AHURI BRIEF

When it comes to rental property standards, what can Australia learn from New Zealand?

New Zealand rental property standards go further in protecting tenants health and safety

Last updated 22 August 2018

The Victorian Government recently introduced proposed rental reforms to parliament, including changes to minimum standards for rental properties. The proposed minimum standards include the requirements of a functioning toilet; adequate hot and cold water connections in the kitchen, bathroom and laundry; external windows with functioning locks; a functioning cooktop, oven, sink and food preparation area; and bedrooms and main living areas to have window coverings.

What are the minimum standards for rental properties across Australia?

Across Australia, laws relating to minimum standards for private rental properties vary, with different state and territory Rental Tenancy Acts often outlining a paucity of information as to what a rental property should contain or provide for tenants. For example, in the Northern Territory legislation only states that a dwelling may not be let unless it is habitable and safe; clean and suitable for habitation; and is secure (i.e. there are locks and other security devices necessary to ensure the premises are reasonably secure).

In South Australia and Tasmania, governments have better clarified minimum standards for the quality of rental properties.

In South Australia, the Residential Tenancy Act requires rental properties to conform to the State’s Housing Improvement Regulations.  As well as being clean, safe and in good repair, rental dwellings (together with all residential dwellings) must have adequate kitchen, bathroom, toilet or laundry facilities; acceptable plumbing, gas or electrical services; and adequate natural lighting or ventilation. If a rental property fails these requirements and is issued with a housing improvement order by the Housing Safety Authority, rent control may be applied to ensure tenants are not paying full market rent while living in substandard conditions.

What can Australia learn from New Zealand?

Australian jurisdictions can learn from rental property laws in New Zealand that go further in protecting the health of vulnerable tenants.

In addition to ensuring electrical, plumbing and construction standards, New Zealand law requires landlords to install adequate insulation in the ceiling and under the floor, where practicable, and to provide an approved form of heating in every living space. The laws also specifies the minimum size of bedrooms: generally a bedroom must be at least six square metres, and if there is more than one person sleeping in it the room will need to be bigger. In addition a property must not be advertised as ‘having a certain number of bedrooms if the rooms are not compliant with the Regulations’.

By legislating for these improvements in the stock of rental properties, the New Zealand Government aims to improve the health of tenants. An evaluation of a previous Warm Up New Zealand: Heat Smart program,  which began in 2009 and allocated NZ $340 million for installing insulation and heating in eligible dwellings, found annual health savings of $64.44 in total hospitalisation costs for each household that received some combination of ceiling or floor insulation under the program; a $67.44 saving per household in circulatory illness related hospitalisation costs; a $98.88 reduction in respiratory illness related hospitalisation costs per household; and a saving of $107.52 for asthma-related hospitalisation costs. The evaluation also found that when health and energy results were combined with analysis of industry impacts and employment changes, the program had a net benefit of NZ $951 million dollars.

The ‘split incentive’ problem

Unfortunately, without legislation driving rental housing improvements, Australian landlords haven’t been inclined to pay for improvements such as insulating their rental properties. This is due to the 'split incentive' problem, where tenants are responsible for paying ongoing high energy bills but landlords are responsible for paying for efficient fixed heating units and insulation. Landlords don’t see themselves getting an immediate economic benefit for their capital outlay, whereas tenants receive reduced heating bills and warmer living spaces in winter (and cooler in summer). Of course, landlords get a benefit in a competitive rental market where tenants will be more likely to select an insulated property, however in a tight rental market landlords are able to charge high rents regardless of whether their property is insulated or not.

AHURI research has also identified another problem with non-mandatory rental housing upgrades: when housing is upgraded landlords are likely to put up the rent, which means lower income tenant households are less likely to find housing they can afford to both rent and heat (or cool). If all rental properties have a mandated level of insulation and heating as standard then houses with those characteristics are no longer able to command a market premium in rent.