Is $2b accommodation supplement just lining landlord pockets?

Housing Minister Chris Bishop says New Zealand rents are too high, but the evidence is mixed as to whether the accommodation supplement makes them higher.

The government is undertaking a review of the housing supports available, including the supplement.

It is paid, based on income, region of the country and housing costs, to lower-income households.

In March this year, there were 360,279 households receiving the payment, up from 295,410 in March 2019.

In the 2022/23 financial year, it cost the government $2.015 billion, up from $1.996b a year earlier.

Bishop said there were “good arguments” that the supplement pushed up rents, but also good arguments that it was an effective form of housing support for people who needed help.

“All I can do is be guided by the economic evidence and it’s pretty mixed that it drives higher rent.”

He said he had been “staggered” by the proliferation of funds across the system to help with housing. “We are taking a good look at all of them and looking at how they deliver value for money and trying to be clear and deliberate about what we are trying to accomplish.”

But he said rents were too high and the answer was to build more houses to address a supply and demand imbalance.

Dominick Stephens, Treasury chief economic adviser, said it had not undertaken specific research on the impact of the supplement on rents.

He pointed to research last year from the Housing Technical Working Group that said the main drivers of rent were income and housing supply relative to population.

“One might draw a link from the research showing that rents are driven by incomes to the accommodation supplement, which boosts income for many tenants, but this would be a suggestive link only, not backed by specific research.”

Work by Motu Research in 2018 showed higher rents in the regions with more generous accommodation supplement entitlements, but an update in 2022 suggested less of a connection.

Infometrics chief forecaster Gareth Kiernan said New Zealand studies tended to conflict with international ones.

“The conclusions go against the common perception that the accommodation supplement simply ends up being an additional cash payment gobbled up by landlords through higher rents.

“Economic theory states that any tax or subsidy will be borne or captured to some degree between producers – landlords in this case – and consumers – tenants in this case, but the specifics of who bears the cost or captures the subsidy depends on the dynamics of the market and the elasticity of demand and/or supply. Because demand and supply of rental housing are both very inelastic, it makes it difficult to theoretically determine where the incidence of the subsidy lies – hence the need for empirical studies.”

Economist Wasay Majid, of the University of Auckland, said research from the United Kingdom found reducing accommodation supplements led to overcrowding rather than lower rents.

But he said the supplement needed to be more responsive to changes in rental expenses.

“Means and asset testing disqualifies couples from the supplement if they have cash assets exceeding $16,200 – for singles, the limit is $8100. This is 1.75 percent of today’s median house price, restricting a couple’s ability to save for a mortgage deposit while receiving the supplement. This limit was around 17 percent of the median house price when it was last adjusted in 1988.”

According to the news on Radio New Zealand

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