Is there a need for a Rental Warrant of Fitness?

June 8, 2015

As a property owner, you are potentially aware of the contentious debate that surrounds the concept of a warrant of fitness for rental properties. And Christchurch is in the sights of the Maori Development Minister, Te Ururoa Flavell, where the government has identified that the shortage of rental accommodation post-earthquake has seen some extreme profiting by land owners and property managers – amid speculation that the properties and housing they actually offer are sub-standard [1]. Even Mayor Lianne Dalziel is supporting the call for a national warrant of fitness scheme saying it is particularly needed in post-quake Christchurch[2].

It is unfair that Christchurch is the sole focus for the Warrant of Fitness debate, and that this is in fact a national problem, with Wellington’s Te Aro and Dunedin also mentioned in the media, as the debate for healthier homes increases.[3]

The concept behind a warrant of fitness for a vehicle has been around since the dawn of time, and the premise that keeping a vehicle roadworthy for the safety of passengers and other road users is completely engrained in the kiwi DNA. But, is it something that should stretch to cover housing?

One could argue that there is sufficient current legislation:

“Section 109A of the Residential Tenancies Act, letting substandard rental property is already an unlawful act that carries a $3000 fine as well as compulsion to carry out repairs. Section 45 of the Act spells out the landlord’s responsibilities, which require providing the premises in a reasonable state of cleanliness and repair, and complying with all health and safety requirements[4]”.

It’s just that it isn’t enforced.

Another would argue that the legislation is outdated. In fact the legislation in question is the Residential Tenancies Act 1986 and is relatively weak in its description. Considering the excerpt from above – what is substandard? And what is a reasonable state of cleanliness and repair?

To adopt a WOF approach for housing would be to lead the world in such an approach. The Otago Medical School confirms that no other country in the world has a comparable scheme – though other countries do have regulations “which detail rental property standards and measures that tenants can take if these standards are not achieved”[5]. This is exactly the status quo at this stage – though debatable, especially if you see it as a piece of legislation that fails to get enforced. 

 

The Debate
Like all decisions there are pro’s and con’s to every initiative. We’ll review some of these next.

The New Zealand Property’s Investors Federation is against the proposed scheme, which one would expect. They see a WOF as an expensive way to seek quality improvements of residential New Zealand.

They list four key issues[6]:

  1. It mostly duplicates existing legislation;
  2. Regular inspections are a permanent extra expense;
  3. It will lead to a reduction in rental property availability through some being unable to meet WOF requirements; and
  4. Requirements for WOF increasing over time.

It is fair to assume that there will be an expense to the property owner in regards to maintaining a higher standard of building – increased accreditation/inspections and compliance activities to bring the home up to specification. This in turn is likely to be passed on to the tenant.

One would expect that the WOF approach should only impact those landlords and property management companies that are offering sub-standard housing. Those that are offering sub-standard housing will be the ones impacted the most, as they will be required to meet the inspection costs and compliance costs of improvements to meet standards. And for those that cannot make the standard? Then sure they shouldn’t be in a landlord or in the business of property management?

The flip-side though is that those who are compliant will be stung with the inspection cost but the result is security in what they are offering, is a safe and healthy environment for their tenants. If we were to transpose the HSE model of industry to the housing environment, a property owner that failed to offer a safe working environment is liable – why shouldn’t this be carried across to the home environment?

From a tenancy point of view, a ‘selling point’ for a property manager and property owner would be that they would be able to produce the appropriate certification, and in essence have the ability to increase rental prices due to this status (unfortunately this will be an economic outcome as owners look to pass on the cost of inspection). The ‘sellability’ of a property to a tenant may also be improved depending upon how the WOF system is implemented. Kieran Steele introduced a potential alternative to the warrants of fitness for rentals based around a comparable quality mark scale of five stars (rental star) – much like those seen on electrical appliances for their energy consumption.

“A landlord who cares about their property would pay for an inspection to be made by an independent party who would assess the standard of the property, taking into consideration factors such as insulation, ventilation, functionality of appliances/chattels, structural integrity, heating, security and other factors.

A home with preferable ratings for these factors would get a 4 or 5 star rating and the landlord could command a rent according to that rating.

For example, a brand new house with great insulation, burglar alarms, good heating, double glazing etc could get a 5 star rating and command a higher rent according to the system - as it should. On the flip side, an old shack with no heating which is currently being rented out at $350pw would actually only command $220pw, and prospective tenants could see this when looking through online ads for houses.”[7]

Without physically understanding the nuts and bolts of the system, it is difficult to actually determine the impact of the introduction of a (or any) WOF system. From the consumer point of view, one would expect that they are safe and healthy within the abode they reside in, and conformity to a WOF system is one that could bring both benefits to a tenant and the land owner or property manager.

 

Trial of the Warrant of Fitness
The WOF scheme was recently being trialled nation-wide on State Housing[8] (hats off for the government trialling it on their own houses!). Undertaken by councils, the Accident Compensation Corporation (ACC), the New Zealand Green Building Council and the University of Otago, 144 rentals from within Christchurch, Auckland, Tauranga, Wellington and Dunedin were given the once-over by home assessment experts earlier this year.

 

The Government’s WOF covers the following:

  • Insulation
    Ceiling and floor insulation, good ventilation in all rooms, dry under-floor spaces and no leaks or mould.
  • Safety
    Hot-water temperature controls, warning stickers on windows, well-lit access, smoke alarms, secure storage for toxic substances, handrails, smoke alarms.
  • Amenities
    Working toilets, showers, basins, doors, kitchen sink, washing machine, kitchen storage, utensils and food preparation area, wastewater and stormwater services, property identification, and an electric light in each room.

 

Aimed at testing the draft WOF checklist, it found[9]:

  • 94% of 144 houses did not pass at least one of the 31 checklist items
  • a majority only failed a handful
  • 36% would pass with a ‘few minor and inexpensive fixes’ – such as installing smoke alarms and adjusting hot-water temperatures
  • 40% did not pass the water temperature check
  • 30% did not have a working smoke alarm within three metres of bedrooms
  • 31% lacked code-compliant handrails and balustrades
  • 37% did not have a fixed form of heating
  • 38% did not pass a security-stays check

 

To view the full rental housing WOF trial report, click here. Post-trial the criteria will be tweaked after feedback was received via the trial and subsequent interviews[10].

It seems like it is only a matter of time before we see the WOF approach impact upon the rental property market of Christchurch and beyond. Whether you like it or hate it, it may be here to stay. What do you think about a property WoF? Share your opinion in the comments box below.

 



[1] http://www.stuff.co.nz/the-press/news/67989023/minister-vows-to-hold-slumlords-to-account
[2] http://www.stuff.co.nz/the-press/news/68023255/christchurch-mayor-backs-rental-wof
[3] http://www.stuff.co.nz/business/money/8459345/Pressure-mounts-for-rental-WOF
[4] http://www.legislation.govt.nz/act/public/1986/0120/latest/whole.html#DLM95099
[5] http://www.nzpif.org.nz/projects/view/55938
[6] http://www.nzpif.org.nz/projects/view/55938
[7] http://www.stuff.co.nz/stuff-nation/11630232/Rental-WOF-We-spend-much-less-time-in-our-cars
[8] http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=11205806
[9] http://www.stuff.co.nz/life-style/home-property/10047615/Rentals-across-NZ-fail-warrant-of-fitness
[10] http://www.stuff.co.nz/business/10066414/Warrant-of-fitness-for-rentals-closer

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Filed under Property management \ Tenant Management

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