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ASB economists says rent controls benefit incumbent renters, regardless of their financial circumstances, but 'pretty much everyone else' bears costs

Property
ASB economists says rent controls benefit incumbent renters, regardless of their financial circumstances, but 'pretty much everyone else' bears costs

ASB economists are warning about potential negative effects if there's any move to rent controls in this country.

Rent controls have been talked about as something the Government would consider if the reaction to its recently announced housing policy changes sees notable increases in rents.

In ASB's latest Economic Weekly publication, in which ASB economists tweak their housing market forecasts in the wake of the Government announcements, the bank's chief economist Nick Tuffley says rent controls do give a benefit to the incumbent renters (regardless of their financial circumstances) of properties "brought into the rent control web".

"But pretty much everyone else bears costs," he says.

"Future would-be renters tend to face shortages of (rent-controlled) properties, as few incumbents want to give up their windfall gain and private landlords shy away from providing rental stock.

"Properties tend to either be under maintained (New York’s post-war experience) or can be over-renovated in order to boost the rent if such adjustments are permitted (which impacts rental affordability)."

He notes that Berlin’s year-old rent controls on pre-2014 dwellings have created a shortage of rent-controlled properties while sharply boosting the rents of exempt new builds, as new renters have little alternative.

Stockholm has an average 11-year wait to officially rent a rent-controlled dwelling, Tuffley says.

"A thriving black market has developed for sub-leases of rent-controlled dwellings, which has attracted criminal gang involvement and even sparked homicides.

"In summary, a policy that distributes the benefits irrespective of need, and potentially constricts rental housing supply in the midst of a housing shortage, may not help resolve NZ’s problem of an expensive and under supplied housing stock – for both would-be owners and renters."

Tuffley says the Government's changes do "simply reinforce" that rents in this country will continue to go up – just faster now.

"Property investors on a 33% marginal tax rate will effectively face a 50% increase in the debt servicing costs. It is inevitable that some landlords will attempt to pass some of that cost on.

"We have factored in an extra 15% in rents through to mid-2025 that will add roughly 0.3 percentage points to annual CPI inflation."

In terms of the impact on investor of the changes, Tuffley says the price an investor would now be willing to pay to buy a typical property could drop by up around 30% if they were seeking the pre-existing after-tax cash flow.

"In reality, rents are likely to bear some of the adjustment and it is also probable that a return to pre-existing cashflows is unlikely.

"Nevertheless, the price an investor would now be willing to pay for a property will clearly be less.

"At the lower end of the market, where investors are most active, first-home buyers are now likely to be the group setting the price at the margin. But they will be doing that in a market that remains under-supplied."

Tuffley says because of the under-supply, he expects house prices "will still get a degree of support",

"We expect house prices will be roughly flat through the middle half of 2021. That would still mean annual growth in 2021 of around 9-10%, compared to our view of 15% before the housing announcement.

"Beyond that we see 3-5% annual growth.

"Essentially, we expect the heat to sharply come out of the housing market over the next six months, rather than the gradual moderation we previously expected. Slight month-on-month price falls may be possible if investor demand changes abruptly over the next couple of months, much as happened last year after the initial lockdown was imposed."

In terms of the impact on housing construction, Tuffley says the weak price signal for developers, plus uncertainty over whether/exactly how new builds will be exempt from the loss of interest expense deductibility, "will be a drag on construction activity this year".

"We have pulled back our housing construction forecast by 8% (by the end of 2021).

"Yet the fundamental issue of needing new construction remains acute.

"We have also revised up our net migration forecast on the basis that trans-Tasman people movement will soon become freer.

"Our estimate is that the housing shortage will now be resolved more gradually, reinforcing that lack of supply will continue to give house prices some degree of support."

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122 Comments

Recall reading Hansard, the much subsequently vilified Robert Muldoon very ably vilifying the then Labour Government of Kirk, something like “taxes and controls, that’s all they know, that’s all they can do.” Actually that government stands up fairly well in today’s light. Introduction of ACC, cancelling a Springbok tour, HMNZS Otago at nuclear test protest, compulsory superannuation, property speculation tax. Lot of that subsequently undone by that man Muldoon. But yes taxes and controls, reverting to type, intervention rides again.

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The status quo of no rent controls benefits the rent-seeking specufestors. Perhaps it still hasn't dawned on them that they are now the number one public enemy.

And another day, another wildly different "forecast" by these bank economists. It's time we stopped paying their PR releases any attention. Their opinions are biased and usually completely wrong. They have as much clue as the rest of us. None.

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Agreed. I place as much credence on bank economists property forecasts, as Jehovah's Witnesses changing policies on end of times - precisely zero

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Haha jesus, really? "Number one public enemy"? Tears of an overly emotional snowflake that spews emotive BS never tasted so sweet :P

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Just cannot see rent controls being enforced in NZ in the foreseeable future

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Neither can I.
There's lots of other stuff that can be done before we even get close to that intervention.
It's Budget Time! soon after all.
The more the squealing goes on beforehand, the better.
If Grant the Bold ever needed a politically acceptable reason to enact well overdue change, it's vested interest lobby groups flying an increasingly unpopular flag.

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the screaming landlord groups are doing labour's PR for them

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My property manager says they have issued rent increases to all tenants eligible, just quietly.

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Dongleberry..what is the point of your comment, except to show you for what you are?

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I didn't think the government would remove interest deductions. With that in mind, I think rent controls are now a real possibility.

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Nobody thought they'd do away with interest deductions. Apropos of nothing, but Germany has the equivalent of a 10 year bright line test, but no ring fencing and of course mortgage interest deductions are allowed. We're now out of step with the major economies of the world.

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Yeah but so is our housing market

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When our housing market gets in step with the rest of the World (and it has to go down a long way before this can happen) then we can go back in step with the major economies of the world.

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We have rent controls now....and we had additional rent control until September last year.

https://www.tenancy.govt.nz/

Rent controls can take any number of forms and are not necessarily the model adopted by New York or anywhere else.

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We also have taxpayer funded rent subsidies in the form of accom supplements.

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Sluggy...the accommodation supplement is a form of landlord welfare and should never have been put in place. It is nothing more than a scam.

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It certainly provides a floor for property values via rent affordability but I guess thats a natural progression if the growth of credit to the real estate sector is the basis of your economic plan.....that is the scam.

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Today the Government is paying 1 million dollars to the Motel Industry.
I'd suggest that this is a sad indictment of supply.
If there is a rent cap this may well treble ??
1.6 Million renters in private rentals ......
Thoughts Folks ??

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Craig...Of course they will treble at least. If there are rent caps and tax for unoccupied homes at least 30 000 homes will immediately disappear in a puff of investor smoke. Just ask Ashley or Tony. /s

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Jacinda is pure Muldoonist when it come to the economy, I can’t imagine her resisting the temptation of the command economy measures.

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Except Muldoon was literally a genius!

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Muldoon was the last NZ politician to row against the tide...we know how he was treated.

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Yes, a highly intelligent man with a tremendous amount of goodwill. He was even friends with Thatcher, but swimming against the slow moving tidal wave of neoliberalism that swept the globe. Ironically his "think big projects" which centered around ideas of self sufficiency, and Keynesian economic stimulation, are exactly what propelled China forward. Those ideas are also being rebranded talked about all over the world right now.

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A unique personality in our political history. The first half of his prime ministership advanced relatively easily, but nothing much progressed except for inflation and escalating labour tensions. In the like of King Canute he then thought to ban inflation. Think big, well now. An oil refinery only capable of processing the lowest grades of imported oil as opposed to the potential oil production of NZ itself. And another aluminium smelter at Aromoana? Tiwai I hear you echoing in the wind, did you or any of us now, miss having a brother.

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Why not have rent controls we have interest rate controls.

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If by that you mean 'we should have neither' then I agree.
The biggest component of this disaster has been the cost and availability of speculative debt.

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The biggest component of this disaster has been the cost and availability of speculative debt.

It should be the worst kept secret (the ruling elite will never bring it to the attention of the sheeple), yet the majority do not understand the how and the why.

In Jacinda's defense, I don't think she understands it anyway Robertson should have some idea and Orr most definitely does (even though he'd never talk about it candidly).

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Perhaps some knowledgeable journalist close to our hearts should ask Jacinda at the next opportunity:
"Jacinda. Where does money come from?"
I'll take any odd you care to offer that she answers with" a combination of taxation and Government borrowing."

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JC...sums it up nicely.

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bw, nail hit fair square & centre. Removal of LVRs & OCR to

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Duplication

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Why stop just with rent controls, cars are getting too expensive so is red meat and why not cap house prices altogether along with .................

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Yep down in the basement somewhere will be those little shield shaped retail stickers called MRPs. Dust em off likewise Warren Freers’s notes how to make em stick.

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You're right of course.
Stop controlling the fundamentals of Life. The first and most important component being - THE COST OF MONEY.
% rates should reflect risk in an economy, and the present set do the exact opposite.
Risk is presently being borne entirely by the prices of assets - all of them, instead of where it should reside - the cost of money.
So let mortgage rates float to find the natural risk level.
What's your guess?
Mine's somewhere around 50% p.a the way things look at the moment.
(Context: That's where short term LIBOR % rates went when the UK economy ran aground on "Black Wednesday"1992, and it was forced to leave ERM; the forerunner of the Euro)

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What are you talking about bw....the risk free rate is more or less 0% so there is no risk!

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colinchch...simple, because the cost of cars and red meat do not cause damage to the fabric of society. Renters paying 40% of their income does. Your logic is akin to a heroin dealer saying "why can't I sell my product?. People can sell cars and red meat." Laws and regulations are made in the interests of the collective, mainly in order to protect society.

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Whatever points you are trying to make are completely lost in your unhinged rhetoric.

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Hang on Karl there are plenty of people with a mortgage paying over 40% of their income and then there's rates and maintenance and insurance. Some things have gone up significantly and some have gone down significantly over the years so it just depends on your priorities when it comes to spending your money. Plenty of people on here could have bought a house and decided not to, thats just the way it is.

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Carlos67...the big difference there is that someone who has (probably recklessly IMO) over extended on their house purchase and committed to 40% has made a choice. To have a situation where renters in cities have no option but to pay 40% in rent is very different. And to have a situation where fewer and fewer people can afford to buy their own home is not right either. The whole system needs a complete over haul.

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I want to hear the bank economists talk about their employers' ability and 'right' to lend money into existence as the easiest and best game in town. That's far more interesting that the usual emotional trigger propaganda.

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It's a runaway train that they can't get off I believe. If the massive supply of money that is flowing to housing speculation were to ever start ebbing, the whole Ponzi would collapse. I just know we are going to end up on the hook for bail-outs galore before this insanity is over.

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I just know we are going to end up on the hook for bail-outs galore before this insanity is over.

I don't know. Theoretically, it can go on forever.

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You're a 'this time is different' thinker then? Every credit fuelled 'boom' ends in a bust, we just don't know exactly when the music will stop.

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Not sure I fall into the 'this time is different' camp. All I'm saying is that I don't what the constraints on credit creation are.

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While I tend to agree with Yvil, that any form of rent control appears unlikely, this article puts some body to the argument that rent controls will not succeed if put in place in isolation.

In my view rent controls, in conjunction with a package of other laws is a necessity, but one that is not applied anywhere else as far as i am aware. Alongside rent controls, I believe laws that prevent a building being held empty, set minimum standards of quality for rental properties, and that all landlords, irrespective of the number of properties they own must be licensed, ( this does not mean they hire a licensed manager, although would need to be licensed too). There are other possible requirements that could be argued, but this should ensure that the need for shelter is always affordable, and of a decent standard.

These laws would not stop a FHB from buying a hovel as a do up in the stepping stone process, and so enable entry level at less cost for home buyers.

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So essentially make investing in housing a non-starter? Why not just legislate that people may not own more than their own property and do away with the controls?

The total lack of rentals may impact those without the capacity to build their own home though? Government tower blocks?

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Make it a non-starter, no, put it on par with a lot of other activities providing a public service, and prevent the removal of homes from availability.

Don't be an extremist, why would you suggest such a law? There will always be those who choose to rent, but they should be able to do so at reasonable cost, not the rip offs that are occurring today. If anyone wants to go into property leasing, then they do so as a full business, meeting standards and expectations as so many public service business's are required to do so.

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Right, but they would be the only business that cant deduct interest and cant set the price of the product?

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Wouldn't have a vested interest, would they?

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They sure do. Credit-driven property bubbles are the greatest cash cow in modern history.

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More propaganda for / by Banks and Property Investors. I dunno how the 'journos' (lol) can keep up with the steady stream of propaganda that 'Bank Economists' (Bank PR team) churn out and that they rapidly rush out to disseminate in order to try to influence public though / opinion + government policy. Pretty sad / pathetic really.

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I usually disagree with Hargreaves and the bank economists but I think they are spot on with today’s comments. I have cancelled two out of three projects. The one that is proceeding is a self indulgent holiday home. Would someone wake me up when the soap opera is finished.

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You are cancelling new builds(?) lol.

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I am not a developer (but have bought new builds) so a genuine question, do these changes affect your ability to raise debt to build or are you just holding off until the policy is developed to the point you can understand the details?

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I’ve put projects on hold pending the details of the new build exemption. Last thing you want is to have you development excluded because it did not meet some criteria that you could easily have made it comply with. Also 5 year exemption is quite different from a forever exemption.

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Another Ponzi post trying to lobby on behalf of the status quo. So Mr ASB economist, how many property do you own...? Not interested in any media post that doesn't start, 'My name is XYZ, and I have interest in N properties'.The vested interest driving the debate is ridiculous.

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We (random commenters) are the resistance & pretty much the entire media is bought and paid for by the Property Industry. That's human greed for you!

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I think stuff.co.nz's series on Housing Affordability as pretty good. A steady stream of stories about individuals suffering due to the housing ponzi. Statistics are all very well and good, but if you want to shift the mood of the public - and the mood of the politicians as a result - a steady drip of individual stories are a lot more effective.

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Certainly was the intention of the steady stream of 'pimp the poor' articles by Stuff and The Herald prior to the 2017 election, must have played some part in National losing (with Winstons help).

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They mostly disappeared right up until housing started getting uber expensive in Wellington - if I were being cynical I'd say that exceeding the salary of your rank and file civil service worker was the tipping point. Nothing new for Aucklanders of course, but like so many problems affecting Auckland, as long as they don't affect Wellingtonians, they seem to be out of sight, out of mind.

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Absolutely. In my experience Wellington bureaucrats have no idea on Auckland's issue. Hopelessly ignorant

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On the supply side, I find it strange no one is commenting on the issue with Carters and timber supply (due to mill closures in northland). I know wholesalers that have been trying to buy framing out of Aus to make up the shortfall, they were quoted a 25% increase in cost, but unable to supply.

The silence on this is quite deafening.

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There is silence because this only translates to house price increases. That doesn't fit into the current narrative that house prices must be halted.

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I wonder if this will give a boost to steel framed. Suspect majority of builders will stick to timber as its in their comfort zone. Ex Mr Depression NZ is punting steel but this happened before the shortage. Should imagine the steel proponents will be upping their campaign.

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Bit of a similar problem though, shipping materials in has been rough and NZ manufacturers have been going the way of the maui dolphin for a while.

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Very good point.

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But we are still supplying China. I watch the sky high stacks of timber sitting at North port being loaded onto container ships.
There's a (dark) part of me that has wondered if fletchers are doing this on purpose to stuff up Labours efforts to make some headway on the housing issue. It's certainly not unheard of for them to interfere with politics in a macro or micro way.

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We really and truly need a political movement in NZ that is going to stand up to the powerful vested interests and the fact that our media is now 100% in the pocket of the 'too big to fail' Property Industry. I don't know how some of these 'journalists' can look at themselves in the mirror.

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I think the media's outcry to the recent tax deductibility change really opened many people's eyes that the media exist solely to represent the view of the wealthy property owner.

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Nick Tuffley says rent controls do give a benefit to the incumbent renters (regardless of their financial circumstances) of properties "brought into the rent control web".

Exactly - so bring ALL rental properties into the 'rent control web' - a universal rent control based on a formula incorporating GV into the equation which thus sets the maximum weekly price able to be charged. Landlords can choose to advertise a property under the rent maxima, but not over it.

Rent maximas (instead of market rents) would be detailed on the tenancy.govt.nz website, in accordance with their existing areas and categories (lower, middle, upper);

https://www.tenancy.govt.nz/rent-bond-and-bills/market-rent/

Suggested formula: [(GV/1000) +/- x%

X being determined based on the year in the three yearly cycle of GV revaluations and targeted to make the lower rental band equate to no more than 30% of the average lower income household in the relevant district/area.

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Kate, the biggest argument against rent controls is that the state should not be meddling in the market. I have some sympathy and understanding of that attitude. Unfortunately, the 'state meddling in the market' (land use restrictions, money printing, etc) go us into the situation in the first place. It seems that some of the 'free marketeers' want state interference if it benefits them, but they don't want it if removes their power in the marketplace.

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J.C. I definitely agree that ideally states should not meddle in markets - however, the state started meddling two decades ago in the rental market by introducing accommodation supplements/rental cost subsidies. Rents have risen accordingly to become well beyond the affordability of many renters - witness that we spend more than $2 billion per annum on this subsidy. Unfortunately, the state must now act to reverse this initial interference/subsidy by more interference to counter-act.

Simply cancelling the subsidy (as was done with agricultural subsidies by the Lange government) would be inhumane. Hence, universal rent controls are to my mind, the best option for a seriously awful situation.

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We're on the same page. My main point is to demonstrate the hypocrisy of the 'free marketeers.'

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Unfortunately for you Kate, landlords are free to take their equity and their cash, and go buy rental properties in Australia. Then soon there would be few rentals left in NZ for anyone to live in. You can keep home occupiers prisoner in the country, but you cant stop money leaving it. Or do you propose full capital controls as well, turning NZ completely into North Korea?

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So, what? They can't take land and houses with them.

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Kate - Having correctly identified the source of the problem - state interference you now propose more - keep voting for socialism and you'll get the USSR in miniature right here in Gayotearoa formally New Zealand.

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What? No #rentcontrolnow insignia that became your sign-off Kate. Here goes ... #rentcontrolnow. Thank you for the applause!

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I find your proposed formula intriguing, I was wondering if you could help me apply it to my current rental, which is a standalone house in a high-income suburb within walking distance of the Wellington CBD. I'm going to use RV instead of GV because I didn't think GV was still a "thing."

Current RV (Sept 2018) is $960K, rent is $850pw, suggesting the tail of your formula would be something like "-11.5%" - isn't this going in the opposite direction to your intent? Shouldn't the modifier become increasingly positive as the RV gets more out of date? I guess in reality the modifier could never be positive, and would start out very negative (and trend towards "less negative") given our next RV is likely to be somewhere over $1.2M, even allowing for a large downturn in property values.

I feel guilty enough asking $850pw, and I've had to convince my better half to drag it down the market scale even thought the property itself is in superior condition and literally (yes, literally) everyone who views it tells us it's far nicer than any others in the price bracket.

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Thanks. To be accurate, I'd need to know your suburb and how many bedrooms in the stand alone house.

But, let's say it's a 3 bedroom house in the suburb of Mount Cook, Wellington.
Here's the current Market Rent data for Mount Cook;

https://www.tenancy.govt.nz/rent-bond-and-bills/market-rent/?location=W…

According to that website the following market rents for a 3 bed house currently are:

Lower Quartile = $650
Median Rent = $735
Upper Quartile = $825

Median Income (2018 census) in Mount Cook is $27,200 - data here: https://www.stats.govt.nz/tools/2018-census-place-summaries/mount-cook-…

Suprisingly low!!!! I'll work on $30,000 (given that data is a couple of years old). And given we're working on a 3 bed house, we'll double that for the median household income to $60,000.

So, the weekly rent maxima for the area with a median household income of $60,000pa would need to be $350/week to make the rent affordable (i.e. 30% of gross household income, rounded up to the nearest $10); (see rent affordability calculator here);

https://calculate.co.nz/rent-affordability-calculator.php

The lower quartile RV for 3 bed houses in Mount Cook would be obtained from the QV (or the WCC) database, but let's assume that is $500,000. To get to our rent maxima of $350/week for the lower quartile, 'x' = minus 30

[(500,000/1000)] - 30% = $350.00

Hence, a 3 bed rental in Mount Cook with an RV of $960 - the same number of the 'x' variable applies, and the weekly rent maxima would be:

[960,000/1000)] - 30% = $672.00

Shocking, eh? That gives you an idea of just how bad the rack rent situation has become here in comparison to incomes.

Bear in mind, the government presently does pay accommodation supplements - and you can see why!

Best thing to do for that would be to provide the supplement in a lump sum once yearly directly to landlords with qualifying tenants. The view being to slowly decrease the supplement over a number of years.

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PS - For interest, the median weekly rent in Mount Cook, Wellington based on the 2018 census was $380.00!!!!!

https://www.stats.govt.nz/tools/2018-census-place-summaries/mount-cook-…

Once again highlighting just how out-of-control Wellington rack rents have got in just 3 years!

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But, let's say your house is in Thorndon - where the median income is $52,900 (2018 census) - when doubled for household income, that's $105,800.

https://www.stats.govt.nz/tools/2018-census-place-summaries/thorndon#in…

Plug that into the rent affordability calculator and the 30% of household income = and an affordable rent for that household is $606/week.

https://calculate.co.nz/rent-affordability-calculator.php

The median weekly rent in Thorndon in 2018 was $450.00 per week;

https://www.stats.govt.nz/tools/2018-census-place-summaries/thorndon#ho…

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Pretty poor argument on rent controls, sighting the poorly developed precedents of New York, etc. Maybe they need to speak with Kate.

Also, if we can subsidize rent via rental accommodation subsidies then anything is possible.

But this is what happens when you don't make the right decision years ago, and ALLOWED everyone to get hooked on housing heroin. Cold turkey is the only way out.

The figures are easy to work out that a 30% reduction is needed as they said. But what they didn't mention, is this means no capital growth, which would sound obvious if you are talking about a reduction. But it is because of no capital growth that you need the reduction to match the interest rate deductibility loss that causes the loss of any capital growth. IE it can cause a cascading loop that feeds on itself. But would net out at about a 30% loss in value.

But it is at a knifepoint, if the Govt. blink and allow rent prices to rise in compensation for the interest deductibility loss then it is like they never did anything and we are back to the status quo, prices go up on rentals, and property prices go up, etc.

I think the Govt. policy wonks have done the numbers and have said all renters agree with getting the price down, both for those renting and for those of them wanting to become FHB, plus there are enough landlords that also agree with price falls (to a degree), and between these two groups, there are Labours voters for the next election.

If Labour don't make this work they will have pissed of both Landlords for doing it, and renters for still failing to deliver, and will be toast before the next election.

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" sighting the poorly developed precedents of New York, etc "
( I am sure you mean "citing" ) . Got any "well developed" precedents to cite ?

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Why do so many commentators ask for policy based on what has/is being done overseas? NZ has been a policy innovator in so many legislative areas - we can do it in terms of rental accommodation as well.

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in other words you have not got a well working rent control policy precedent to cite either.

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I prefer to innovate:

[(GV/1000) +/- x%]

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You mistake ignorance of the laws of economics for "innovation".

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Given that CPI is based upon to a significant part the rate that rents rise (i.e. a consumer cost), shouldn't rent rises in turn be limited to to the rate of inflation. That rate of inflation that the RBNZ targets is 2%. Therefore, within the laws of economics (or whatever you mean by that), rents should never be allowed to rise at a rate greater than that which the RBNZ have decided is good for price stability across the economy, and that is a rate of 2%.

So perhaps, as you say, based upon the laws of economics, rents should never by allowed to rise by more than 2% pa.

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Should "any" prices be ever allowed to rise more by more than 2% pa ? - your argument is not at all specific to rents.

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Are your 'laws of economics' in your argument against Kate specific to something? If so please provide a reference to a school of thought or RBNZ mandate.

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You are changing the subject in order to avoid answering the very simple question .. which was :
"Should "any" prices be ever allowed to rise more by more than 2% pa ?"

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You raised this subject and I'm simply arguing a case based upon the laws of economics as the rulers of economics in this country have decided are the best approach (consumer price inflation targeting).

RBNZ targets 2% inflation for consumer prices and for many consumers 40% of their take home pay is spent on rent -its the biggest consumer item (by far) kiwis have to pay for each week. Given the RBNZ mandate is for consumption price stability, there is a valid argument for rents to be limited to 2% inflation indefinitely in order to ensure the CPI mandate is satisfied.

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long post , no answer to the short , simple question - I wonder why.

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Consumption items used in the CPI basket, long term, on average, no. Otherwise the inflation targeting laws of economics’ that the RBNZ use to govern price stability are wrong in every respect. Meaning the OCR is wrong, meaning mortgage lending rates are wrong, meaning asset prices determined by the discounting all future cash flows are wrong.

This short enough to answer your ‘simple question’ that isn’t simple at all?

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Thanks, that reminds me... My weekly rent maxima policy proposal would also stipulate annual rent rises of no more than CPI - and rent formula variable ('x) reviews would occur once every 3 years following GV revaluations.

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Nice

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Pardon me for highlighting the stupidity of these suggestions - but, what are you actually trying to control if your argument is to limit rent based on CPI when CPI is a function of market rents?

#armchaireconomists

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Rent control is by way of a formula based on RV/GV, i.e., [(GV/1000)] +/- x% = weekly rent maxima.

The formula variable (x) is reviewed once every three years following revaluation of GVs in the area; and taking into account revised median incomes as well.

Each year in between, the maximum allowable rent increase would be equal to CPI.

Hope that explains it.

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Rent controls will reduce demand, reduced demand will reduce supply. you would worsen the crisis. The affordability problems are downstream from the supply problem, solve the supply problem and the rest will fall in to place just fine.

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The 'laws' of economics? Snap.

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.. so much better to live with "laws of Kate".

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I think you missed the joke.

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NOT a joking matter Kate, very serious topic. I feel you're doing the topic a disservice

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The 'laws of economics' (aka the RBNZ and their price stability mandate) says that consumption prices should only rise by no more than 2% pa. And given that 40% of many consumers wages are spent on rent, therefore based upon paashas argument, rents should never be allowed to rise at a rate higher than 2%. Otherwise it breaks the laws of economics - as set by the RBNZ who govern those laws.

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With rent control must also come Rate/Insurance/Building materials control with a similar equation otherwise you simply tip the balance even more against Landlords.

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Excellent article.

Rent control -> demise of rental stock -> government steps in -> entire society pays through higher taxes -> more people choosing to rent -> more taxes needed -> repeat step 4.

The lunacy of socialism.

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But we're already in this position: no rent control -> ever-increasing rental prices -> govt steps in with AS -> entire society pays through higher prices -> property investment becomes more appealing -> more people having to rent -> more taxes needed -> repeat

And getting rid of the AS without making any other interventions would be disastrous at this point because so many people (both tenants and landlords) depend on it. Something like 300,000 people get the accommodation supplement. Add in the landlords as well, and that's over 10% of the population who rely on it in some way.

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"Nobel laureate Gunnar Myrdal, has said that “rent control has in certain Western countries constituted, maybe, the worst example of poor planning by Governments lacking courage and vision”. "
"Swedish Professor Assar Lindbeck has said that “short of bombing, I know of no way to destroy a city that was more effective than rent control”."

https://www.oneroof.co.nz/news/39221

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As I have said before, rent control in Sweden has been a disaster. My brother who lives there has told me all about it.

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Rent control is second best way to destroy a city after bombs.

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The only ones who don't want rent controls are obviously those who want to raise you rent every time they get the chance by as much as they wish. Of course we need rent controls, it is an indirect way to control housing prices which we badly need so not using this available tool would be a poor decision.

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Your argument for price controls is not in any way specific to accommodation rates.
Do you favor price controls for all goods and services on the same basis ?

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No, just in those for which a de facto oligopoly is imposing untenable high prices to their clients.

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Either you are saying that rents should not be controlled ( rental market is NOT an oligopoly - it is fragmented and has a very large number of players , most of them small .. ) or you do not know what "oligopoly" means . Which one is it ?

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You mean like Local Councils, Regional Councils, Energy suppliers. ECan has just proposed two possible rate increases Large & Larger a better solution would be Lower wages or even lower wages for the employees and nothing for the Executive until they demonstrate their management actually has delivered good services on time and economically.

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Sorry, accidentally reported.

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What is the Nats policy on Interest deductibilty?

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I am centre left but I believe the best way to keep rental inflation down is to build, build, build. Both the private and public sector.
Rental inflation hasn't been too bad in Auckland in the last 5 years, meanwhile in Wellington it's shot up.

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I see in Australia, they have introduced some new rental laws, similar to NZs healthy rentals. Property people over there now appear to be warning that there are going to be less rentals, as there will be more of an incentive for landlords to sell. So there won;t be the same number of cheaper older houses for people to rent as cheaply, which is the same warning that occurred in NZ. But will the government allow NZers to not have places to live? There could be 100,000 or more empty houses in NZ, and NZ is short 80,000 houses. I know of lots of houses in my town that have noone living in them most of the time. So it appears we may have enough houses, although some will need some work. But if we go back to previously immigration level, we are creating an artificial high demand, which will just make the problems worse.

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What a sad sad place we have ended up in !
To me there is a fine balance in all markets and any changes particularly radical and unconsulted can cause serious consequence's !
- We have mortgage rates that are unneccessarily low
- Resulting in TD's that are sub 1%
- It's no surprise that TD money is looking for a new home ie houses
- The Government and Reserve bank have created this problem and are the one's who can fix it
- Blaming house investors is just stupid they are a symptom not the cause
- There already is a rental crisis along with a emergency housing waiting list crisis
- The rental crisis along with a emergency waiting list crisis has been created by Government policy around rental house standards and tenancy laws.
- The above statement Ideology is sound but excuted in a poor way that makes Landlords bad guys
- The most vulnerable renter is now discarded as to being too problematic under the new tenancy laws for the private rental market and now is in Government funded Motels
- For all of the above reasons the rental pool is getting smaller and more selective
- 80% of the rental market is owned by private individuals of which 83% are Mum and Dad investors owning 1 rental
- If this accommodation is not provided by the private market who's going to take up the slack ??
- Home ownership is at 65% at best in the 90's it was 73%
- For multiple reasons there will always be a % of society that will rent
- Government response is to use up Motel capacity
- This is all a classic example of protecting a bad decision by making another bad decision
- I have no trust in this Government making good policy for any of our social problems
- NZ's housing problems set to worsen for the team of 5 million is a disaster
- Rent controls if brought in will blow out the problem massively

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Rent control is the second best way to destroy a city - bombs are No 1.

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This government is totally out of its depth in running our economy, they have failed in delivering anything promised, they have lied and deceived the public on numerous issues.
And to top it off, they did nothing about Trevor Mallard which speaks volumes about the total lack of integrity the leadership of of this regime has.

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