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What does Peter Dunne’s resignation from Parliament mean for investors?

Monday, August 21, 2017


This afternoon, Hon Peter Dunne announced his resignation from Parliament after serving 33 years for the Ōhāriu Electorate. This move came shortly after the One News Colmar Brunton poll released just last week putting Labour’s Greg O’Connor well ahead of the polls. National has since announced that it will be throwing its full support behind its own candidate, Brett Hudson, in the lead-up to the 2017 General Election.
 
On the surface, Mr Dunne’s resignation seems no cause for alarm. How many of us regularly bat an eyelid at the comings and goings of Parliament before the trickle-down effects of policies are felt in our day-to-day lives? But the likely election of Greg O’Connor this September is significant for landlords and needs to be addressed.
 
Like his Labour colleagues, Mr O’Connor will most certainly vote for Andrew Little’s Healthy Homes Bill No. 2 tipping the 59-60 balance at the bill’s second reading just late last month. If passed into law, the HHB will have a significant implication on cost-bearing of landlords without achieving equivalency in health outcome of tenants.
 
What is the HHB?
Simply put, the HHB will make current rental minimum standards look like a walk on the beach. It requires minimum standards to be set on heating, insulation, ventilation, and drainage in homes before they can legally be rented out.
 
At first glance, the HHB is most certainly noble in cause. Branded as an act of absolute protectionism for the less advantaged, the Bill is successfully at getting most New Zealander’s buy-in. After all, it takes a special kind of cold-heartedness to not respond to the needs of sick and vulnerable children. While the emotional premise of the Bill is absolutely irrefutable, closer examination of its mechanisms makes us doubtful that, if passed into law, the HHB would achieve the health and lifestyle outcomes it anticipates.
 
It is expected that the HHB will most certainly make heat pumps a compulsory source of heating in rental properties. This is on top of giving the Ministry of Business Innovation and Employment a broad mandate to determine acceptable rental standards such as indoor temperature, ventilation, draft-stopping, and drainage.
 
There are two elements to these eventual measurables:
1. Capital investment of hardware (provided by the landlord); and
2. Operational costs of those hardware (borne by the tenant)
Take heat pumps for example, if a landlord kits out a rental with a heat pump (and many of our members do) but the tenant chooses not to use it to keep power bills down, then would it be equitable to take the landlord to task if, upon inspection, the indoor temperature falls short of minimum standard?
 
Since the removal of depreciation on buildings in April 2011, landlords can be forgiven to be wary of capital improvements (that are no longer of immediate or future tax benefit) that do not convincingly produce a better outcome - i.e. healthier tenants and longer tenancies. As such, every dollar imposed on the rental sector post-2011 is an additional cost burden that is ultimately passed on to the tenants (i.e. the object of the HHB’s protection).
 
In the previous heat pump scenario, would a more pragmatic approach not be reintroducing depreciation for landlords (or providing subsidies) and giving electricity vouchers or tax credits for tenants rather than simply mandating a hardware that may or may not be turned on?
 
In contrast, we remain supportive of the Rental Minimum Standards introduced by the Government in 2016 for compulsory insulation and smoke alarms to be installed in to rental properties. We are particularly impressed by the Government’s demonstration that it is influenced by cost-benefit analysis when setting its standards. So far, proponents of the HHB has not been able to demonstrate similar pragmatism. The Bill itself remains emotionally convincing but substantively lacking.
 
We all want a better health outcome for the sick and vulnerable, that is the code of our humanity and our society. On the subject of the sick and the poor it is inappropriate to hide behind partisanship and emotive politics like the HHB. For so long, policymakers have fixated on the new generation of NZ renters but have failed to notice the changing faces of NZ landlords. The idea that most rental properties are slums and the market prevailed by some sense of Dickensian villainy is not only out of touch but dangerous. Our rental market is largely made up of ma-and-pa-investors who have an interest in long-term tenancy, and with that, our tenants’ well-being. Landlords are by and large decent, hardworking, business-minded utilitarians who understand the value of shared outcomes. Healthier homes will not be a reality for as long as policymakers pit landlords against tenants.
 
Coming back to the Dunne resignation
So what does this afternoon’s announcement all mean? It means that the current genesis of the HHB is one-step closer to becoming law. Should it become law, it will make it harder for landlords to rationalise our investments because it will not provide the health benefits it promises. All of this certainly makes participatory politics more important than ever for landlords. And it is not just about this September, it is about getting in touch with your local representative and telling them your story and concerns, it is about supporting your local Property Investors’ Association which in turn supports the New Zealand Property Investors’ Federation that is undertaking crucial lobbying work on behalf of all landlords.

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