By Katharine Moody*
One year ago, the Salvation Army released its State of the Nation Report, referring to the housing situation in New Zealand as having moved from crisis to catastrophe.
A particularly inequitable finding was that over time, increases in market rent have been the most severe in low-income neighbourhoods;
…looking at the percentage change over the past decade shows a worrying trend in rent increases. Communities like Fordlands in Rotorua (146%), Cannons Creek North in Wellington (100%), Huntly East in Huntly (91%), Highbury in Palmerston North (86%) and Papakura in South Auckland (83%) have seen enormous increases in rent over the past decade (pp. 35-36).
I looked at movement of market rents in the Hutt Valley (Dec 2020-Jan 2021) following the lifting of the COVID rent increase freeze. Plotting actual rent asking prices against the Lower Hutt median income (Census 2018) suggested that only three of the properties offered for rent could be considered affordable by households with median or lesser household incomes. I also found a 14% average rise in rental asking prices when compared with the previous six months bond data as provided by Tenancy Services.
I subsequently considered whether there was a way to regulate the rental accommodation market whist avoiding the unintended consequences regarding overseas experience of rent controls.
Government measures to address housing affordability for renters
Following the Census 2018, StatsNZ reported that;
- Homeownership peaked in the 1990s, at 73.8 percent of households, but by 2018, homeownership had fallen to 64.5 percent of households. Homeownership rates have fallen in every region since 1991, with the largest falls in the Auckland region, which has well-documented affordability and supply issues.
- By 2018, just over 1.4 million people lived in houses they did not own [that number increased to 1.7 million in 2022], including 120,000 children under five years of age. Although private renting predominated for all age groups, almost one-third of renters aged 65 and over lived in social housing.
- Owners tended to have higher income levels and were more likely to be partnered than non-owners.
- Non-owner-occupiers had less security of tenure. They moved more often than owner-occupiers and were much less likely to have lived in their house for long periods of time.
- In 2018, the most common reason given by renters who had moved to another rental in the last five years was because their landlord ended their tenancy.
To address regulation of the private rental market, the current Labour government has focused on improvements to security of tenure; improvement to the health of homes; and industry tax changes (presumably with an intention to ‘level the playing field’ between investors and first-home buyers).
The latter tax changes have served to disenfranchise investors and hence (most likely) contributed to recent increases seen in rent prices.
These initiatives aside, successive government’s flagship, cost-of-living support for renters is the Accommodation Supplement. In 1991, the National government introduced the supplement, in concert with its abolishment of State Housing income-related rents. In 2000, the Labour government reinstated income-related rents for State House tenants (at 25% of household income). However the means-tested Accommodation Supplement has been retained by all governments since, as a transfer payment administered by MSD to qualifying households.
As rent prices have increased, the supplement has become insufficient to stem the affordability gap and it is suggested that in some regions, supplements need to double. Total expenditure in Vote Social Development for this line item, Accommodation Assistance was $2,411,065,000 (yes, billion) in 2021/22.
Further expenditure in Vote Housing and Urban Development relates to state (Housing NZ) and non-state (Community Housing Providers) monies appropriated.
Visualising the state’s total involvement in housing support is best illustrated as a continuum – from homelessness to home ownership. The Salvation Army’s recent publication, Tales from the Trenches: The realities of housing in New Zealand illustrates this (adapted from p. 2);
The statistics in the report provide detailed numbers and expenditures across these government-supported housing programmes. This ‘sharp’ end of housing deprivation is not well understood by the general public, and the data presented is eye-opening and confronting. For example, from page 4 in the report;
Clearly, as market rents increase, so do the costs of the Accommodation Supplement, as do the pressures from the NGO-sector to increase the amounts and thresholds, as they work to move individuals and families to more secure tenures on the continuum. I would suggest, these increases to the total welfare budget associated with accommodation support are unsustainable.
Our housing market for renters is no more affordable than homeownership in New Zealand – and rent prices are on the upside, whist house prices are dropping.
A circuit breaker is needed.
Principles of rental market regulation
Empirical studies from overseas have shown that designating particular properties as rent controlled is an inequitable solution to addressing unaffordability. Those tenants in rent controlled properties tend to stay put, whilst all others are subject to market forces. Implementing across-the-board caps, or freezes on rental price increases is also an unacceptable policy solution, as rents in New Zealand are already unaffordable, as demonstrated by the $2 billion dollar plus annual cost of the Accommodation Supplement.
The increasing costs of debt servicing, coupled with the recently introduced discriminatory tax treatment for rental accommodation providers, both add to upward pressures on rents.
In considering regulation of the rental market, I started with a set of principles to address current inequities for both tenants and landlords;
- Higher value properties should attract higher rent;
- Regulation should be universally applied to all residential rental properties (thus avoiding the unintended consequences as per overseas experience);
- Normal business taxation rules should be restored to residential rental accommodation providers to ensure equitable treatment between rental property and other commercial/business investment;
- Annual rent increases (or decreases) should match movements in the CPI basket for Household contents and services;
- The median-value property should be affordable for the median-income household (thus reducing the need for the accommodation supplement);
- Regulation should take into account that property values and incomes vary throughout the country;
Based on the above, I recommended that Parliament investigate a formula approach to rental market regulation.
Testing the formula approach
The starting point for the weekly rent maximum is the rateable value of the property in thousands …
… and this is reduced by a percentage for each region so that the weekly rent on a median-value property in that region is 30% of the median household income (before tax) in that region.
I refer to rateable value (RV) instead of capital value (CV), as it is a more widely recognised term within the general public. For the purposes of the formula, RV = CV.
The weekly rent maximum number is determined by looking up the median household weekly income for a region (I have used median wages and salary income). The rateable value of a property can be accessed using the Property Search tool here.
And so, by way of example, to calculate ‘x’ for the Auckland region: the equation assumes a median RV of $1,300,000, and uses 30% of $1,726 (the median weekly household income for the Auckland region), giving;
(1,300) – x% = $518/week, or as an algebraic equation,
1,300(1 - x) = $518/week
therefore, x = 0.6 or 60%.
- If applied to an existing property for rent in Grey Lynn with an RV of $2,475,000, the weekly rent maximum would be 2,475 reduced by 60% = $990/week, against a current asking rent of $1,170/week.
- If applied to an existing property for rent in Howick with an RV of $1,970,000, the weekly rent maximum would be 1,970 reduced by 60% = $788/week, against a current asking rent of $880/week.
- If applied to an existing property for rent in Northcote with an RV of $1,650,000, the weekly rent maximum would be 1,650 reduced by 60% = $660/week, against a current asking rent of $850/week.
- If applied to an existing property for rent in Massey with an RV of $1,300,000, the weekly rent maximum would be 1,300 reduced by 60% = $520/week, against a current asking rent of $800/week.
- If applied to an existing property for rent in Mangere East with an RV of $600,000, the weekly rent maximum would be 600 reduced by 60% = $240/week, against a current asking rent of $600/week.
What the formula approach demonstrates is that, as per the Salvation Army findings, rent increases have been the most severe in the most deprived neighbourhoods where property values are the lowest relative to the rest of the region.
And conversely, the properties valued well above the median RV, typically rent at a more realistic price-to-income ratio, based on a perceived market ‘ceiling’ for higher income households.
In short, the present rental market asking prices are out-of-sync with median incomes, and most markedly out-of-sync for lower than median income earners. Investors in median to low value properties rely on the taxpayer to subsidise their target customer market.
This taxpayer largesse needs to be curtailed, and to my mind regulation is the only way.
An affordability measure of no more than 30% of gross weekly household income spent on rent, is the most commonly used metric, adopted by a number of government entities. However, a government might choose to introduce a more incremental approach (say, a target of 40% of median income), while also retaining an amended, means-tested Accommodation Supplement.
On implementation of the formula approach, a weekly rent maximum ‘look up’ by address would replace the Tenancy Services Market Rent tool.
Based on the 30% affordability measure, check out this calculator tool to determine what rent you should be paying against this affordability metric.
*Katharine Moody is a senior tutor at Massey University's College of Humanities and Social Sciences in Palmerston North, who comments on interest.co.nz as "Kate". The views expressed in this article are her own and don't necessarily reflect those of Massey University.
153 Comments
And to police that we restrict the amount of Debt any landlord can attract from a lender to ensure that the rental income can't be higher than the formula? (Any cash-under-the-table demands to compensate a landlord for a 'shortfall' in rent can be met with a stint in prison). Funds shipped in from overseas to circumvent that can be analysed and confiscated in full, if seen as evading the formula.
If most landlords can't borrow/roll-over existing Debt, they can't buy/hold - and so eventually we get to a situation where "The median-value property should be affordable for the median-income household"
Every nation needs some rental housing, public and/or private. We’re heading towards one half of the nation renting out property for the other half. We don’t need rentals for half of the nation, that’s absurd.
When a rental property is sold, it does not disappear. It might become a home for a family or young couple with friends. And the tide turns. We aren’t running out of rentals any time soon, there is a rift between house prices and what banks will loan. Things will settle after that rift closes. ie one of the following:
Incomes catch up significantly.
House prices drop significantly.
Wholesale rates drop significantly.
Though we’re headed for recession so 2 and 3 more likely.
Still doesn't work. Buy a house and pay 6% interest, rates, insurance for a 3% rental yield. That means a massive annual loss in the hope for a future capital gain that makes it all worth it. Not what you're trying to incentivise.
The only thing that does work is increasing supply. There are numerous choke-points in that process that are due to geography, our lending market, our building supply duopoly who set the "systems" to mean we can't import material from more efficient markets, our land development cost/time/speed. Our new build market is falling (or in Auckland being washed off) a cliff right now. It didn't need to happen.
The author is correct that the loss of tex deductibility will lead to rents increasing. Nothing gets cheaper by adding tax and not decreasing demand.
In a Debt soaked society, 'things' get cheaper if buyers can't borrow.
It's not about the Price of Debt - because, as you suggest, that just gets capitalised into the price of a new build or the rent charged like any other increase in cost.
But stop buyers' borrowing, and that sorts put much of our problem.
Change the LVR's, for new and existing loans for any secondary property, for starters. If a landlord wants to hold his portfolio, then let them top-up the equity at each roll-over time as the LVR's are progressively lowered over time. I have no problem with any landlord owning 100 properties IF they've paid for them themselves from the proceeds of their past productive capital. Drop LVRs to 0% for any secondary property over time, and let's see where prices and rents go. (NB: Existing properties aren't going to be razed as the landlord quits the sector. They will still be standing under different ownership)
I visited a rental yesterday. Amazing furniture. 70+ inch TV. Nice cars. More speakers than an audio showroom. Everyone in designer clothes, good area.
My friends bought a home recently. Second hand furniture, old cars, getting by with the clothes they have, old TV. They're focused on reducing their mortgage quickly.
Your repeated comments show no nuance. The narrative that tenants are forced into the life they lead by evil property owners ignores the choices people often make.
Cool, you probably found ONE example of a tenant who doesn't want to own. Rather rent and spend their money on nice things. Is that a problem?
I bought my first home 6 years ago and also had very little in the way of furniture. A second hand couch, no tables/chairs. A 20y/o car. An old 32 inch Samsung Series 6 TV (the first with Freeview back in 07/08?). I had the mortgage that was 1.5x our household income on a 7 year table. Nothing special about what your friends are doing.
I guess most people would agree we have had a shortage of dwellings in recent years. Certainly the 500k ish population growth over the last 6-8 years was not matched by construction, and now construction is falling off a cliff due to costs being higher than finished value. So if you drop rental returns by 20-60%, will we build enough houses?
Regulation is not the enemy of greed, it's the enemy of reality. Like it or not but the property investors have a product that everybody needs and they are in it to make a profit.
Investors looking for income aren't so willing to accept low rents. They just need the income to cover costs and give them a profit.
Not as many seem to think this way, but the more experienced investors also want the percent return against what they could sell the property for, IE: it's current market value, to compare well to either paying down debt or putting the money into the bank or some other "easier" investment. The property's increasing value isn't as important to them unless they can redeploy the equity somewhere. If the value goes up particularly high compared to what they paid and they have a lot of debt, then they'll look at how much they could save by selling and paying off some debt. Or if they don't have debt they might just compare what the proeprty was paying them against what an index fund might pay instead.
Kate, you might appreciate this statistic. The observation is that household incomes steadily go up over time and rents as a percentage of household incomes sit around the high 20's. https://jonette.co.nz/listings/affordability.html
Yes, I'm on the email list for that website provider. Really good information, well reported. However, for the purposes of this policy objective (that being to reduce reliance on the state by way of accommodation supplements) - the data used in that reporting is not suited to my purpose (as it includes state tax transfers/assistance in the household income definition);
Household income includes self employed income (say couriers, trademe reselling), wages AND benefits (eg Accommodation Assistance).
Once you take out the tax transfers, the conclusions/outputs differ.
Good spotting. The accommodation supplement can start off at $100 per week. Working for Families is around $150 per week per child, scaling down of course as income increases. Do we also count 20 hours free childcare so the mother can work part time? The charge out rate for an ECE center is typically $5 to $6 per hour per child, so there's another $100.
Ok but the result from investing in property for an investor (as opposed to a speculator) must allow for a profit to be made. The profit must somewhat compare to just putting it in the bank, or no one will do it.
My rental's insurance and rates bills have gone up a minimum of 10-20% each year for the last 2-3 years. Interest costs are the process of doubling or tripling. Plus the govt is in the process of adding another 1/3 to it by way of a new tax. If we say only people who can afford to own rentals without debt should be allowed to do it, for the benefit of renters, then we're saying only very wealthy people can own all the rental properties. Is that what we want?
I am suggesting the horse has bolted long ago and the accommodation subsidies are there to stay. They are not the problem, they are a symptom of a bigger problem.
Even if we manage to wind back the clock somehow the portion of the population stuck renting for life isn't going to become credit worthy overnight by magic just because there are more houses on the market. But they will be very badly affected by the instability.
I understand what you are saying, julian, but (to my way of thinking) winding the clock back on the cost to rent is something we must do.
From a displaced renters perspective, if they have been paying in rent the full cost of ownership for their landlord - then logic suggests they can afford to own as well (as they are presently covering all those costs) - so really the way to get renters into houses is for the government to develop a shared-equity scheme run by the state - given all they are missing at the moment is the deposit.
And to be honest, many rental investors borrowed 100% on their second and subsequent properties, so they did not have a deposit (in cash) either.
For yourself as a rental property owner, you have the option of selling the asset and investing elsewhere. And these days, given the capital gains are reversing at a seemingly quick pace - it perhaps does make investment sense to go and get a better return on investment with a bank deposit.
Construction is slowing down because finance is tightening and getting more expensive, and the cost to build is getting to be higher than the selling price. At the same time, we're letting in more migrants again. Property prices will take off again at some point and it will all drag rents up further. How will the clock be wound back if nothing actually changes.
That is the crux of the decision many property investors will have to make if rent regulation is implemented.
Do they hold and face operating losses in the meantime with the hope that capital gains over time will outweigh these losses - or do they sell and reinvest the capital elsewhere?
Of course, we need landlords - we always have and always will. It's Property Speculators we don't need.
Remove them from the mix and return properties to those 1990 levels where Costs versus Rent made the profit, and not some hope of capital gains, and we are most of the way there.
No there would be minimum lot sizes amongst other standards/rules that need to be met in order for the development to qualify under a permitted activity status.. That's how the current legislation works in terms of activity status and I think similar structures will be carried over to the reform package.
In considering regulation of the rental market, I started with a set of principles to address current inequities for both tenants and landlords;
No, I'm all for a healthy stock of rental accommodation. Renting gives flexibility to those who want to remain mobile at a particular time of their life. And affordable rent allows the younger generation to save for a deposit toward homeownership.
I'm not anti-landlords any more than I'm anti-grocers. Accommodation provision is an essential service. I appreciate every business needs to turn a profit. What my very limited look into the Hutt rental market did show, was that around 50% of the properties for rent had been purchased over 10 years ago. Their profitability on purchase (as opposed to yield) would not be a problem - many are likely mortgage free if they had managed the asset holding prudently (and not borrowed against the unrealised gains).
A fair and valid example really. Rents do not need to justify reckless borrowing. The mindset that housing investors can’t lose needs to change so that future investors are weary of taking on too much debt.
If you consider two townhouses for $800k next to each other. One paid for with cash, the other mortgaged up to the eyeballs. Should rent be justified by the risk taken by the latter? Too many handouts given to speculators. Any sane investor would realise the loss maker and move on. Let it go.
Rents do not need to justify reckless borrowing
Very true, malamah. It summarises the problem with our mainstream thinking, or dominant worldview, really well. It is difficult to break with the status quo - which is why our politicians have performed so poorly in terms of innovation and change.
https://www.google.com/url?sa=t&source=web&rct=j&url=https://www.msd.go…
The TLDR is there aren't commensurate rent increases experienced in the market to coincide with various implementations of the supplement.
It's always seemed a weird argument, because the supplements are allowing those that can't the ability to afford the same market rates as everyone else. It's like saying handing out food to the starving props up bread vendors.
Thanks Pa1nter - that is a really useful and informative study. It suggests to me that;
- Rent increases most commonly occur with a change of tenancy (which also concurs with my finding on a 14% increase for new tenancies in the Hutt in the period I looked at).
- When measuring the incremental increases in the A/S, the direct link between increased rents and increased supplement cannot be made. The market function is more complex than that.
- But, they did not study the comparative rent increases between non-supplement tenancies. The reason for this comparison being necessary is to determine whether rents for the supplemented tenancies (i.e., those relating to the median to below median income qualifying recipients) increased overall at a faster rate than for the non-supplemented (i.e., higher end) properties.
- If the answer to the above question suggests that rents are disproportionally inflated in line with qualification for the supplement (i.e., median and lower RV properties for rent), then the supplement does have a distortionary market effect. In other words, rental accommodation for median to lower income households are disprorportionately higher relative to tenants income. This too also concurs with the formula example/findings as per the article.
Again, really good study - thanks for the link.
What evidence do you refer to?
I do recall a report some years, suspect it was msd initiated. I was not convinced by the conclusion that it had no impact- it would defy any logic. It perhaps may have been the case when the asup was limited, however it is now a seriously large amount and must have a material impact on the market.
In absence of any research logic says it must distort.
Haha.
Simply would not work with owners like that.
Also stocking rate here is below average and production well above average for low input farms. Hence my belief a drop in stocking rate would be possible and good. Would require an improvement in management competence for many though.
Totally of topic
Short term holiday lets are a problem in many countries - I recall a documentary on it with respect to Barcelona years ago.
As long as they are run as commercial businesses - paying commercial rates to local government and tax on earnings to central government, I think they are acceptable and welcome - though many next door neighbours have at times found them disruptive/noisy etc. Many local authorities do not yet charge commercial rates on those properties and in this regard, an information sharing agreement between IRD and local councils is needed.
The commercial differential for rates is normally justified on an economic development (not a services provision) basis. A new cycleway, predominantly paid for by council rates, brings in tourism dollars. And there are many, many other examples of local government expenditure that attracts visitors.
And more to the point, schooling is a central government funding responsibility.
There is plenty of justification for charging BnBs and short term lets commercial rates. Plenty..
I would agree with your comment 100 percent, were it not for the x percent discount I will be applying to it. After I look up my tables I can give you an answer of the relevancy of your comment.
But seriously I am pretty good with numbers, and this formula is numerical nonsense
And so, by way of example, to calculate ‘x’ for the Auckland region: the equation assumes a median RV of $1,300,000, and uses 30% of $1,726 (the median weekly household income for the Auckland region), giving; (1,300) – x% = $518/week, or as an algebraic equation, 1,300(1 - x) = $518/week therefore, x = 0.6 or 60%.
Thanks for the comment. On the subject of the percentage discount it varies by region and aligns with RVs and incomes in each individual region (I need to take this down to district level once I get hold of those statistics).
I would point out that the variable "x" for Auckland is amongst the highest discount in the nation (when comparing the different regions I have studied). The reason being - the region's RVs were revalued by QV in September 2021 - right at the peak of the market.
When I researched the Hutt back in 2020/21, x = 0. The reason being that RVs had been revalued in 2019. Hutt has now been revalued in Sept 2022 and RV rises are (at a guesstimate) around 20-25% higher now. Hence, the variable "x" in the formula would be recalculated at the same time as new RVs are released, and the variable adjusted (i.e., the percent discount applied) to be re-set for both median house-price growth and median wage and salary incomes in the region/district.
In short, there would be a three-yearly review and re-calculation of the formula accordingly. This is why one would automate a 'look up' function by address nationwide - so that both landlord and tenant can assure that the weekly rent asking price is legally compliant with the maximum for each particular property.
But of course there is the opportunity to object to a valuation via the government valuer, QV;
https://www.qv.co.nz/services/rating-valuations/object-rating/
It is up to the owner to get it right.
I've objected twice, successfully.
Well done Kate, such an interesting and well researched piece.
My perspective as a long term investor is that supply is the solution, not price control. As distasteful as it is, the fewer landlords there are the harder it is to find a rental. The pricing of rent is determined by many things including interest rates, immigration, council regulations and the cost of building. As a landlord I don’t set the rent, the market does. If I can’t finance a new build on your rent formula there will be no new supply. I could see a black market where there are official rents and then envelopes once a month.
Also it’s not just NZ, there are queues of 100 people at Sydney rental open homes and much of Australia is in rental crisis. Some tenants offer to pay offer asking or 6 months up front.
But should not the market price reflect income, or ability-to-pay? So far, the market price is being subsidised by the accommodation supplement. Recall in the 1980 reforms that farmer subsidies were removed overnight - just as were importer subsidies by way of opening up trade to all-comer competition. Yes, it created a 'shock' for many, but there is now widespread acceptance of the need for reform (what is debated was the swiftness/haste in implementation).
I agree, building costs must also come down, but I see that as involving changes to the RMA (consenting costs) and the Building Act (materials supply/competition - as well as perhaps a relaxing of some standards).
Accomodation is not homogeneous. I would happily pay more for a better location or superior house/apartment. An RV does not fully capture the spectrum of quality out there. Some accom will actually be overpriced using your formula because it is so run down. I have long said the game has been skewed in the landlords favour but that is not the case anymore. London is another example of regulatory interference in the rental market and that is another in crisis. https://amp.cnn.com/cnn/2022/11/21/business/london-rental-market/index…
The government intervention mentioned is:
Since 2016, the UK government has increased taxes on purchases of second homes and cut the amount of tax landlords can claim back on their mortgage payments.
Which is exactly why I'm saying the recent tax changes on interest deductibility here need to be rolled back. We have no such increased tax on purchases of second homes (the first point they make). And yes I agree with you that both these measures were not good policy.
There is another, EPC certification and that was the last straw for most as it required huge upgrade cost to reach Band C. Yes great in theory but requiring highly insulated and efficient housing drives the cost
of rent up, just another example of what happens when supply side intervention by govt.
Am I correct in thinking Scotland brought in rent regulation, what happened there?
Sounds similar to our healthy homes standards. Was it a voluntary standard in the UK (meaning if you didn't upgrade to a particular band you couldn't lawfully rent the accommodation)?
I'm not that familiar with studies from Scotland - most of the studies/literature I've read relates to rent control initiatives in the US and continental Europe.
But it looks like Scottish govt have recently introduced a rent cap;
Which is what many advocates are suggesting here. But to cap already unaffordable rents isn't my preferred policy solution.
Compulsory, you cannot rent out a property without it. The UK are also about to ban short term leases which is probably 95% of the market. Many landlords have sold up and voila, like day follows night, there is a massive supply shock and higher rents.
we live in a capitalist society and that applies to providing accomodation, the same model for other essentials like food, energy and some health care. The only alternative provider is the State and that is far from perfect as well.
Nzdan, this is a really good question for further analysis. If purchased by a prior tenant, it seems logical that that puts less pressure on the supply side, but I think in a zero-sum way (i.e., one less renter; one less rental). The obvious big advantage is in the fact that the renter now has better security of tenure (as per the diagram above).
I don't think we build anywhere near the number of corporate/commercially owned, purpose-build rental accommodation by way of apartment complexes, that they do in the US, for example. And I think the government really needs to look at why - it is a good place to do work/look at potential incentives for such development.
The problem with the current new-build of masses of two-story row townhouses (with the government tax treatment incentive for individuals taking them up as buy-to-let) is that they really aren't suitable for the elderly population with all bedroom upstairs (and often only first story bathroom facilities as well).
Apartments with lifts are so much better, but for those I prefer a corporate ownership/management model, as opposed to the unit title standard we seem to have here.
We are finding, multiple ownership unit titles are in many case a management nightmare.
Do you think the two aspirations contradict one another? I don't think they do, as the government's means of incentivising new, buy-to-let purpose-built accommodation would likely be by way of foregoing fees/taxation (such as consenting fees), as opposed to subsidising the sector with tax collected from general public (i.e., PAYE) tax income.
Foregoing consenting fees
Yeah the councils are likely to let the govt give away their incomes. Not. They will tell the Govt "hands off" like all the landlords will tell you too.
And central govt has to date already offered tax deductions aka "subsidies from the public purse", to corporates for BTR, (Are you aware of this).
This is a dreamland utopia where rents are heavily shoved lower, while costs to build to manage and to run properties are marching higher. Kate imagines that corporates will rush out to build rentals to save consenting fees.
Yes, very familiar with the nascent BTR sector issues here in NZ - as per these comments in a recent article about it;
Thompson said overseas investment restrictions and procedures had a chilling effect on investment from those who were already working on such developments in other countries.
“We absolutely have pent-up demand from large overseas investors who are very experienced in the build-to-rent space, and that demand is basically being prevented from investing in the market.”
While ministers believed investment rules already enabled money to go into build-to-rent developments, Thompson said that was only the case if investors went through “very long, conditional approval processes”, while developers of student accommodation and retirement villages received an exemption.
On the tax front, he said there was an uneven playing field between traditional ‘build-to-sell’ developers, who could claim back GST on building costs, and build-to-rent developers who could not.
The government has more work to do to improve the take up of this type of development.
You ignored the bulk of my comment and instead focussed on foreign investors getting OIO approval
Actually I thought that foreign investors already have an exemption where there is approx 20+ units.
Kate imagines that foreign buyers will rush in to rescue kiwi renters
So was this comment what I ignored?
Yeah the councils are likely to let the govt give away their incomes. Not.
Reality is, they will have no choice, as central government's proposed reforms are a lot more prescriptive from above. So if the new National Planning Act dictates that certain subdivisions are a permitted activity, local government has no option to require resource consent.
I wrote about the reforms proposed here.
The article you referenced was written in April 2021. A lot has changed
Building a case for 'build-to-rent' developments
https://www.google.com/amp/s/www.newsroom.co.nz/building-a-case-for-bui…
The challenge for us as a build-to-rent operator is to build these new rentals at a price or cost that allows it to count as a more affordable rental.
No.
But government has introduced a winter energy payment; and council's have deferred rates options; and the government recently decreased the petrol tax; and the increased demand at foodbanks is astronomical (not to mention the increased costs of the accommodation supplement)...
...all these initiatives relate to the cost-of-accommodation soaking up so much of median to lower income households take home pay.
Yes, what would happen I suspect, is that those who purchased at a price that reflects a negative ROI once the formula is applied will sell. Those that purchased the asset at a price that reflects a good ROI once the formula is applied will hold.
https://www.investopedia.com/terms/r/returnoninvestment.asp
As I suspect there would be a significant number selling, the government would likely need to beef up the provision of shared equity schemes in order to move renters who have been unable to afford to save for a deposit the ability to purchase more easily.
That comes with risk of course - but again all significant market transitions do.
Kate - I always suspected humanities and bugger all economics in your back ground haha. Tutor? Was a simple PhD too hard even in the humanities? Sorry I'm only joking! Do not take me seriously!
But take this seriously - the concept of opportunity cost. If the rental is fully paid off and they bought for 200k and it's now 600k example, and your formula tells them that 240per week is all they can rent it for what will happen?
1. $150 per week goes to insurance , rates, property management and maintenence (at a minimum!)
2. So they get $90 a week profit from there 800k rental.
3. They think - ridiculous- just one big roof repair or hw cylinder blow out and we are stuffed.
4. SELL - put 600k into term dep at 6% earn $692 per week instead of $90 - way better return zero risk no brainer. And this is one of the people you suggest would hold as they look at the return against the historical cost not market value which is not what anyone does.
I'd suggest owning and running rental properties before coming out with any schemes. A little bit of knowledge is dangerous.
Well it's unlikely that $200k house will become worth $600k if it can only be rented out for $240 per week. Except of course if First Home Buyers go on a bidding frenzy like Landlords were doing over the past 10 years.
Also, extra profit can be had if they ditch the property management company. Don't be lazy.
Well it was you that said the house was bought for $200k. What makes it suddenly worth $600k to an investor if it can only ever be rented for $240 per week? No investor would buy that "$600k" house if it rents for $240 per week.
Why are we now talking about build costs? Landlords don't build new LOL.
Hey Simon, no offense taken - I've consulted two PhDs in economics on it and they aren't convinced either - but they did make sure my methodology was robust. On the PhD, I completed the research but failed to write the book given the teaching load I was carrying.
And yes, I did own a rental once but purchased it at a price that made a good yield from day one - and I was housing three students - all of whom could afford to have their own bedroom on the student allowance (and still have money for food and gas) and none ever missed a single payment. Those were the days, as they say.
And yes, I do imagine many will choose to sell and that will have the effect of lowering prices overall. If the government complements this regulation with a state-sponsored shared equity scheme, and continues the state-house build at pace - our housing market will be in a much better place (e.g., back to circa 2000 when I bought that rental)!
We do need to be really mindful that there are a huge influx of superannuitants coming up in the future who won't own there own homes on retirement. That's just one more reason we have to re-balance this market based on an income metric.
If we are only using the present pension payment, AND the couple has no other saved funds, ie KiwiSaver to contribute, then it does not work. ie these people would need further Govt. assistance.
On this rent max., the yield on that basis would mean you could never build a property for that, or conversely, your yield would be so low, that you would invest elsewhere.
For this to work, it would have to also balance out RIO, and factor in where depreciation (and how that is used), interest deductibility etc. all sit. It's a balanced package that is fair for both landlords and tenants. In trying to correct the imbalances, further intervention is making it get the speed wobbles, where it is starting to overturn.
You know I think a free market approach is best where we free up restrictive land practices, just like we used to have, and allow land and housing to be far lower on a house price to household income multiple. And if that was done after the dust settled, then both ownership and rentals would be more affordable, and you would not need any rent control.
But here is the rub, both schemes, work best at the bottom of a cycle, to prevent it from repeating a boom, but if implemented at the upside, will only help bring it down (IE after the dust settles). I note you say in a comment that if the rent control was put in, it would make some owners sell. Not just because they weren't getting a fair return, but also because they would be losing money. And no Govt. is going to do that.
The reality is this boom is going to, and is, busting without our help.
If we are only using the present pension payment, AND the couple has no other saved funds, ie KiwiSaver to contribute, then it does not work. ie these people would need further Govt. assistance.
Yes, and that's the issue - government assistance is just going up exponentially and as a society I think that unsustainable (and unhealthy given the urgent need for further government expenditure on infrastructure investment; education investment; health care investment etc.) To be subsidising a private enterprise to this degree makes no sense to me. Just as subsidising farmers made no sense to the Lange/Douglas administration. Crises call for change in mind-sets.
The reality is this boom is going to, and is, busting without our help.
If rent cost trends were following house price trends downwards at the current pace, I don't think I'd have bothered thinking about this - as yes, the market would sort it out more quickly. But that is not the present experience. As I said, the opposite is true - rents are going up whilst house prices are going down. And for years and years successive government have thought that freeing up land would do the trick. Well it hasn't. When I look at the development on previous cropping lands in south Auckland (e.g., Pukekohe), thousands upon thousands of new sections released, but developers have managed to keep the market price of those sections unrealistically high given their distance to the main centre of Auckland. Regulatory change such as the recent densification legislation is all good, but those types of changes take time to work through - and my position is a circuit breaker is needed meantime for renters.
Waiting 5-10 years for land supply issues to work through the system is a heck of a lot of time in a young families most productive years. For rent/accommodation to be swallowing up 50-60% plus of their income is a really bad thing for their and their children's future.
The rents have gone up because with house prices dropping, capital gains as disappeared from adding to ROI, plus changes to reduce depreciation and interest deductibility, so the only clawback is through increasing yield, ie increase rent.
In stable housing markets capital growth is almost neutral sum gain with house cost inflation, so the only place to make a return is via yield (and maybe some allowance for deprecation and interest deduction), BUT you only get a stable housing market with true free market land use policies, which means that housing is far more affordable, so while the yield is higher the absolute rent paid by a tenant is less.
And this is what many commentators, including yourself, do not seem to understand, if we had been releasing land at the true rate of demand, which can only happen with less restrictive land policies, the price would not have gone up in the first place, relative to income.
You can give all the numbers you like on the amount of land released, but if the price did not decrease then it was still restricted, ie not enough. Have prices gone up or down? The outcome tells you whether your solution is the solution or part of the problem.
To me, it is very obvious it is a restrictive system. In fact, some of their rules for supplying more land, only make it more restrictive in the big picture.
There are no land supply issues or rent control that can stop the pain of this crash.
It is what we do at the bottom that is the key to stopping another boom, and bust, and having a stable affordable housing market, with far fewer land restrictions, and maybe a small proactive 'rent control' option, to stop the housing horse from potentially bolting again.
To me, it is very obvious it is a restrictive system. In fact, some of their rules for supplying more land, only make it more restrictive in the big picture.
I was discussing this (i.e., the freeing up of non-urban residential-potential land via a no-zoning restrictions approach) with Michael Reddell some time ago. As we both live in the Wellington region, I asked where it was he thought land was available for residential development that was presently restricted by zoning rules. If I recall correctly, he mentioned;
- Ohariu Valley (MAJOR road upgrade needed to provide any higher traffic volumes);
- Wainuiomata (the valley floor itself is fully residential zoned already - and MAJOR road upgrade would be needed to provide any higher traffic volumes to the rural coast if to be developed for residential zoning); and
- Whiteman's Valley (would need a Wainuiomata Hill Road-type upgrade - minimum of two lanes each way - whereas Wainui Hill has three in some stretches for passing during rush hours).
This may not be the case for other centres around New Zealand (for example Palmerston North has plenty of flat pasture that could be converted to residential housing, but their council has been doing that for ages as it is. They have urban expansion plans for all directions out from the city.
My point being, I know that restrictive zoning rules are the key target of blame for our current land prices, but to be a convincing argument we need to identify exactly what land suitable for development is being held back presently simply because of council plans/restrictive zoning?
BTW, Dale - I've calculate percentage reductions (i.e., the value of "x") on a regional basis across NZ - so with any address I can give a weekly rent maximum figure for that specific property (provided it has a current RV//CV recorded). Many new builds, or newly subdivided lots are yet to get their RVs published.
Happy to do that for anyone interested in providing an address.
And right on cue, we get the nod from the home of our banks:
(Australia's)Treasurer Jim Chalmers has laid bare his philosophy to build a new economic model for Australia under the Albanese government. Decoded, government will play a more active role in the economy. His vision to revamp the market-based economic system, attacking “neoliberalism” and urging business to co-invest with government to deliver “values-based capitalism”.(AFR.Today)
Whether the above article comes to fruition is for time to tell. But one way or another, Change is coming, and those who refuse to see it are in for a hard time.
Bob Dylans Times they are a changin’. First verse feeling very relevant right now. Waters rising (no pun, Aucklanders) and it’s sink or swim for many. The good times are done for now and we’ll have new good times coming our way soon, they may just look a bit different again.
I would like to see the government building much much more housing. Obviously state housing, but also leasehold housing (a bit like what they do in Singapore). This would provide an Avenue for a form of ownership for a huge chunk of the population that could only ever otherwise rent. This would take significant pressure off the rental market, and address the fundamental issues at play.
It would of course require a huge philosophical shift from the government, as well as a huge implementation programme.
Chance of this happening? Almost zilch..
Hi, appreciate the research but its treating the symptoms not the cause.
I'm fed up with the incompetence of NZ politicians and the RBNZ. Our country continues to slide in living standards.
1) Very high net immigration from around 2001+ until covid19 (https://www.stats.govt.nz/news/annual-net-migration-loss-of-8400/) well beyond our ability to build infrastructure for it. We need a population strategy.
2) No comprehensive capital tax making housing a financial asset first rather than shelter. Ardern had an absolute majority and could have implemented this.
3) The government letting planners hijack the RMA. It was meant to be effects based, not a continuation of the town & country planning act with pages of zoning laws. Even the proposed reforms will take a full 10 years to implement. The NPS on UD is useful but way too late.
4) RBNZ following a political US decision to remove direct housing prices from the CPI. This has accentuated the swings in interest rates first pushing house prices too record values vs income & now threatening to crash the economy as people come off fixed mortgages.
5) An unwillingness to force banks to level the risk treatment of house lending and business lending. NZ is simply a housing ponzi scheme.
6) No desire by the RBNZ to remove recourse mortgages. Why should a bank get to chase someone forever if they default on a mortgage. Simply insane.
Agree with all of that but for how long have these issues been around? That's my point - a quick fix, circuit breaker is needed specifically addressing out-of-sync accommodation costs for 1/3rd of New Zealanders whilst we wait for better overall governance of the whole economy.
The quick fix to me is to take the $15bn to $29bn proposed for the AKL light rail *housing is must, LRT is a nice to have) and for the government to get on & build the missing social housing the country desperately needs. The private sector can be contracted to build it.
This will also take some pressure off the private sector rental market (where the government is paying large accommodation supplements for people that should have been in social housing).
The undersupply of social housing in NZ is criminal and is a point I missed in my comments above.
(Has anyone even looked at docking under-utilised cruise ships as temporary private sector rental accommodation?)
I am no fan of regulation Kate, however in support of it is that this market is being supported(distorted) by tax payer dollars.
If the tax payer is going to continue to do this, then I think there is a case for the govt to insist that as the major contributor to this market via benefits, then they have the ‘right’ to make some rules.
The alternative is they back out form intervening via subsidies and let the free market operate.
Traditionally, Government supplied accommodation has been bad. When Andrew Little first proposed Healthy Homes, he used 2 very bad examples from the State sector. Even now, the have had to extend the Healthy Homes deadlines to allow them to up and even then the Government had longer deadlines for themselves. When the Wellington Council brought in the rental warrant of fitness proposal, they admitted they will need 10 years to implement for their own properties.
On another note, insurance companies are not helpful with private sector providing social housing - reluctant to provide insurance. There was an article on this a while back.
Essentially it is population growth that drives the demand for housing.
As new people move into town , their first decision is renting vs buying.
Depending on the level of available supply, at some point house prices and rents rise.
The economic equation (for me) in regards to renting vs owning is when the cost of owning a house is less than the cost of renting. ( % + rates + insurance + maintenance = cost of owning. )
Taking Kates Mangere east $600,00 house that would rent for $250/wk , under her rent controls.
To buy , interest on say $400,000 at 4% =$16,000/yr, rates $2000, insurance $1500, maintenance say $2000
On a weekly basis...cost of owning is $415/wk ...about
SO...rent for $250/wk vs buy for $415/wk.. Its a no brainer. I rent and use my $200,000 deposit to invest.
All the hassle of ownership falls on the Landlord.
What will that shift in preference do to the rental mkt ? Will there be a growing shortage of Rentals ?
If so, who will step in to meet the demand for new rentals? ...AND...how bad will the mismatch between new supply vs demand be ..? Would Landlords quickly decide to buy/build lots more rental properties?
Who will be the losers ??? Will better "quality" tenants end up displacing the poorer ones ?
Im not criticizing Kates price control idea..... just inquiring into it. ( I have my own views ).
ps. In a Fiat Monetary system where the value of money diminishes , its a nonsense to think that building costs can be lowered, or than land will get cheaper. eg..2016 building costs were $1850/mt and in 2022 it was $2500/mt.
It would require huge productivity gains (unlikely).... and sardine-can size housing to bring them into the "affordable realm".. ie. Kates 30% of income on rent ( or servicing the cost of buying ).
AND... the equation for building new is that the cost of land + cost of construction is less than or equal to the price of existing homes.... roughly. ( generally the bigger the "gap", the more readily new construction will occur )
Under rent controls, it would be interesting to see how a shortage of rental accommodation would be resolved.
As a renter, I'd be fine in my $250/wk rental...and I'd make life easy for my landlord , by keeping the place maintained.... because I know when I'm onto a good thing !
SO...rent for $250/wk vs buy for $415/wk.. Its a no brainer. I rent and use my $200,000 deposit to invest.
All the hassle of ownership falls on the Landlord.
It is a really rational and sensible way to look at rent vs buy but the problem is many renting these days do not have that choice, as rents are soaking up so much of their disposable income that saving is nigh on impossible. Add to that a potential student-loan debt (something those of the boomer generation starting their families didn't need to contend with). What percentage of your salary goes to student loan repayments these days...
The amount you have to pay to your student loan each year is 12% of every dollar you earn over the repayment threshold. For the 2023 tax year the annual repayment threshold is $21,268.
The questions you raise are all really valid on how the market might react. IDK. Hope to build a calculator tool so that landlords can plug in their own numbers and check it out. The real problems will be at the median and lower range RVs, but the good news is that these are the most suitable dwellings for FHBs. How much pent up demand there is from FHBs is a statistic IDK either. And again, as I said earlier, given young people have been so disadvantaged in terms of ability-to-save, the government would really need to think about shared equity schemes so that all FHBs wanting to buy have the ability to purchase these median to lower RV homes.
Kate,
I very much share your sentiments in regards the socio economic plight of ordinary people.... Its pretty dire.
My own view kinda goes with the Henry George ideas on land tax https://en.wikipedia.org/wiki/Georgism
The trouble is..... there are so many "pigs at the trough" , that band aid kinda add on solutions wont work. We need to sort out this shit first.
My view is that govt. ( public sector ) can be a much smaller size , with all the savings going to the "coal face"
An example of pigs at the trough is a media release by the taxpayers association about extra holidays paid to public servants to the tune of $75 million. https://www.taxpayers.org.nz/extra-holidays-for-public-servants
$75 million might pay for an extra 1000 nurses...etc ..etc..
I heard on the radio of a pedestrian crossing costing over $2 million....with the consultants fee being $500,000..... Madness.
I admire you for putting the time and effort into this article.... shows to me that you are one of the really good people who cares... even thou I might disagree with you on the idea of price controls.
In my experience ,... the more regulatory the framework, the more "pigs at the trough" there are to "clip the ticket"... ( they often go by the name of pubic servant, consultant, lawyer ...etc ).
I have an interest in monetary systems. After years of trying to understand it, my view is that the mis-management of the fiat Monetary system has been the biggest single cause of the growing wealth inequality over the last 40 yrs.
(Rent controls are like the tail wagging the dog , in regards to this.)
The other big thing I've learnt is that the "wealth of a Nation" is a function of its natural resources + productivity.
And productivity is a function of work ethic + education/creativity .
Is NZ a productive and Wealthy Country..??
As a Nation , we cant really help people in need , unless we have a surplus to help them with ??? Do we have too many .."pigs at the trough". ?
all the best ..
Thanks so much for the feedback, Roelof. I'm in total agreement with you on land tax - will likely vote TOP on that single issue.
And I'm also very conscious/aware of the bureaucratic nature of the machinery of government having been a public servant in the latter part of my career, having come to it from the private sector. Much of that is the nature of bureaucracy - the "no surprises" unwritten dictum that public servants are put under. Once I made a decision while a manager in government that landed me on the 'front page of The Herald' - apparently the ultimate sin of a public servant.
But the point is, it was the only logical and equitable decision. Anyone concerned for their career only would have made the wrong decision knowingly, to avoid the headline in the press.
That's the nature of government sadly. And yes, it makes for the opposite of innovation, progress and productivity.
Depends if the developer wants to sell his development.... or hold.
If he builds to sell.... then universal tax deductibility of interest is to his advantage,
If he wants to develop and hold... then it is to his advantage that only he can have the tax deductibility of interest ( gives him an edge as a Landlord ).
Is that fair Kate ?
Roelef, doesn't matter if the developer holds or sells. The benefit sits with the first and then subsequent owners for twenty years. Developers are more likely to build because potential landlords are more likely to buy new (instead of existing) in order to get the tax break. It's a lever to increase supply.
Kate - we are living in a democracy and I do not think that National or Act will pick up you plan. Labour are meant to pick up plans like yours, but to many of the Labour MPs own rentals as well as 7 house Luxton (remember 5 house Helon). The crash is well under way much like a slow slip earthquake...... in 3-4 years the market will have fixed itself.
I haven't yet approached any MPs from either of those two parties yet, so I don't know how they will receive the proposal.
Most people these days are thinking beyond their own benefit. I'm not a renter, and neither are most of the people helping me with this initiative. Housing, I suspect, will be the Number 1 issue this election - and so each and every party needs to come up with policy solutions.
Don't forget, in many regards the Labour solution last election (Kiwibuild) was a major (if not the major) failure of their administration.
House prices are coming down - yes - but rents are going the other way. .
The formula given looks Taylor made to incentivise Hong Kong style 2m long x 1m wide by 0.8m high cage rentals with shared kitchen / bathrooms. Each cage house would push the median rental lower reducing the % deducted to make the median wage match is with the median rent. In simple term imagine that as many cage rentals get added as the current total number of rentals the median allowable rent would be based on a cage house meaning that your -% may even go negative. A single 4x3 bedroom could be converted into 12 rentals allowing for a 1 meter wide walkway. With some units in the lounge each old 3 bed state house could become 50 rentals!
the main idea being that by dragging the median down with small low quality units your formula would make older rentals more profitable whilst simultaneously making the small low quality units the only profitable way to make new rentals (even if not as extreme as cage houses.
The formula doesn't drag the median house price down - that is determined by the RV.
I think what you are saying is that you think the formula would incentivise the building of smaller and smaller rental accommodation - but that is already a feature of our market (i.e., smaller apartments being built) given wages have not risen at pace with rent/property prices.
The 'market' is absolutely not what should drive the price of leased/rented houses.
In a true market, people can chop and change from day to day -Countdown has a great deal on your favourite cofee one week, next week Pak n Save.
If you rent a house, you're pretty much stuck with it, so landlords have no need to offer specials etc.
The rise of the rentier class (or people farmers) has all but destroyed our society. The sooner it's busted by govt housing, the better.
so many things don't make sense in the whole rental control plan. The idea of price controls is not new, and many contries, especially the comunism countries have tried many times.
why not just nationalize all properties, and let the government take care of the house business, why rely on private rental prividers at all? everyone pay a rent set by government, everyone would be happy, wouldn't it?
My hairdresser today was very happy with that - she's in a state house and pays only 25% of her income in rent. But she certainly feels for those who aren't and cannot make ends meet in the private rental market. And as you can see, the list of those queueing for state house rentals is growing and growing and growing. And it's not growing because people are earning less - its because private rentals at the lower end of the market are unaffordable, even with the current government subsidies.
Housing NZ (KO)'s managed housing stock fell from 67k in 2015, to 63k in 2017 (4k loss). There are 9k people living in motels, that's 3k houses worth of people (family size of 3). These people had the rug pulled from under them, going from 25% of income rents to market rents, hence living in motels.
Just as an additional perspective, it would appear a large proportion of motel stayers are doing so under the emergency umbrella, and not solely due to affordability; i.e. their life circumstances have meant they are urgently require new lodgings. Split relationship, lost employment, that sort of thing.
Well, yeah. Motel stayers = Emergency housing because they have nowhere affordable to live. Do you have some numbers to support your claim of a large number of "life circumstances" changes?
Because to me, when KO claim a 97+% occupancy rate (2017 & 2021 annual reports) and the managed housing stock drops by 6% or 4k, but the occupancy rate remains the same, you're going to have up to 4k households out on the street.
Looking at the figures given, rents are lower than what the costs will be to a first-home buyer (or any buyer). The Government itself cannot provide accommodation at those levels - taxpayers have to front up with alot more.
A formula for rent is worth investigating but you also need to take in to account what are the actual costs for a property including mortgage principle and interest, rates (which keep jumping up), insurance (which has increased a lot with greater excesses), maintenance (Tradies especially plumbers are not cheap).
taxpayers have to front up with alot more.
Therein lies the problem.
Agree with you about 'actual costs' and yes, based on the current purchase price of property, you are right. But if a landlord who has just purchased a property in today's market has an expectation for all of these costs to be paid by the tenant (which is then reflected in the weekly rent) - the reality is that the tenants outgoings on accommodation are the same as they would be if they owned the property.
So what is the difference? The only difference between the landlord/owner and the tenant payer, is that the tenant hasn't got the deposit to buy the home in the first place. The landlord has an ability to borrow whereas the tenant does not. And in many cases, landlords/property investors were borrowing with no deposit - they borrowed on the security provided by unrealised capital gains on other properties.
And if we carry on down this path where tenants are paying all the costs associated with the business of their landlord, then they'll never be able to save for that deposit.
Hope that makes sense. Thanks for the comment.
There's only a significant cost to providing housing if you have no money of your own and have relied on others to bankroll your "business" for greater and greater sums. It's the banks that deserve all the profit if you've put nothing into it except for your name on the title.
Until the loans are paid off, why should Landlords be entitled to anything in the way of profit?
The article looks good till I inserted my rentals. The tax issue is over simplified. The ring fence tax and brightline tax has to be factored in as well. Also privately owned social housing which are exempt from development levies by many local authorities get paid full market rents plus (10% for management costs?). Most have got themselves registered as charities so they pay no income tax so this means major landlords not owned by the taxpayer are creaming it. One of my long term tenants asked me last week why her rent was going up by $35 per week. The interest deductability tax targeted at private landlords increased on the property by $170 per week once the full tax rate kicks in. Surprise like the author says increase costs for providers means the end user (tenants) have less choice and pay more rent. Of course the other thing mentioned but not expanded on also impacts on the most at risk and needy. Removal of the 90day termination clause means higher risk like school leavers, and those who have been in trouble do not even get given a first or second chance.
All good points made - thanks, I'll definitely give this further consideration. I'm not that up on the tax issues, so really appreciate your further points. I agree on the bright-line needing to go. Not so sure what ring-fencing is/was? the principles of any regulation need to be equitable for both landlords and tenants.
For example I know of two housing NZ properties in Napier.
1. An attached 2 bed unit. 70's build. Rent for the beneficiary is $75 per week ( after accommodation supplement).
2. 3 bed house 1960's build, big section. $140 per week after accommodation supplement. The parents work, but still qualify.
Good examples. State house weekly rents are based on no more that 25% of gross household income metric. The rents charged are indicative of just how unaffordable our private rental market is. And the first example is a good indication of what a pensioner without any other income can afford. The future of so many more in that same situation is a prospect that keeps many in the OAP advocacy sector awake at night.
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.