NZ Herald editorial: Labour offers tenants more security

Providing a home for people to rent is a responsibility no investor should take lightly.

Those who regard tenants as just a source of cash to service their loan until they reap the property's capital gain, will be alarmed by the Labour Party's tenancy policies announced yesterday.

It would mean tenants could not be evicted without reason and where there is a legitimate reason, the tenants would have to be given 90 days notice, not the 42 days they are given now. Three months is much fairer than six weeks for families that will need to find another house and probably uproot children from their school.

Labour would ban the "letting fee" rort at the start of a tenancy and the law would allow no more than one rent increase a year, the formula for increases to be specified in the rental agreement. Tenants with a lease of a year or more would also be able to negotiate rights to make minor alterations, such as shelving or painting, if they pay a double bond and undertake to restore the property to its original state at the end of the tenancy.

The house owner would also be required by law to ensure it is capable of being kept warm, dry and healthy for tenants. Labour would provide $2000 grants for upgrading insulating and heating.

There can be no objection from residential property owners to this degree of government interference in the business. It is a business that does very well out of government accommodation grants to beneficiaries to enable them to afford the rents the market is setting. It is well past time this country's tenancy protections caught up with the large proportion of the younger population who may never be able to own a house at current prices.

But those young people should not be content with fairer tenancy rights, they should be looking to the parties in this election to offer them hope that house prices will come back within reach of average incomes eventually. One way to do that would be to do what Labour is proposing on the taxation of rental properties.

The party is not just planning to tax the capital gains of houses sold within five years of purchase, it also intends to end the ability of investors to use "negative gearing" (rental properties that don't cover their costs) to offset tax on their other income.

This appears to mean losses on one rental property could not be used to reduce tax on the income from other rentals, which encourages multiple home ownership. The "ring fencing" of losses on each property could be so effective in bringing house prices down that Labour is proposing to phase in the change over five years, reducing the deductibility by 20 per cent a year.

Nobody should want to see house prices crash overnight. Those hurt most would be young people who have taken on the mortgages required to acquire a house at the prices of the past decade. If prices come down gently those people may be able to reduce their debts by cashing in on increased equity while they can.

In the meantime, those waiting to afford their first home deserve fairer and more secure tenancies.