OPINION:
Renters have been thrown under a bus by the Labour Government this week. Now the dust has settled on the Government's announced housing changes, economists are pointing to a likely rise in the cost of rents, and an increase in homelessness. The flipside, of course, is that homebuyers may be better off, if house price inflation is pushed down. All in all, the housing announcements look set to fuel greater wealth inequality in New Zealand, creating an even bigger divide between home owners and renters.
In analysing the announcement for the Guardian on Tuesday, I predicted house prices are likely to be stabilised or reduced, which will help middle-income first-home buyers, while those at both the top and bottom are set to lose from the new policies – see: Targeting New Zealand's property speculators is popular, but won't fix the housing crisis.
In this column, I focused on the Government's decision to abolish the ability of property speculators renting out houses to deduct their mortgage interest payments from their tax calculations. This change will make investment in rental properties less attractive and it's the part of Tuesday's suite of policy announcements that is likely to have the biggest impact.
The growing consensus is that the flow-on effect will be landlords either putting up prices to recoup increased costs, or selling their rentals. Buyers are likely to be owner-occupiers, thereby reducing the number of rentals available, adding to the rental shortage. In addition, because owner-occupied houses tend to have fewer people in them, any shift of houses from the rental to ownership market will result in fewer people being adequately housed.
ASB chief economist Nick Tuffley was reported saying "You are more likely than not to see rents going up faster than what they already have been" – see Madison Reidy's Landlords' warning to increase rents not an empty threat – economists.
Yesterday's Stuff newspaper editorial says renters are the "collateral damage" in the struggle to bring down house prices – see: Renters could be 'lost generation' in New Zealand's housing crisis. Here's the main point: "Property speculators will simply move their wealth elsewhere, first-home buyers will gain a greater opportunity, but renters could be left clinging to those lower rungs. And paying dearly for the privilege, with rents in Auckland and Wellington pushing a median $600 and more a week, and an average of $440 in Christchurch."
The newspaper argues the policies announced this week will only exacerbate the plight of people who aren't anywhere near being able to buy a home.
How much might rents rise by? It obviously depends on a lot of factors, including the ability of renters to pay more. ASB economist Mark Smith has done some modelling to show that landlord investors will be losing about $5000 a year from the interest deductibility change. If landlords were to pass this on to their tenants, rents could rise by about 30 per cent, although Smith thinks such steep rises would be unlikely – see Susan Edmunds' Investors might pay 30 per cent less for properties after deductibility changes, says ASB economist.
The potential for rent increases is "inescapable" according to BusinessDesk's Pattrick Smellie, who writes today that other government policy settings mean the rental market in New Zealand is particularly liable to responding with higher rental prices – see: Housing package: this term's oil and gas ban? (paywalled).
Here's his main point about this: "The NZ rental market has an apparently surprising capacity to bear higher rents. The government's own Accommodation Supplement helps this along by subsidising low-income people who can't afford what private landlords are charging. Low or no-interest student loans allow many landlords to charge outrageous prices for cold, dank, small rooms in elderly houses to kids who've only just left home."
For those who think landlords are unlikely to put rents up, commercial banker Dean Nimbly says, these people "clearly haven't met any actual landlords", and he says "residential investors tend to act more as a cartel than as competitors – where one landlord increases rents, the rest will feel emboldened to follow suit" – see: On housing reform: less than meets the eye (paywalled). Nimbly argues that increases to recoup the new costs for landlords are likely because "demand for rental accommodation exceeds supply in most areas, meaning landlords face little constraint in increasing rents."
Infometrics economist Brad Olsen made some similar arguments on TVNZ's Breakfast, saying that "as long as there wasn't enough supply of rental properties, landlords can continue to largely dictate prices" – see: Rents will increase, regardless of Government's housing package — senior economist. But Olsen also adds that "Rents will go up, but they will not go up exponentially because of that policy only."
Writing in the NBR, Dita De Boni argues that the new package of reforms will merely exacerbate the divide in New Zealand between renters and home-owners and amount to "middle class welfare" – see: Housing package doesn't address irrationality underlying real estate market (paywalled). In this, De Boni sides with TOP leader and economist Shai Navot, who says the measures shift "a huge tax advantage to owner occupiers and those with cash".
De Boni argues that "turfing out investors in favour of first-home buyers" will be bad for renters, and will simply "benefit the property-owning class to the detriment of everyone else".
Leftwing blogger Martyn Bradbury says an economic win for homebuyers is a political win for Labour – see: Labour's war on speculators – winners & losers. The other big political winner is the Act Party, who Bradbury says will gain "a vast new flood of angry rich Landlord Speculator members". The political losers in this are National, whose traditional middle class support, much of which shifted over to the Government at last year's election, is now tied even more firmly to Labour.
Advocates for renters have been very disappointed by the lack of changes that might improve the situation for non-homeowners. Renters United's spokesperson Geordie Rogers went on TV on Thursday to ask: "Why did they not bring in any policy to help that one third of New Zealanders that are currently renting who are looking to buy a home?" – see 1News' 'I want them to have a future' – Concerns renters have been overlooked in housing package.
Other advocates for renters have spoken out in an article today by Kate Green and Ethan Te Ora – see: 'Not a priority': Renters feel overlooked after Government's housing announcement. In this, "Manawatū Tenants' Union spokesperson Ben Schmidt said the package did nothing to help the majority of renters or families in emergency housing who needed change now."
The article also quotes Ashok Jacob, of Wellington Renters United, saying experience shows that "landlords will put the rent up, whenever they can, for no real reason", and hence this is likely to occur with this latest policy change. He also argued for rent controls or freezes to be implemented by the government.
Columnist Glenn McConnell also fears that "generation rent" has been left out of the Government's consideration in their announcement, and rents will now rise. He suggests that instead of just being concerned with homebuyers, the Government needs to focus on the housing crisis for those at the bottom – see: Forget first-home buyers, the metric of success in the housing crisis is rental prices.
Individual renters are speaking out about their disappointment that the package entirely ignored their plight – see RNZ's Housing package opens door to investor angst, renter despondency.
In South Auckland in particular, there won't be much enthusiasm for the Government targeting first-home buyers – see Stephen Forbes' Salvation Army questions Government's new housing package. According to the Salvation Army's Ronji Tanielu, the housing announcement is "not going to help beneficiaries and it doesn't help in terms of transitional and social housing." Similarly, Manukau Urban Māori Authority (MUMA) chairperson Bernie O'Donnell is reported as saying that "addressing the astronomical housing rents in the area with more social housing has to be a top priority".
Justin Latif also reports that South Auckland housing advocate Andrew Lavulavu fears that rising rents will now escalate: "The average rent in South Auckland is now around $600 a week, but this time next year it could be around $750-850 a week. So we might see issues like overcrowding and health-related issues rise, as families move in together to pool their incomes" – see: Housing reforms could end up hurting South Auckland families, expert warns.
Housing Minister Megan Woods was challenged by John Campbell on TVNZ Breakfast about the position of renters being made worse by Labour's decisions, and she responded that the Government had received "contested advice" on rents being made worse – see 1News' Megan Woods challenged by John Campbell on consideration given to renters in housing package.
This article also reports: "Woods said she wasn't expecting a spike in rent prices because the Government had 'comprehensive' housing policies which, for example, only limited rent increases to once a year."
Finance Minister Grant Robertson has also deflected questions about rents going up by stating that if this happened, tenants can simply "go looking elsewhere". This has caused something of a backlash – see Mark Quinlivan's New Zealanders react after Finance Minister Grant Robertson says tenants will 'go looking elsewhere' if landlords hike rents. Similarly, see Rachel Sadler's Social media users attack Jacinda Ardern over Government's new housing plans.
However, there's a case to be made that rents aren't likely to go up. This is based on the experience of the UK, which enacted a similar policy a few years ago – see Dan Satherley's Housing tax changes – what happened when the UK tried the same thing, and how we're doing it differently.
Finally, for a bigger picture view on how the Government's decisions over the last year have made life much worse for renters, and why "the average New Zealander effectively lost $54.59 for every hour they turned up to work if they did not own a home", see analysis from Victoria University of Wellington's Brendon Blue: Non-homeowners are paying the cost of the Covid recovery.
Dempsey Corkran, the only Lake Alice staff member charged, has died aged 93.