intervene in the rental market? What would it mean for landlords and tenants across the city? And is it really the best way to solve Wellington’s housing crisis?
At this point it is just a theory, but if re-elected Justin Lester suggests that the Wellington City Council would get involved in the rental market, with landlords renting their properties directly to the council, and the council consequently sub-letting the properties to the open market at a discounted rate – up to 5-6% below the market value of the property. The leases to the council would be for a period of 10 years and rental increases would be limited to match the cost of inflation. So what would this mean for landlords? Well provisionally, not a lot would change for them. You would assume they would have a guaranteed rental income for the ten year period that the property was leased to the council. So what’s not to love?
Well, it would seem that there may be a few red flags for property investors to consider before they were to rent their properties to the Council. Although it would initially appear to be a sensible option to prevent rents getting out of control, the system does have a few creases to iron out. Landlords, would, presumably be waiving their rights to decide who lives in the property. Once the Council takes the lease of the property, it would be assumed that they would be responsible for who they let the property out to. Of course, the council wouldn’t want the property sitting vacant for too long (to avoid the obligation of absorbing the cost of the rent). So it could be conceivable that tenant vetting would not be a priority. Similarly, it is not clear who would pick up the cost of damages. With changes in the legislation surrounding the Osaki case, primarily accidental damage being introduced, tenants would be liable for the excess of the landlord – yet it may be unclear as to whether their landlord would be the City Council or the property owner. In the event that it is the City Council, do they pick up the tab for any maintenance? All these areas are unclear and would need to be favourable to landlords for this suggestion to be considered an enticing option.
Another thing to be considered are the potential ramifications surrounding inspections. It is all very well and good subletting a property, but if the landlord has to do their own inspections then it may as well be done directly with the tenant, giving the landlord more control. If inspections are not done to a satisfactory standard and regularly enough, then there is a chance that landlords may find their insurance policy invalid. Likewise, the resale value could be greatly affected for property investors if their asset is not inspected, or maintained correctly. Ten years is a long time to have wear and tear on a property and nothing done about it!
So, on paper at least, this sounds like it may be one way to solve the housing crisis here in Wellington. Of course, as with any plan, there are plenty of questions which will need answering, and whether or not private landlords choose to buy into the scheme is a completely different story. Yet what is certain is that as long as there continues to be an imbalance between supply and demand in the Capital City, rents will continue to rise. The only way to truly solve the housing crisis is to create more, high quality, affordable properties for tenants to rent. As long as the balance continues to be in the favour of the landlord, then rents will continue to rise and demands will surge at particular price levels.
To find out further how you may be impacted by the proposed scheme, or for any obligation-free advice on your rental property, feel free to give us a call anytime on 04 381 8604.