Exclusive: Letting fee ban could make renting more expensive

A ban on letting fees comes into effect tomorrow, meaning the cost of renting is about to become cheaper - right? Wrong.

Newshub has obtained a letter from a rental agency urging landlords to raise rents by $10 a week to cover the cost, and the Government was even warned renting could become more expensive as a result.

Moving costs will be cheaper in 2019 as letting fees are banned from Wednesday, which young house hunters Josephine Dawson and Marlon Drake hope will make renting a better experience.

"I reckon moving will be way easier, just because we don't have this ridiculous made-up massive cost that we have to shell out," Mr Drake told Newshub.

But living costs are likely to go up. The rental industry is upfront: it's likely the letting fee will now just be built into rents.

"We've written to all our landlords and told them that we intend to recover the letting fee from the first year's rent," Tim Mordaunt from Property Brokers told Newshub. 

Newshub has obtained a copy of the letter. It says the general consensus in the industry - and from Housing Minister Phil Twyford himself - is that rents will need to rise. They suggest a $10 boost per week.

"Letting agencies who work for landlords should charge landlords instead of charging tenants," Mr Twyford told Newshub.

"They're just trying to make money from us," says Ms Dawson. "It's not a cost that needs to be part of renting."

The Government was universally warned this would happen, not just by the industry but its own officials.

The Ministry of Business, Innovation and Employment (MBIE) warned the fees may be recovered through higher rents, and Treasury warned the same.

Still, the Prime Minister was saying she hoped rents would stay the same.

"I would hope that we wouldn't see that increase, given that it's a service directly for the landlord," she said earlier this year.

Judith Collins, National's spokesperson for Housing, takes a more cynical view.

"I think this Government is working on a 'hope and pray' type basis."

In fact, tenants could end up paying more - the $10 would cover the cost over a year, but what happens if they stay on longer? Would the rent drop once tenants had paid off the letting fee?

Treasury says no.

"It is unlikely that the rent would be adjusted once the costs of letting the property were covered," was its official advice to the Government.

"Tenants could then end up paying a greater amount than the initial letting fee."

The Government is trying to make renting easier, but tenants are seemingly no better off.