Would a German-style tenancy model work in New Zealand?
EXPLAINER: New Zealand is in the midst of a rental crisis, but experts are divided on whether adopting a German-style rental model would solve the country’s woes.
There’s a shortage of rental accommodation, and the national median advertised weekly rent hit a record $580 a week in April, which was a 7% increase on the same time last year, Trade Me’s latest figures show.
Lack of progress on issues such as damp and mould, household crowding and cold has led the Human Rights Commission to recently call for an independent housing authority to regulate rental quality.
And despite the Government’s changes to tenancy law, many tenants feel the market is stacked against them and long-term security of tenure remains a challenge.
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This situation has prompted many people to look to certain European countries, such as Germany, which have a different rental culture and market for a possible solution.
Here’s what the Germans have…
World War II led to the destruction of most of Germany’s housing stock, and it was rebuilt by government organisations and financial institutions. Large corporations still own and manage hundreds, or even thousands, of rental properties.
Now, nearly 50% of the population rents, but tenants are well-protected by rental laws.
While fixed-term tenancies are available, most rental agreements are indefinite, and a landlord can only end one by evicting the tenant through the courts or giving at least three months’ notice.
But a tenant can contest a notice, and a landlord has to prove it is for good reason. Tenants can usually give three months’ notice.
Landlords can increase the rent up to 15% within a three-year period, but increases have to be justified, and the tenant can contest them. Some cities, such as Berlin, have limits on the amount rent can be increased.
There is a national tenants association, with local branches, and, once a tenant joins, they get advice and support, and any legal costs from a dispute with a landlord are covered.
But while rentals can come furnished, most are unfurnished. And that means no floor coverings, curtains, built in cabinets or closets, or light and other fixtures. Many don’t even have kitchens installed.
Instead tenants have to install and maintain household fixtures themselves. Tenants are also allowed to decorate, including paint. But they must restore the property to its original state before moving out.
Some agreements also require tenants to pay property costs such as local authority rates, insurance premiums and utilities, along with their rent. The bond required depends on the agreement, but it can not exceed three months rent.
Here’s what landlords are suggesting…
Property Investors Federation president Andrew King says New Zealand has a different rental history and system to Germany, but a model based on the German one could work.
One of the central points in the federation’s recent “plan to fix the rental crisis” was that a new tenancy option based on the German model should be developed. It would be additional to the existing options.
The tenancy term would be negotiable between the parties, but it must be for a minimum of three years, he says.
“Tenants could give three months’ notice to end the tenancy, and landlords could end the tenancy because of rent arrears, property damage, illegal activity, antisocial behaviour, or mortgagee sale.
“But they couldn’t end the tenancy to move into or sell the property with a requirement for the tenant to vacate.”
As in the German system, rentals could be furnished or unfurnished, and tenants could decorate and cultivate the garden but must return the property in exactly the same state it was provided in.
The bond would be up to three months’ rent, and tenants would pay for insurance, rates, and the costs of utilities such as water.
King says it would appeal to tenants wanting a rental more like their own property while providing compensation to landlords for giving up the ability to end the tenancy except in extreme circumstances.
Could this system work in New Zealand?
Renters United spokesperson Ashok Jacob says the federation’s suggestion is just landlords trying to have their cake and eat it too.
“They are asking for people to take on more responsibility for the maintenance and costs of a property without making it a genuinely stable long-term option financially.”
A system like Germany’s could work, but there would have to be much stricter controls around when and how much landlords could raise rents, he says.
“But landlords avoid talking about the fact they can raise rents frequently and significantly, and have done so for many years. That’s the root of the problem, and it needs to be addressed.”
Property Brokers general manager property management David Faulkner says most tenants would struggle to afford a bond of three months.
Most tenants would also not be keen on an unfurnished rental where they had to install light fixtures or kitchen appliances, such as a stove, he says.
“The rental pool in New Zealand tends to be more mobile than in Germany where the average tenancy is at least seven or eight years, so that could impact on the number of tenants wanting an extremely long term tenancy.”
Ministry of Business, Innovation and Employment (MBIE) figures show that the average tenancy length was 28 months for tenancies that ended over the 2021 to 2022 financial year.
But MBIE operations manager Ota Savaiinaea says Tenancy Services does hold bond records that have been active from the 1970s for a handful of tenancies.
Is it even legally possible in New Zealand?
Under existing tenancy legislation, landlords can choose to offer tenants greater rights than the minimum requirements under the law, according to a Ministry of Housing and Urban Development spokesperson.
“A landlord can offer tenants longer fixed-term tenancies, for example. Landlords can also choose to allow tenants to make more than minor changes to the rental property or to have pets.
“But landlords cannot charge more than four weeks of rent as bond regardless of the length of the fixed-term.”
Tenancy law also requires landlords to provide and maintain rental properties in a reasonable state of repair and cleanliness, MBIE head of tenancy services Steve Watson says.
“In practice, this means landlords need to be aware of health and safety related requirements across a range of legislation.”
This includes the Building Act, the Building Code, the Housing Improvement Regulations, and local council bylaws.
The Housing Improvement Regulations set minimum requirements for housing standards.
They state properties must have a room that can be used as a kitchen or kitchenette with a sink and tap connected to usable water. They must also have a bathroom with a shower or bath and running hot water, a toilet and means for washing clothes.
That means that to provide German-style unfurnished rentals, the law would need to change to allow it, Watson says. “It may require a change to the Residential Tenancies Act and other relevant legislation.”