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Labour’s Bill to license residential property managers headed for the dustbin

1 Dec 2023

| Author: Jenni McManus & Sally Lindsay

Major changes are expected to the Residential Property Managers Bill – if it survives the change of government.

Introduced on 18 August, in the dying days of the previous administration, the Bill establishes a new and comprehensive regulatory regime for the currently unregulated residential property management sector, including compulsory licensing, the ability to develop a code of professional conduct and an independent complaints and disciplinary process. The Bill also gives the Tenancy Tribunal the power to order a landlord to engage a property manager if he or she commits two or more unlawful acts (specified in the draft legislation) within a five-year timeframe.

The Real Estate Agents Authority (REAA) will become the regulator. Members of the REAA board will be required to have experience in the residential property management sector and have “collective knowledge and experience” of the Māori perspective and the Treaty of Waitangi.

The regime will not apply to landlords, nor Kainga Ora, nor registered community housing providers. After its first reading, the Bill was sent to the Social Services and Community select committee, with submissions closing on 12 October, about a month after the dissolution of Parliament in preparation for the election. Among the submitters was The Law Association’s Property Law committee, which provided a detailed analysis of the Bill, noting that its purpose is to promote public confidence in the delivery of residential property management services and to protect the interests of property owners, tenants and other consumers.

Almost one-third of New Zealand households live in rental accommodation and 42% of that market is covered by residential property managers. When the Bill was introduced, National agreed to support it to the select committee stage. But the comments of the party’s then housing spokesman (now Housing Minister) Chris Bishop suggest that radical changes will be needed if the Bill is to progress.

Act opposed the Bill, with deputy leader Brooke van Velden (now Internal Affairs Minister and Minister for Workplace Relations and Safety) saying further regulation of the housing market will not solve the sector’s structural issues. The extra cost of regulating property managers would, like Labour’s ban on allowing mortgage interest deductibility for landlords, simply be passed on to tenants who are already struggling.

Noting that the Bill explicitly exempts Kainga Ora, van Velden said the agency was “the biggest slumlord in the country”, with more than 70,000 houses, and of 257 Kainga Ora homes tested for meth last year, 243 were found to be contaminated. Act also objected to clause 142 in the Bill, which would impose treaty obligations on members of the REAA. “Once again, we are seeing the treaty and its principles creep into every form of legislation possible,” van Velden said.

Bishop said while National supported the Bill on its first reading, it was sceptical about whether it was needed and whether it would work in the way the Labour Party intended. He noted that the incoming government would need to vote to reinstate the Bill onto the parliamentary order paper and if it survived that process, he would be interested in hearing what was said at select committee and in written submissions.

Bishop said because the Bill would create a complex regulatory regime, cost increases were inevitable. Rents had already risen by $175 a week over the past six years and in his area, Lower Hutt, the figure was $257 a week. The most significant cost of the new regime would be setting up the licensing regime and ongoing compliance, and tenants would bear the brunt of this.

He was “deeply sceptical” that the benefits would outweigh the costs, Bishop said. A cost-benefit analysis by consultants MartinJenkins indicated a net present value of $10.9 million over 10 years. Core costs were $159.9m and core benefits were $170.8m, giving a cost-benefit ratio of 1.07 – a very thin margin. It meant, Bishop said, “you’re literally vapourising money”.

Another issue was the likelihood that privatesector landlords would move away from using licensed residential property managers and simply manage their properties themselves to avoid extra costs and the other burdens of compliance. “There is already an extensive self-regulation system in place,” Bishop said.

David Pearse, chairman of the Residential Property Managers Association (RPMA), says while his organisation supports the regulation of property managers, it wants a completely new Bill. Labour’s model is “hugely bureaucratic” and doesn’t improve the quality of service to tenants or property owners. “Bishop has told us the cost-benefit ratio doesn’t work for Labour’s model and it’s too bureaucratic and expensive,” Pearse said.

The RPMA’s main gripe is that Labour’s Bill is too similar to the Australian regime, which operates under the country’s real estate regulator. Pearse believes real estate companies are delighted the REAA would be New Zealand’s regulator because they could regain control over property managers and make it difficult and unaffordable for independent specialist property management companies to exist.

“We want a new Bill to move away from that and our submissions are common sense. Our argument is that we are a service industry and we don’t fit with the real estate regulatory system that is focused on sales.”

The other issue, Pearse says, is that Australian surveys have shown the average property manager lasts only nine months in the industry. “There is a huge issue in regards to property management as a career.” A lot of this, he says, has to do with business development managers in real estate agencies encouraging a sales focus to get more rental properties on their books and then expecting property managers to deal with up to 300 properties each. “This leaves just five hours a year for a property manager to focus on each rental, without chasing up overdue rent, dealing with unruly tenants and other problems. It’s got nothing to do with providing a better quality service. New Zealand is experiencing similar problems.”

The RPMA wants to break away from the Australian model, saying it doesn’t provide a career path for property managers. “Property managers keep on getting thrown under the bus and it comes down to the responsibilities of their employers.” It is arguing for a standalone association, such as those used by valuers, accountants and lawyers, so it doesn’t matter who the employer is.

Submissions from the RPMA and other specialist residential property managers have called for a standalone qualification or association. Whether a property manager works for a real estate company, an independent specialist company or themselves, it doesn’t matter – they all have to follow the same process.

It has worked effectively for lawyers, accountants and valuers for decades, Pearse says. “They have their own training and qualifications standards, continuing professional development programs and complaints and disciplinary processes.”

The RPMA has also been vocal in recommending that private landlords be included in the Bill. Of the submissions received on the previous government’s proposal, 182 submitters thought private landlords should be included in the legislation.

The exact number of landlords in New Zealand is unknown and is difficult to calculate, Pearse says. “Nobody really knows the state of the market. Designing a regulatory system specifically for property management companies and employees will make it hard to incorporate mum-and-dad private landlords into it in the future.”

When the Bill was first proposed, the RPMA suggested the government follow the Rent Smart Wales system. All rental landlords in Wales have to register and provide personal details, the addresses of rental properties they own and the details of those responsible for the letting and/or management activities at the rental property. A landlord registration lasts for five years and details are open for scrutiny through a free public register.

The RPMA lobbied the government for a similar system but it fell on deaf ears. “Evidence shows that in countries where all landlords are regulated, there is high compliance with the law,” Pearse says. “It makes for a far more stable environment and lifts the standards of rentals and landlords.”

The Law Association’s Property Law committee submitted on some of the more technical aspects of the Bill, including the lack of precision in s 5, which defines residential property management services. It is not clear, the committee says, whether this definition also catches administration support staff. “There needs to be a clearer carve-out of tasks which are more tenant-facing in terms of contract formation and those which are more administration-based, which might be carried out by unqualified administration support people supervised by managers with licences.”

The committee also wanted to see a clearer definition of “in trade” – in particular, whether it would exclude friends and family of a property owner from providing management services. And it was concerned that because Kainga Ora is exempt from the licensing regime, it might be able to hire as residential property managers people who have been banned by the regulator from acting in this capacity.

The committee notes the apparent omission from the Bill of a section similar to s 44 of the Real Estate Agents Act 2008, governing the control of partnerships and companies that are residential property managers. And, unlike s 125 of the Real Estate Agents Act, there is no requirement for the trust accounts holding property management funds to be audited.

Nor is there any requirement for residential property managers to comply with the Residential Tenancies Act 1986 (RTA) or to acquire a good understanding of the legislation. “This is an important gap,” the committee says.

Similarly, there is no requirement for residential property managers to offer competitive pricing (compared with the Code of Conduct for Body Corporate Managers which requires compliance with the legislation and regulations and the supply of goods and services at competitive prices).

The committee supports the use of the REAA as the regulator and the move to require landlords to use a licensed residential property manager if they incur two or more breaches of specific sections of the RTA within a five-year period. ■

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