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Research and Policy

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• Online version - New Zealand Housing Strategy
  • Online version - New Zealand Housing Strategy - Foreword
  • Building the Future
  • Programme of Action
  • Area 1 - Sustainable Housing Supply
  • Area 2 - Assistance and Affordability
  • Area 3 - Homeownership
  • Area 4 - Private Rental Sector
  • Area 5 - Housing Quality
  • Area 6 - Sector Capability
  • Area 7 - Meeting Diverse Needs
  • Appendices - Principles
  • Appendices - Glossary and Acronyms

Research and Policy

Area 4 - Private Rental Sector

Government's role in the private rental sector focuses on providing landlord and tenant education, and bond and mediation services together with a legislative framework for residential tenancies.Consultation identified a need for further education and advocacy services for both tenants and landlords.In addition, Government has an interest in ensuring that housing is of good quality and caters for diverse housing needs.

Government will encourage the development of a private rental market that provides stable, quality housing to those who choose or need to rent their homes, and also enables landlords to manage their rental properties effectively.

The Changing Role of Private Renting

Tenants and landlords in New Zealand have typically viewed the private rental market as a means to some other end: for tenants, it has been a stepping stone while saving for a deposit or during periods of mobility; and for landlords, it has been an investment.Its future will be different, reflecting the growing size and diversity of the renting population and the greater number of long-term renters. Forthcoming research into housing tenure aspirations>^>[i] will look into likely future demand for housing by tenure, type and region, and the potential impact for government policy and the building and investment sectors.

Over the last 10 years, the characteristics and circumstances of those who rent have changed.Proportionately fewer young people are flatting away from home, more older people and families with children are renting, and there is greater cultural diversity within the renting population that corresponds to the changing nature of the population.>^>[ii]

The rental market grew by over 35% between 1991 and 2001 (approximately 100,000 households), with 26% of all households renting privately by 2001.New Zealand faces the prospect of more households remaining in private rental accommodation throughout their lifetime.Although data is not available for New Zealand, it's quite probable that a pattern is emerging that is similar to Australia where in 1994, nearly 40% of households in the private rental sector had been renting for over a decade.>^>[iii]Other tenure options such as fixed-term tenancies and long-term leases may become more widespread, to provide those looking for security and stability with greater choice.

Over the coming decade, the private rental sector will continue to evolve, reflecting the changing needs and decisions of the many people and organisations within it.Given the sector's growth, a better understanding of its dynamics is required.Government will review regulatory frameworks and provide other forms of assistance to encourage and support a sustainable balance between the needs of investors and landlords, tenants, and the wider community.

Housing New Zealand Corporation increasingly contracts with private landlords and developers through its acquisition and leasing programme to provide an adequate supply of social housing in high demand areas, typically on the basis of 10 to 15 year leases.These leases envisage long-term tenure and the provision of a secure alternative for renters that complements private rental and social housing (including third sector provision).

A key Government objective is to promote a private rental market that provides stable, quality housing to those who choose or need to rent their homes, and enables landlords to manage their rental properties effectively.The review of the Residential Tenancies Act 1986 that began in 2004 will consider the regulatory framework surrounding rental housing, including state-owned and other social housing as well as private rentals.

Landlords and Investors

The decline in owner-occupation has been accompanied by increased investment in rental property.This investment may not continue, however, if rental yields fall too far behind house prices.In some regions, rental housing returns are below the cost of capital, and investors may be relying on capital gains and tax advantages to make a return on their investments.This may not be a sustainable basis for ongoing investment that delivers a stable rental market.

Ownership in the private rental market is highly fragmented. ‘Mum and dad' landlords with one or two rental properties and full-time jobs in other fields are most common, while large professional landlords are rare.

Because of the low density single dwelling form of housing in New Zealand, the benefits of investing in the affordable segment of the rental market are less attractive for institutional investors than in many countries, especially when yields are low.Compared with North American and European cities, the efficiencies of investing in and managing higher density housing have been unavailable until quite recently with the growth of an apartment sub-market.It also appears that many tenants and landlords regard renting as a second-best housing option, while homeownership is seen as an indication of success.Overcoming such beliefs may require lifting housing quality and improving security of tenure in the rental market.Recent research suggests that relatively few investors see themselves as providing housing services.>^>[iv]

Quality and Security of Tenure

Growing diversity in the New Zealand population means that there are more large and extended families seeking larger houses to rent, and more smaller households who want only one or two bedrooms.The rental market has been slower to respond to this.

Many New Zealand rental properties are older homes.As with owner-occupied housing, rental properties are not always well-maintained or equipped with modern features.Many are poorly insulated, and difficult and expensive to heat.Significant upgrading may not be economically viable for landlords.

There is a high degree of movement within the residential tenancies market.The average duration of all tenancies that ended in 2002 was less than 15 months.>^>[v]More than half of those ended within 10 months, 33% within six months and 13% in less than three months.The short duration of many tenancies can make it difficult for tenants to maintain schooling, contact with health professionals, and to participate in the community.

Families with children want to be able to live in the same home over time.This is particularly important for those with school-aged children.Older people also want security of tenure, so that they can feel settled and maintain social and support networks.Some tenants have special needs for support, or may be particularly vulnerable or at risk.

Advocacy and Education

Government has a role in considering the need for advocacy services and information or education to encourage both landlords and tenants to understand and exercise their rights.

During consultation, some tenants indicated nervousness about exercising those rights due to fear of losing their home.There appears to be a lack of awareness among tenants and landlords about the existing legislative framework and supporting services, such as Tenancy Services' mediation service for resolving tenancy disputes.For vulnerable tenants, some form of independent advocate may be needed.

Staging and Priorities

Government wishes to work with private sector investors and landlords, and with tenants and advocacy groups, to foster the sector's development and strengthen the place of renting as a tenure choice.This will happen incrementally over a number of years.The first step is a review of the market's regulatory framework, to provide a strong and flexible foundation for its future.

Beyond that, there may be a need to explore ways to encourage the rental market to deliver some of the security associated with homeownership, perhaps through a wider range of tenure options.

Initiatives relating to the private rental sector focus on strengthening the regulatory framework under the Residential Tenancies Act 1986, improving our knowledge of how the rental market operates, improving quality and security of tenure, advocacy and education.

In the short term, the emphasis will be on:

• reviewing the regulatory framework provided by the Residential Tenancies Act.

In the medium to long term, emphasis will be given to:

• identifying options to improve the quality of rental properties (possibly incorporating landlord incentives)
• identifying options to promote tenure security for tenants, and developing appropriate responses
• investigating the need for advocacy, and improving education and information schemes for tenants and landlords.

Government initiatives to develop the private rental sector are set out in the table on the following page.

Further initiatives within Government's private rental sector work programme are outlined in the table opposite.