After months of tax talk, the Government’s scuttling of a capital gains tax means the focus has shifted back to regulatory changes which will actually take place and impact on landlords. Prime among these are the new Healthy Homes minimum standards for residential rental properties.

The Healthy Homes Guarantee Act, which passed in 2017, allowed for their development. So it was long known the standards were coming, but until earlier this year, it was uncertain what they might entail. That changed with Housing Minister Phil Twyford’s release of the Government’s standards, which lay out minimum requirements for insulation, heating, ventilation, moisture and drainage, and draught stopping.

While we have taken a quick look at the Healthy Homes standards in a previous issue, it seems timely to take a closer, more practical look at what landlords need to do to ensure their rental properties are compliant. In this article, which is the first of three, we provide a rundown of the standards’ requirements in total before moving on to take a close look at insulation.

Standard Requirements

First up, it’s important for landlords to know there is a timetable for compliance with the new standards. The first date on that timetable to be aware of is July 1, 2021. From that date on, private landlords must ensure their rental properties comply with the standards within 90 days of any new tenancy.

Boarding houses must also comply with all of the standards by July 1, 2021. But Housing New Zealand and registered Community Housing Providers have until July 1, 2023, to ensure their properties comply. All rental properties in New Zealand must then meet the Healthy Homes Standards by July 1, 2024.

This means there is some time in hand for landlords to ensure their properties meet the standards, but it’s not as long as many might think. Landlords who tend to operate on a shorter-term tenancy basis, and have a regular turnover of tenants, are going to have to start prepping their properties in readiness for that 2021 deadline.

It’s been widely reported that the costs involved in getting rental properties compliant with all the new standards will be substantial for some landlords. For that reason, it’s important they know exactly what the standards require. More detailed regulations are coming, but here’s what the new standards for rental properties currently specify:

• Insulation: There must be ceiling and underfloor insulation that either meets the 2008 Building Code, or (for existing ceiling insulation) is at least 120mm thick.
• Heating: There must be fixed heating devices in living rooms, which can warm rooms to at least 18°C. Some heating devices are inefficient, unaffordable or unhealthy, and they will not meet the heating standard requirements.
• Ventilation: There must be the right size extractor fans in kitchens and bathrooms, and opening windows in the living room, dining room, kitchen and bedrooms.
• Moisture and drainage: There must be efficient drainage and guttering, downpipes and drains. If a rental home has an enclosed subfloor, it must have a ground moisture barrier if it’s possible to install one.
• Draught-stopping. There must be no unnecessary gaps or holes in walls, ceilings, windows, floors, and doors that cause noticeable draughts. All unused chimneys and fireplaces must be blocked.

Insulation Compliance: The Lowdown

For many landlords, it’s insulation that is the most pressing concern. The reason for this is that (quite apart from the new standard) under existing legislation, adequate ceiling and underfloor insulation (where practical to install) will be compulsory in all rental properties from July 1, 2019.

If a rental property has insulation but it was installed before July 1, 2016, the landlord has to ensure it adheres to certain standards. If they fail to do so, and do not have the required level of insulation in place, by July 1, 2019, they will face a penalty of up to $4,000.

Currently, ceiling insulation that is over 100mm is within the standard and if it is between 70mm-100mm it should be compliant – although it may need to be topped up. However, anything below 70mm will need retrofitting. Underfloor insulation installed before July 1, 2016 must cover all accessible parts of the floor below the habitable spaces of the property and it must be in good condition. If insulation has been installed after July 1, 2016, it should have an “R-value”. R-values relate to insulation requirements and are a measure of thermal resistance. The higher the R-value, the more effective the insulation is. It’s important to note that minimum R-values differ depending on what part of the country a property is in.

According to Tenancy Services, landlords who have installed new insulation since 2016 should already meet the 2008 Building Code requirements. In which case, they won’t need to do anything further when the new standards take effect.

But landlords who didn’t previously need to insulate under the current requirements might need to do so under the new standards. That’s because the new standard requires insulation to be 120mm and insulation installed before 2016 may well not be at that level.

Stop the War on Tenancies spokesperson Mike Butler is opposed to the new standard. “There will be many landlords who thought they’d done the right thing by installing insulation as required previously,” he says, “but who will now have to do it all over again.” This will apply further pressure to the installation industry which is already struggling to provide enough contractors to meet demand.

The NZ Property Investors’ Federation is also not thrilled about the new standard’s increased insulation requirements. Their executive officer, Andrew King, says the evidence shows the required top-ups would provide only a marginal improvement in insulation efficiency and that they are, therefore, not cost-effective.

The Nitty Gritty Of Insulation

Despite the concerns of landlord advocates, compliance with, first, July’s looming deadline and then the new standards is mandatory. So here’s what landlords need to know on the practical front:
Costs: According to Tenancy Services, the cost of installing insulation depends on the size, shape and location of the building being insulated. It points to EECA advice that the average cost of paying a professional installer to put in both ceiling and floor insulation is approximately $3,400 excluding GST for a 96m2 property. Generally, it would cost more for a larger home. Tenancy Services recommends that before choosing a product, property owners should check the cost per square metre of products with better performance (ie: those with higher thermal resistance or R-value). That’s because the prices of lower and higher-performing insulation products are often similar.
Materials: There is now a wide range of insulation materials available, each with different features and each suitable for different parts of a property. These include glass and mineral wool products, polyester products and, increasingly, products containing recycled material, like wool, or in recycled formats like polystyrene sheets. When comparing prices, property owners should consider the level of performance they want to achieve, as well as the type and amount of insulation needed across the whole area being insulated.
Installation: Many landlords might be keen to try and cut costs by taking a DIY approach to insulation installation. But there’s mixed opinions on the wisdom of that. Tenancy Services advises that qualified, registered installers are the best way to go to ensure compliance. Such installers can be found via the Insulation Association of New Zealand or EECA Energywise. It’s worth noting that professional installers have the ability to bulk purchase insulation which can make them cost competitive. In contrast, King says it depends on each landlord and their particular skills and experience. “However, it isn’t too hard to install or top-up insulation. Bunnings have a How-to video on their website which gives good instruction on what you need to do.”
Assistance: In the past, Government funded insulation subsidies have been available to landlords. But that is no longer the case. The Government’s Warmer Kiwi Homes insulation subsidy programme is only for lower income owner-occupiers.

But there are other options. Many local Councils offer voluntary targeted rates programmes which allow insulation to be paid off via rates.

ANZ has a four-year, interest-free insulation loan scheme for its mortgage customers. This allows landlords to access loans of $5,000 for insulation for up to two properties. Most other banks will allow mortgage holders to top-up their mortgage without fees to cover home improvements like insulation.
King says the NZPIF has a special Bunnings discount card available for members wanting to buy and install insulation themselves. “Many individual associations also have arrangements with local insulation installers as well so for members it’s worth checking with their local PIA to see what’s available.”