Monday, April 7, 2014

Mike Butler: $9700 WOF cost for landlords?

A survey of literature cited to support a property rental warrant-of-fitness scheme reveals that the amount each landlord could be expected to pay for upgrades is $9700 for each property. As for the benefits, which go to the local health board in reduced hospitalization and not to the property owner, may be a meager $34.80 a year for each household with a child under the age of 15.

The Office of the Children’s Commissioner lobbied the government two years ago with Working Paper No.18: Housing Policy Recommendations to Address Child Poverty, which includes 12 recommendations -- one of which is for a warrant-of-fitness scheme and another involves insulation and heating. (1)

Two pilot warrant-of fitness-trials got under way this year and early indications show that more properties fail than pass a test that requires ceiling insulation 120mm thick, under-floor insulation, and a supplied heater.

The Department of Building and Housing advised that any decision on a warrant of fitness would include consideration of cost-benefit analysis and implications for tenants and landlords, and will be made following implementation of such a scheme in Housing New Zealand properties.

It appears Housing Minister Nick Smith is rushing ahead despite the required cost-benefit analysis.

Information on likely remedial costs for landlords comes from House Condition Survey Report done four years ago by the Building Research Association of New Zealand. (2) This report, based on a survey of 491 properties throughout New Zealand, found only 22 percent were in good condition and 44 percent in poor condition. The average cost of required repairs was $9700 for rentals and $8000 for owner-occupied.

Since there are 465,000 rental properties throughout New Zealand, at an average cost of $9700 per property to bring them up to scratch, the total cost would be $4.5-billion. If that is so, what would be the benefits?

Any property rental warrant of fitness scheme purports to solve problems, according to propaganda circulated by the vested interests promoting the scheme, associated with twin claims that “New Zealand’s housing stock is more than 40 years old and is woefully lacking in insulation”, and “many poverty stricken families are forced to crowd into substandard houses where disease and illness rapidly spread”.

Children’s Commissioner’s report makes breathless assertions how bad housing stock and how much the poor people are forced to suffer, but the report has difficulty quantifying benefits of any suggested improvements.

The report cited a programme for Housing New Zealand Tenants that ran in Wellington from 2004 to 2007 that aimed to reduce household crowding, as well as improving housing ventilation and heating. That programme found a 27 percent reduction for those aged <20 years of age in acute hospitalizations, but noted that crowding reduction had the biggest impact with the largest reduction of 61 percent in acute and arranged admissions.

Landlords would note that crowding is not an issue that could be solved by a warrant of fitness and is a state of affairs that property owners specifically discourage by listing named occupants on a tenancy agreement.

A further study in 2012 explored the role of housing quality in analysing avoidable admissions of children aged less than 15 years to Wellington hospital. This somewhat anecdotal, subjective, study revealed that 51.9 percent of the 100 children admitted over the 10-day study lived in houses that their parents said were colder than they would like, 17 percent had leaks, and 30.2 percent were damp. (4)

This survey does not confirm the absence of insulation. Neither does the survey say whether the homes were state or private. If they were 1960s Housing New Zealand properties they would have had Insulfluff installed which gives a degree of insulation. Dampness is a problem solved by ventilation. Coldness is solved by turning on a heater. Besides there are power sockets in every room of every house into which a portable heater may be plugged for dry heat.

The only cost-benefit assessment cited in the report was done in 2010 to review the Warm Up New Zealand: Heat Smart insulation programme. Looking at the households that included a child aged less than 15 the study found that the average hospitalisation costs for children dropped by $2.90 per household per month as a result of receiving insulation. Savings for respiratory hospitalisations were $1.88 per month as a result of receiving insulation. Further analysis restricted to asthma-related hospitalisation costs found a saving of $1.67 per household per month. (5)

Therefore, one retrofitted household with one child aged less than 15 has a saving of $2.90 per month, which means $34.80 a year or $1044 in 30 years, the expected life of insulation.

With a total of 465,000 rental properties and a cost of $9700 per property to bring them up to scratch, according to the Building Research Association of New Zealand report cited above, the total cost would be $4.5-billion. The total benefit assuming one child under 15 per household at a $2.90 per household per month would be $16.1-million a year, or $161-million in 10 years. In other words, it would take 280 years to break even.

Note property owners who could be paying are not receiving the benefit.

With such excessive costs and few benefits it is difficult to understand why Housing Minister Nick Smith pushed ahead with warrant of fitness trials.

And property owners cannot rely on bureaucrats to work the cost-benefit analysis out correctly because the same department, the Ministry of Business Innovation and Employment, and presumably many of the same people, were involved in the deeply flawed earthquake-prone building recommendations that would cost building owners over $10-billion, with benefits of less than $100-million, and could be expected to save just seven lives over the next 75 years.

Owners of rental property should be very alarmed at the current push for a warrant-of-fitness scheme that could cost $9700 per property.

1. Working Paper No.18: Housing Policy Recommendations to Address Child Poverty.
2. Branz 2010 House Condition Survey Report,
3. Jackson G, Thornley S, Woolston J, Papa D, Bernacchi A, Moore T. Reduced acute hospitalisation with the healthy housing programme. J Epidemiol Community Health 2011.
4. Denning-Kemp G, Abdulhamid A, Albabtain A, Beard M, Brimble J, Campbell A, et al. Kiwi Pride? A Snapshot of Wellington Paediatric Admissions An Audit of Potential RiskFactors in Child Hospitalisation. 4th Year MBChB Student Public Health Project. Wellington: Department of Public Health, University of Otago, Wellington, 2012.
5. Chapman R, Howden-Chapman P, Viggers H, O’Dea D, Kennedy M. Retrofitting housing with insulation: a cost-benefit analysis of a randomised community trial. Journal of Epidemiology and Community Health 2009


Unknown said...

The move away from combustion heating to electrical heating is having a massive impact. With combustion heating there were always ways for the creative and motivated to find fuel cheaply or free. I fed my pot belly with forestry tailings for years. Used the way heat pumps are supposed to be will add at least $50 per week onto the average electricity bill. Use it stingy and you can halve that. There is no way to beg borrow or steal electricity to keep yourself warm.
Families are back to blankets in the lounge watching tele or bed early in the winter.

Craig said...

My heart bleeds for landlords! I have a rental next to me. The place is dilapidated, gutters overflow, piles shot, I know from talking to tenants there is mold and is an overall eyesore in the street. The landlord won't spend a cent on it unless he has to. Because its close to the city center he keeps it full with a regular turnover of students and young workers, a number of which share the place at any one time to pay the rent. I would welcome a WOF for places such as this. If landlords want to milk their "assets" then I have no gripe about them having to bring it up to some sort of standard, for the rest of the street as well as the tenants.

Logo said...

Also, Claire, the use of any form of combustion heating necessarily sucks outside air into the room thereby creating ventilation which otherwise many tenants would prevent by closing all windows etc. I have seen many rental properties with mould growing on wall and ceiling surfaces due to windows never being opened. I have often wondered whether at least some of these tenants come from countries where they are scared of the local police, and therefore lock themselves away. Whatever the reason, they need some education on the benefits of fresh air!