By Tom Baker*
The ink was barely dry on the Green Party’s recently unveiled “Pledge to Renters” – which included annual rent increase limits, a rental warrant of fitness and a national register of landlords – before others were consigning it to the policy dustbin.
By Tuesday morning, the prime minister had emphatically ruled out rent controls as part of a potential Labour-Greens coalition after this year’s election: “International experience suggests […] a constraining effect on the number of rentals available,” he said.
The ACT Party housing spokesperson claimed the policy “attacks landlords”, while the vice-president of the Property Investors Federation said it would lead to a “black market” in rental deals.
Labelling the policy “economically illiterate”, National’s housing spokesperson Chris Bishop said: “Economists don’t agree on much but almost all agree rent controls […] are counterproductive.”
And it is true – social science research, and economics in particular, can be marshalled to argue against rent controls. One meta-analysis of 60 studies, for example, found “economic research quite consistently and predominantly frowns on rent control”.
These arguments tend to converge around the notion that controls result in the opposite of their commonly stated objectives: reducing supply and lowering rather than increasing housing standards.
But some perspective is needed. Another international analysis found the “strongly held but highly polarised views” about rent control are “rarely strongly evidence-based”. In fact, there is much more to the debate than many of the partisan arguments suggest.
Combined with rent controls, rental warrant of fitness, & register of landlords; our Pledge to Renters will build thousands of new homes.
— Green Party NZ (@NZGreens) July 4, 2023
This will shift the power balance away from people who use homes to make money, towards people who need healthy & warm homes to live in. pic.twitter.com/8YAvdcfliQ
The generation gap
The research that exists tends to quibble with so-called “first generation” rent controls. These involve freezing rents, akin to the temporary measures put in place during the COVID-19 pandemic.
First generation rent control was especially popular in Europe and, to some extent, the United States during and shortly after the second world war. Some rent control dwellings from that time live on to this day, but they are rare.
Importantly, these measures involve sustaining rent freezes well below market levels – which is not something entertained by the Greens.
However, because the economic literature tends to focus on first generation rent controls – and because this highly partial focus comes to stand for all rent controls in public discussion – the Greens policy has been implicitly lumped in with only one kind of control.
Research on second and third generation rent controls is less plentiful. But it contains more diversity of disciplinary perspectives – including public policy, sociology, geography and other research fields – and is more equivocal in its findings.
Mainstream economics is famously enamoured with formal models based on assumptions that lead to good theory, but which often run into trouble when applied to the complex social and political systems that shape us.
When we begin to incorporate those complexities in our analysis, the world of rent control looks more varied. As the same comparative study that found a lack of evidence-based perspectives put it: “the impact of rent control depends on its form and economic context […] plus crucially the nature of the welfare system in place”.
Rent controls would be like wearing a corset in the hope that will prevent you getting fat, says Property Investors Federation. https://t.co/DUj8YwC2Ru
— Stuff.co.nz Politics (@NZStuffPolitics) July 2, 2023
Not a blunt instrument
The Greens’ proposal most closely resembles second generation rent controls. These allow for rent increases, but within specified limits (a maximum 3% annual increase under the Greens’ proposal). And only under certain circumstances (such as making significant improvements to the dwelling) can landlords increase rents beyond those limits.
Third generation rent controls, by comparison, only apply within a single tenancy, whereas second generation controls apply within and between tenancies. So, a landlord cannot opportunistically increase the rent, above the specified limit, before a new tenancy begins.
Rent control need not be a blunt instrument. It can include any number of provisions to overcome or ameliorate anticipated perverse outcomes.
Around the world, there’s a range of locally tailored variations of rent control policies. Canada, France, Germany and the Netherlands, for example, each have different approaches to stabilising rent increases for part of their rental housing stock.
More informed debate needed
A big part of the problem with New Zealand’s rent control “debate” is that it misses these kinds of nuance. A better discussion would involve looking at what kind of rent control might work, for what purpose, and with what trade-offs.
This is especially important in the context of the country’s rental affordability problem and wealth distribution disparities underpinned by the current housing system.
As was reported earlier this year, Stats NZ figures show renters are experiencing the housing affordability crisis worse than homeowners. In the year to June 2022, one in four renting households were spending more than 40% of their disposable income on housing costs, compared with one in five mortgaged households.
Average weekly rents also increased faster than mortgage payments over the past 15 years – by 93%, compared with 48.8%. Given these realities, some kind of policy response is surely logical.
A modest proposal such as the Greens’ policy deserves more than blank rejection. As a recent study of the “mythology” of rent control put it, we ought “to take the trouble to look closely at different kinds of rent control”.
If it is understood as multidimensional, not monolithic, such a policy might at least be seen as one legitimate approach to improving renters’ lives.
*Tom Baker, Associate Professor in Human Geography, University of Auckland. This article is republished from The Conversation under a Creative Commons license. Read the original article.
168 Comments
I’m not a fan of governments interfering with markets but I’m fine with them competing in broken markets as they did with Kiwibank. Now is the time for the government to build crap loads of houses and sell them on the open market, that will certainly bring rents down. It’s now time for Kiwibuild!
I'm watching the government bring 60s homes up to healthy homes standards, and shudder to think what they'd spend building a whole new house.
Hey let's have 3 layers of project management all taking progress photos and generally making things take 3x longer than they should.
We know the names Bill subritsky/universal homes and Keith hay homes also Neil homes, well because they built thousands of houses, yet basic homes to put a roof over and give fhb a better life. Not top end and not over the top pricing. We could go a step up with better insul and do the same but can't do that now as the process is over regulated and controlled by vested interests
It seems to be the interest rates that are creating havoc.
This article is very telling.
Mortgage rate pain: 'We will probably have to sell the house'
https://www.stuff.co.nz/business/property/132483897/mortgage-rate-pain-…
That’s an interesting read. The take home from it to me is what sort of stress testing did the banks do. These stories read very much like the stories from the subprime lending with excited buyers moving into lovely homes not realising that the interest rates could never remain low. It’s cruel.
Well test rates were sitting at the mid 5% range in 2021. 2 years later (a very short time when it comes to mortgages) people are refixing at higher rates than they were initially tested at.
But people will jump quickly to the defense of the banks, "borrowers should have known" blah blah blah. The banks didn't know?
https://www.stuff.co.nz/business/131969065/mortgage-rates-have-exceeded…
Lol Jimbo, if that were possible, they would have done it by now. Houses were being built, particularly in Auckland, but now, given the economic headwinds being created by the Government, development is coming to a stop. So it'll be back to square one again shortly.
'There's all this research about why rent controls are crappy by people who dedicate their careers to studying it. But I think that lacks nuance..'
Rent controls are universally a terrible idea when the alternative is plain to see... Build more dwellings. Auckland is a testament to that; unequivocally, the best rent control is supply.
Credit.
- Do you think Landlords would be "forced" to up the rents if they hadn't borrowed $500k+ for a shitbox that cost 1/5th of that to build 30 years ago?
- Do you think new houses would be $1m if the OCR stayed at 8.25% from 2008 to today?
- Would construction have collapsed over the past 15 years if the OCR had stayed at 8.25%?
People have enjoyed and done well out of low interest rates. Now it's time to pay the piper, and those with their names on the loan document are expecting others to pay what's due.
1 - Landlords are not price setters. They are price takers - hence why rental price growth is not anchored to interest rate movements.
2 - I don't understand the point here. The solution to the housing crisis is not to do away with inflation targeting. The solution is to increase supply elasticity so that movements in headline interest rates have less effect on price movements.
3 - I don't understand your point here. Construction didn't collapse post gfc because the cost of borrowing was dropped, if that's what you are trying to get at? It also makes no sense in the context of construction post 2016.
Do we have a crisis of not enough houses?
Or do we have an ownership crisis because every man and his dog with a little bit of equity has added demand to the pool of existing shelter, all supported by low interest rates and banks that are willing and able to lend?
If Landlords are price takers, then there's no issue with rent controls? Rent controls basically dictate how much a tenant is allowed to spend, not how much a Landlord can charge.
The fact that landlords are price takers is exactly the reason why rent controls are so bad.
"Rent controls basically dictate how much a tenant is allowed to spend, not how much a Landlord can charge."
Dafaq? Rent control is literally capping the price (and thus quantity) at which a landlord can sell goods.
I can tell by this you are firmly in the same never done economics in my life camp as the author of the article.
If Landlords are price takers, then they "take" whatever price the market can give them. Therefore, a rent control dictates what the market is allowed to pay a Landlord does it not?
A landlord is selling a service, not goods. The biggest cost that goes into many Landlord's service is the mortgage. They can control this by borrowing less, but have chosen to go on a massive borrowing spree over the last few years which has effectively set a cost floor much higher than it needs to be. This is what makes rent controls untenable.
The cap is binding on both what the landlord can supply her goods at and what a tenant can demand her goods at. It is not strictly a limit on what tenants can pay. This intersects the supply and demand curves. Not just the demand curve as you asserted.
'Unbridled borrowing' is not what got us here. Constraints on supply is what got us here. As I said, the effects of the former are diminished in the lack of the latter.
Those are very different mechanisms to a price cap.
They represent shifts in the supply curve. They don't arbitrarily cap it. Nor do they suggest landlord profit is not a residual.
There is no reason why they shouldn't raise rental prices to capture some or all of the cost. But that is also not in itself a challenge to the fact that landlords are price takers.
So they're kind of a hybrid price taker slash price setter, depending on what universal pricing signals arrive at the market?
Therefore unbridled borrowing costs, and a subsequent rise in those borrowing costs (Universal pricing signal), could result in Landlords setting their prices higher than the prices they would have otherwise taken.
Therefore, to save tenants from being lumped with a cohort of landlord's poor borrowing decisions, the Government proposes rent controls.
I wouldn't say investors made poor borrowing decisions. The issue has been the speed of rate increases, which surprised everyone including the banks, together with the removal of interest deductibility. If these effects to cash flow were slightly more moderated eg extended out over another 6-12 months, then rental increases would have been much more moderate.
Very True. But I am sad to say I have heard of many examples of Landlords explaining to their tenants they must increase their rent because "It's just the market ". The 2 biggest drivers of the market is Fear and Greed.
Here comes the Fear. 10% Interest Rates This Year, Guaranteed !
To bring the cost of land down, you'd want a shift away from freehold to leasehold.
As for how to bring the build costs down, you'd either have to undo decades of regulation across fields like health and safety and overall compliance, or have some sort of state sponsored mass offsite construction apparatus.
At the moment, it's just tinkering around the edges.
Some of the causes aren't fixable, at least not anytime soon. For instance, there's such a dearth of experience, construction is taking 2-3 times longer, because it's being carried out by broken old men and inexperienced boys. This gets telegraphed because management view workers as head counts instead of relative to their abilities.
Given you can't generate a workforce with decades of experience overnight, one of the only ways to circumvent that is to make housebuilding a production line process, in one place.
It's a typical socialists idea from the Greens, run inflation at 7%, tax people at inflated values, but expect business owners to be able to operate receiving revenue, capped below inflation.
Crazy nonsense, I bit slippery Hipkins would be onboard with it, if he needs to do it to form a government though.
Great so all our taxes will go to paying for housing for other people to live in.
Private property owners tend to do a lot of maintenance on properties themselves, and often manage it for free too, this is all going to be extra costs the government landlord ie taxpayers will need to for out for.
This government would go from doubling NZ's government debt in less than 6 years to probably tripling it, all on principles and ideology, that they don't like someone making money from owning a house, and people that think there is nothing to being a landlord.
This government has told you to be envious and some of you sure are.
Genuine question...
I have a cottage on my rural property that is currently rented out. The property cannot be subdivided to remove it from my title due to local government regulations. What happens under a socialised rental sector scenario? Bear in mind there are thousands of such secondary (and subsequent) dwellings on rural properties all over the country.
The least-effort solution I can think of would be compulsory perpetual letting to a government entity, who would sub-let it. This brings up a whole raft of issues though (not many people would welcome complete strangers onto their property with no right of refusal), and I suspect many such dwellings would simply be demolished or repurposed as they are incidental to the rural business that forms the primary use of the property.
Another option would be overruling local government regulations and compulsorily subdividing then acquiring the secondary dwellings, but that would also require a level of funding for not only the acquisition process but also subsequent infrastructure spending for roading, power and 3 waters. These could all be leased from the primary landowner, of course, but that would be yet another perpetual cost to the government.
And now often they get a brand new one fully insulated, or one refurbished to those standards, while us muggins that saved and sacrificed for years to buy their own houses have to slum it in single glazed houses that apparently are too "dangerous" to put beneficiaries in, but ok for the rest of us.
Although normally ok for normal people, because we don't sit there all winter watching mold form on ceilings etc and then try to blame it on the house, most people with common sense start getting rid of the mold before it gets to that point.
If you incentivize welfare dependency like this government does in spades, guess what you get, welfare dependency.
And we come back to this tired old trope about condensation being a result of not opening your windows. That's not how physics works. Yes, you don't get condensation when the inside is the same temperature as the outside but that's not exactly helpful. The biggest cause of condensation is our pathetic excuse for building standards.
Thanks for the physics lesson, regardless of ventilation (even though it lowers humidity levels which you ignored) does science also tell you that if you wash off mold every now and then with something so simple as water and a bit of soap then it is also no longer there to be a problem.
Or even surprise surprise add a bit of Janola or Ajax into it, and it will stay away even longer.
Surely we don't have to be rocket scientists or physics teachers to work that one out.
Who sits there all winter doing nothing to clean off mold, while seemingly being aware that it is dangerous to allow it to build up to those levels, and then at the end of winter blames it all on the house.
Sorry but that kind of behavior just defies logic, and then to try to justify it defies logic even more.
Get a serviced apartment if you want a clearer, landlords don't tend to build in the cost of cleaning as well.
Opening the windows in our cold 1920's single glazed villa helps with condensation. It's not just opening windows, it's also wiping down any moisture from the glass each day. A 10 minute task.
But of course, let's blame the house for not having extractor fans in every bedroom.
Yet how many times do we see main news media show pictures of a moldy ceiling, from someone's house, who is presumably blind, to allow it to build up to that point, as a reason to blame houses themselves, and not in any way the occupants who did nothing for months on end to remove the mold.
Sure this kind of thing is not a problem with double glazing, but that doesn't mean it's unmanageable living in a single glazed house during winter, as large parts of the population already know from experience.
They do realise a house costs around $400K to build right? That's probably at the lower end and doesn't include land which might be around $200K per house.
35,000 houses at $600,000 per home is $21,000,000,000.
$21B over 5 years...
Reading their house build plan, they state "We will incentivise developers to build thousands more warm, energy efficient and affordable homes in the places people want to live. Developers that meet climate-affordable homes in the places people want to live".
Meeting these targets will up the build price further, and no developer will build at a loss. Do the Greens plan on buying every house built in NZ over the next 5 years at market value?
Anyone have any ideas? I am genuinely interested to know how this would work.
You build 1000 100 storey concrete highrises, and corral all the renters in there. Job done. If you don't like living amongst gang members, drug addicts, the mentally ill, sex offenders and criminals then too bad. Go buy your own house.
https://media.wired.com/photos/5926921ef3e2356fd8009b98/master/w_1600,c…
However, if you do this then you will only increase inequality as the renters look wistfully at their owner occupier comrades who still enjoy gardens and garages, and the freedom to have a BBQ on the patio. Soon there will be demands to confiscate those single family dwellings and give them to the renters as well. The demands of the socialists never end, until as Margaret Thatcher said, they run out of other people's money (or assets to steal).
No it doesn't turn a profit, but the money to pay for it still has to come from somewhere and we would be looking at $$Billions. Unless of course they can find a Green's workforce who produce all of the materials and provide the labour for free. Maybe they should get the unemployed building houses.
It is disheartening though when you do run the numbers and find that for what the Labour government gave away during covid ($60B+), we could have provided every kiwi with a warm, dry house, with money to spare for a new hospital or two.
What did we get instead??
There always a lot of talked about what a house cost 30yrs ago, so why the increase in Rents on the same house now?
It's a market price based on the cost of supply or replacement.
Every rental property based on todays market value vs is rental generation, looses money each week.
Rental owning is a long term forced saving program, inflation hedged, something you can leverage, invest in and touch. The whole game dosn't work without inflation and therefore nominal price inflation over time.
You can restrict Rents but the inevitable fall in new supply needs to be filled somehow, as the private sector already marginal maths completely breaks under those rules.
This would be great idea if we honeslty thought the Greens / Labour, who come up with these wonderful ideas, could fill that supply hole.
Kiwibuild 2.0?
about the rent controls. the root cause of high rents is a combination the rental supply shortage, expensive holding/maintenance/building costs, and renters income issues. The rent control looks 'addressing equality issues for renters', but it will make rentals even more expensive, limiting re-investment into housing market.
The landlord is in the market for a profit, so much so like all for-profit parties for all kinds of businesses. It seems today's sentiment always demonize landlords for issues not landlord's fault (the Greens are masters of this sort blaming and shaming). If you landlord don't make money, why do they stay in the market?
We should do some math:
take Petone, Lower Hutt for example. currently you could pick up a 3 bed small house for around 700k(after dropped about 25% in price), according to Tenancy Services, the median rent for a 3 bedroom house in Petone is 730 per week. so the gross rent return on max capacity is : (730*52)/700k = 5.42%. not too bad, but rates is around $3000 a year, insurance is about $3000, maintenance can average $1500 (in a good year), and it's likely the house won't get rented all 52 weeks a year.
so the before tax return is: (730*50-7500)/700k = 4.14%, which is lower than Term Deposit, or CPI.
this does not include interests, if you buy with a mortgage, say on 40% down payment, the 'profit' becomes $3160. but your tax bill is about $9138 as interests are no long deductible. You are $5978 under water already.
You could argue capital gain will compensate the cashflow losses. But under the current rule, you need hold for 10 years, or you pay 39% on 'capital gain'. 10 years of no return and stress dealing with tenants!
you could also consider new builds, but good luck with that, cashflow is much worse, and risk is much higher.
In short. the days of rental investment is gone, and I don't see why people will invest in the residential houses. And without these investment, housing shortage is inevitable.
Rental control? Don't we need to have rentals before we can control it?
Agreed, a Landlord is there to make a profit.
- The average investor loan size in 2014 was $280k. In 2022 it was $524k. An 87% increase.
- The average wage in 2014 was $863 per week. In 2022 it was $1189 per week. A 37% increase
Could Landlords not still make a profit by borrowing $300k - $350k instead of $500k+, and cutting back the rent by $200 - $300 per week?
loan size has nothing to do with the calculation.
If you can get a 5.8% return on your money, why would you put into residential rentals taking 4% return with much higher risk? logically many would just sell and put their money elsewhere.
it's true people who entered the market 10 years ago started on a different rule set, and already build up good wealth, but not anymore. The younger generations can forget about building wealth via rentals, they are blocked from the wagon with the new rule settings, and they can thank the Greens for that.
Because most of the time Landlords don't have money. They have equity and take out a loan with that. That loan has grown astronomically over the past 9 years, and they've expected the tenant will just pay.
A residential rental would probably make an 8% return if borrowing hadn't exploded, resulting in house prices being probably double what they should really be. But at the moment you have $1m shitboxes making $40k per year because house prices are still stuck in a 2.5% mortgage interest rate setting.
Of course rent controls work - that's why we have such a burgeoning state house wait list. Heck, John Key lived in a rent controlled property as a youngster. But, despite the obvious, what even the Greens aren't prepared to admit, is that like state housing, private sector rent controls need to be anchored on an income metric. Freezing rents or limiting rent rises on rents that are already highly unaffordable - only serves to increase the costs of the welfare state via the accommodation supplement.
It amazes me that free market proponents can, on the one hand, say market forces must rule - while fully aware that taxpayers are subsidising this market to the tune of almost $3 billion per annum. The hypocrisy is stunning.
There is an answer - we have to remove those subsidies overnight - just like the Lange/Douglas administration removed farming subsidies overnight in the 1980s - and hey, we still have a farming industry.
It amazes me that free market proponents can, on the one hand, say market forces must rule - while fully aware that taxpayers are subsidising this market to the tune of almost $3 billion per annum. The hypocrisy is stunning.
Spot on. There's the major distortion right there.
Removing the subsidy would send rents crashing, make tenants homeless, and force landlords into selling up or declaring bankruptcy. All the mortgagee sales would crash the housing market. Which in turn would see homeowners with mortgages greater than the value of their house also declaring bankruptcy. That would crash the banking system. This would require Govt bailouts the likes of which have never been seen before. The NZ economy would be destroyed overnight. When everything is deeply interconnected you don't "just do something".
Spoken like an over-leveraged landlord: "stop the subsidy and the sky would fall in".
All easily solved - government introduces a shared-equity scheme and renters become homeowners.
Granted, the existing homeowners with substantial mortgages coming off fixed terms will need help too - and again, the shared-equity scheme can come into play there too.
I have zero debt so i speak as someone who understand financial markets. Cllearly you do not. Go back and study the GFC and what happened when house prices started falling. Global recession. Massive banking crisis. Why on earth would you want to repeat that?
And how would a shared equity scheme help homeowners paying a mortgage? Are you suggesting that taxpayers pay back the amount borrowed that is negative equity? Because you can't "share equity" when there is no equity. You can only share losses. And by share, I mean take 100% of them, because any loss on the homeowner is still going to send them bankrupt if they are forced to sell at a loss.
The banking crisis you allude to already exists - it will continue. That's what happens in an over-leveraged world.
Yes, I'm suggesting that with those unable to afford their mortgages at the current market interest rates, the government will need to come in as a guarantor by taking an equity stake at lower interest rates while the market settles into this new norm. Negative equity isn't a problem until one has to sell because the mortgage is unaffordable. And better the government steps in than the vulture capitalists - that's what happened post-GFC in the US;
https://www.cnbc.com/2023/02/21/how-wall-street-bought-single-family-ho…
Such a move prevents the bankruptcies you speak of.
We live in unprecedented times - why folks didn't toss out their old economics textbooks along with the Encyclopedia Britannicas, I'll never understand.
" study the GFC and what happened when house prices started falling. Global recession. Massive banking crisis. Why on earth would you want to repeat that? "
Depends where you see the problem I guess. Was the GFC problem that house prices fell, or was it that unbridled speculation caused instability?
But there is more interconnection.
The rental subsidy is inflationary. Currently CPI is 6.7% and OCR is at 5.5%. Cutting the rental subsidies would be deflationary, leading to a decline of the OCR and mortgage rates. This would allow people to enter the housing market with a greater amount of leverage and so drive up house prices reigniting capital gains. It may reduce mortgagee sales.
Can we affords to just keep subsidising inflation?
It amazes me that free market proponents can, on the one hand, say market forces must rule - while fully aware that taxpayers are subsidising this market to the tune of almost $3 billion per annum. The hypocrisy is stunning.
Comment of the day IMO.
And then complain about paying tax...
Housing is not expensive and there is plenty of supply, there are just too many people trying to live in places like Auckland and Wellington. Look at Tokoroa, Putaruru, Tirau etc lots of cheap housing and land there. We moved from Wellington to New Plymouth 16 years ago and our standard of living jumped overnight. We have a family friend that recently moved to NZ from Croatia and he started out living in Auckland, he said this place was mental and moved to Te Awamutu where again standard of living jumped dramatically. If we stop investing in Auckland and Wellington and actually start to push some infrastructure to the smaller towns this would incentivise more people to move out of the big centers and thus lower demand. If you want a cheap home just move to a smaller town.
That assumes you can take the equivalent job with you, or find one that pays well in those locations. New Plymouth is maybe big enough, but Tokoroa isn't exactly a humming bed of activity unless you are a farmer or forestry worker.. and forestry ain't doing so well just now.
A squillion studies saying it doesnt work, but somehow NZ will be dif'runt!
"Using a 1994 law change, we exploit quasi-experimental variation in the assignment of rent control in San Francisco to study its impacts on tenants and landlords. Leveraging new data tracking individuals' migration, we find rent control limits renters' mobility by 20 percent and lowers displacement from San Francisco. Landlords treated by rent control reduce rental housing supplies by 15 percent by selling to owner-occupants and redeveloping buildings. Thus, while rent control prevents displacement of incumbent renters in the short run, the lost rental housing supply likely drove up market rents in the long run, ultimately undermining the goals of the law."
https://www.aeaweb.org/articles?id=10.1257%2Faer.20181289
In other words, lets lock 'em up and force them to be reliant on Govt housing. Perfect Green Party policy.
San Francisco is an invalid comparison. Only some properties were rent controlled there - whereas I understand the Greens' proposal to be universal in application. Not that it's a good policy - just that the particular unintended consequence you are pointing out would not apply when the control is market-wide (universal).
In which case the negative effects would have been magnified not minimised if the whole market was controlled. SF gave a controlled experiment into comparing different areas - those with, and those without. It wouldnt have mattered if the controlled areas were bigger, or smaller. Whether you apply rent control to all of NZ or just Auckland, the same outcome will occur. Landlords would still sell up in rent controlled areas, buildings would still be converted (to commercial, AirBnB) and investors would still redirect funds away from the residential market (to overseas property, to commercial real estate, to the share market) leading to a shortage of rental properties throughout all of NZ. And most of the regional areas already have critical rental shortages, so that would be the death of those areas. Just look at Queenstown, the simple law change that prevents fixed term tenancies from being ended has resulted in thousands of properties being removed from the seasonal worker rental market and placed in AirBnB or left empty. Now add rent control.
K.W. there are common sense regulatory measures that can be applied to all your dooms-day scenarios.
AirBNB's (regardless of a private rental crisis) should be charged a commercial rating differential - right here, right now. It is only equitable that they compete with the hotel/motel market on equal taxation rules/terms.
Left empty (regardless of a private rental crisis) should be levied based on simple economics - i.e., a disincentive for not putting a scarce asset to its best use.
Landlords selling up - renters buying (as discuss above).
But look, if you've got a better way to immediately rid us of the subsidies currently plaguing taxpayers with respect to this unregulated 'market' - please be my guest!
The government should keep their fingers out of the market, everything they touch turns to a can of worms. There's already 15,000 more civil servants now than there were when these turkeys took office.
There's 40,000 empty houses in Auckland, owned by people who can't be bothered with the hassle of tenants and dealing with the government. It's going too be 40,001 shortly, because my tenants are leaving and they won't be replaced.
I know we're not Ireland, but theirs crashed in 2007 (a lot slower than ours is might I add) and by 2021 prices were still 10% shy of the '07 peak.
*Shrug* it's your money dude, if you're for real and want to piss away money on rates and insurance for an empty property then go for gold!
Personally I reckon you'll get a tenant in and you're just talking up a big game on here
Why wouldn't I wait until property prices go up and sell it? There's no mortgage on it, the only outgoings are rates, insurance and the occasional repair.
Easier than dealing with tenants and the government. Actually I've had a very good tenant in there for about 5 years and the thought of having an inferior one isn't pleasant.
It just doesn't make a lot of financial sense to keep it empty unless you have a habit of getting in deadbeats who destroy the place and don't pay rent. A property manager could deal with minor tenant related headaches and you'd still walk away with what $20k p.a.?
But nobody is judging you, if it's not a hollow threat and you're genuinely going to keep it empty and don't mind spending $3k - $5k out of your pocket on rates/insurance then hey we're all impressed money bags.
Looks to me like there's 40,000 other property owners in Auckland that feel the same way. I just don't get all the financial 'experts' here who want to screw landlords. If it's so lucrative, grow a pair and do it yourself and get rich. I've been doing it for 45 years.
Rates at say $3500/year, insurance for an unoccupied property (you will tell your insurance company right? ) $1500 a year, maintainence/groundskeeping, call that another $2k a year. Going backwards at $7k a year, instead of selling it and throwing $600k (?) in a bank earning 5% =30k/year.( 20k after tax).
All based on the assumption that property values will do a u turn in a few years. Going to be a real b***h if it takes 10 years to get back to where it is today. Down $70k (+10 years of rates inflation) in holding costs vs up $200k in zero effort interest. And then you want to wait till the govt of the day announces a capital gains/land tax at which point you'll just be one of the many running for the exit and taking what you can get in what would be an instant buyers market.
I have no words for how daft that sounds.
Either he's an absolute moron, or he's spinning a tale to puff his chest on here. "*Scoff* I don't need tenants".
Next he'll be telling us $7k per year is chump change when he's paying $100 per day to berth his 37m Benetti at the Gulf Harbor Marina.
All because he built a house 30 years ago.
As this problem gets worse it simply highlights the imbalance between income and prices. We have a generation invested in tax free asset speculation rather than productive activity. That benefits no one but the banks and the speculator.
Vote TOP. Shift the tax base sideways to stop the speculators gloating about how great they are.
Let them pay tax....
"by wingman | 6th Jul 23, 11:57am
The government should keep their fingers out of the market, everything they touch turns to a can of worms. There's already 15,000 more civil servants now than there were when these turkeys took office.
There's 40,000 empty houses in Auckland, owned by people who can't be bothered with the hassle of tenants and dealing with the government. It's going too be 40,001 shortly, because my tenants are leaving and they won't be replaced.
by wingman | 6th Jul 23, 4:09pm 1688616568
Morals? Aaaah, yeah right! He doesn't want to be rich, as he asserts all landlords are doing. He's just too 'moral' for that.
I mean, who wants to be rich?"
It sounds like its completely foreign to you champ but believe it or not there is a lot of people out there that believe 'getting rich' by hoarding houses like some modern-day greedy aristocrat is not a good thing for our society. Needless to say, making threats like some spoilt infant that won't share their toys now doesn't really endear your ilk to the poor serfs who are struggling to pay their rent let alone contemplate owning their own place.
I know the balance of power and thinking around your self-absorbed narcissistic leanings are shifting rapidly as so many people know it is reprehensible. But hey, you keep on with your 'Let them eat cake!' vitroil and keep blowing air under your own wings. The day will come.
Oh, and before you come at me with the whole 'envy' thing - we own house with no mortgage and have no intention of 'getting rich' like you have.
I'm the best landlord there is Albert Einstein. I've never increased one of my tenant's rent ever since he's been in the place (4 years) and I spend heaps keeping the place up to speed because that's where the real capital gain is. I even pay to have the lawns mown for them.
Socialists like you hate landlords, the wealthy, entrepreneurs and progressive thinkers because it's completely alien to your backward, red-fed mindset.
Triggered much champ? If by socialist means giving a s**t about someone other than myself then thanks for the compliment.
Let me just quickly fix this for you as well : "Landlord" != "entrepreneurs and progressive thinkers". I admire the real entrepreneurs and progressive thinkers out there who are making a difference to the world and not just hoarding houses like gollum and his ring. My preciooooousssss.
But you haven't done it yourself of course, because it's just 'so easy', and you wouldn't lower yourself to be a landlord. You'd sooner be poor and pour scorn on those that take risks, clock up debt, and provide accommodation for others.
NZ's a 'hand-out' society where a significant proportion of the populace are waiting for 'da gubbermint' to do everything for them.
by wingman | 6th Jul 23, 5:45pm 1688622317
But you haven't done it yourself of course, because it's just 'so easy', and you wouldn't lower yourself to be a landlord. You'd sooner be poor and pour scorn on those that take risks, clock up debt, and provide accommodation for others.
NZ's a 'hand-out' society where a significant proportion of the populace are waiting for 'da gubbermint' to do everything for them.
HAHAHAHAHA you are a funny wee man. How about we say you win - i'll go live in my mortgage free home and be poor. I might also have a cry that i am not able to "provide accommodation for others" like you say. Hold up, didn't you also say "It's going too be 40,001 shortly, because my tenants are leaving and they won't be replaced." - no must of been someone else.
Later gollum.
Tom hadn’t really added much to ‘inform the debate’. He seems to favour slightly more sophisticated controls but loses sight of what the Greens are proposing and he hasn’t tried to apply it in terms of quite predictable behaviours and effects.
let’s start with the fact the rental market is very heavily regulated now. We’ve seen massive increases in regulations affecting the rental market in the past six years (at least). Has it helped at all? Has there been more investment in rentals? Of course not. Quite the reverse, if rent data on new borrowing is anything to go by.
the Greens policy doesn’t consider what’s sustainable. But what they are proposing is to set a market that sets a limit on rent rises at a level that is below the level of rising costs (rates, insurances, repairs and interest). They also intend to add to that cost burden with a WOF and a register, which we can be confident will need funding, presumably with a levy like the Companies Register.
When their policies are added to a regime that gives security of tenure to tenants, you create an environment where renting is cheaper than owning. This creates a demand for more rentals but the same environment is toxic to investment to meet that demand.
the cherry on the top of their policy is to ‘create’ tens of thousands of additional properties inside five years. This sounds like Kiwibuild, which continues to be an embarrassment to Labour.
the best the Greens can hope for to make this work is to buy properties from distressed property owners. But that doesn’t actually increase the pool of housing available.
two more things for Tom to consider:
private investors provide 85% of rentals
the Government’s finances are in no fit state to do what the Greens are proposing.
in short, a more sophisticated rent control regime won’t work any better than a basic rent freeze because it’s not sustainable. Once upon a time the Greens understood what sustainability meant.
A very simple rule of any system is this - the more you regulate something, the less there is of it.
https://www.aeaweb.org/articles?id=10.1257/aer.20181289
Diamond et al. (2019) is a pretty good example of regulation reducing the supply of something. In this case namely rental units.
lol. So, essentially...
'I don't like the generalisable results of this study so in my capacity as someone who doesn't understand (or has even read) said methodology or results will state that it is invalid'
This is literally a natural experiment of rent control, Kate. The results are 100% applicable to the intent of the Greens (or any rent control) plan. External validity of the results is not at all in question within this study. Even a hint of such would have resigned this paper to some C grade journal - if at all publishable. Instead it features prominently in the American Economic Review.
Have now read it - and it is the one I'd read before. Again, as pointed out above - the rent controls were only applied to some properties in some neighbourhoods - whereas the Greens proposal is for the control to apply to all rental properties nationwide.
And I agree, the results/findings are all valid. And their recommendation is;
If society desires to provide social insurance against rent increases, it may be less distortionary to offer this subsidy in the form of government subsidies or tax credits.
And of course that's just what we've been doing since the 1990s when a National government removed income-related rents from social housing - and established the Accommodation Supplement to apply to all rental housing (state and private). A subsequent Labour government restored income-related rents to social housing, but retained the AS for all private rental accommodation. Times have changed so dramatically, that this subsidy falls well short of making rents affordable and has become unaffordable to taxpayers providing the subsidy.
A bit like super, we all have to become adults-in-the-room and understand the neoliberal cards are falling all around us.
Okay, so your argument is akin to saying 'well, we saw that increasing speed on some roads resulted in some crappy outcomes on those roads but we don't expect to get those same crappy outcomes when we raise speeds on all roads.'
Yes. Your argument really is that stupid.
No, it's no where near akin to that. And the outcomes of the research weren't "crappy" - I felt for the short duration of the study, there were some very good outcomes. Less transience in rent control neighbourhoods - lower displacement and less gentrification. And, most importantly when you think of the Wellington rental market in particular - greater pace of renewal of the older housing stock through conversion to owner-occupied condos on what were single-home/single occupant sections. We don't need to "preserve" such a high rate of rental accommodation in NZ - we need to encourage higher rates of homeownership.
As I explained to the Select Committee - in general, if a landlord expects a renter to pay all their costs (plus some for profit), then the only difference between a renter and a landlord is a deposit (and in many/most cases the landlord doesn't even have that if using leverage to buy the next house). Renting makes sense for students and other people wishing to remain unanchored to a place - but that becomes an absolute nightmare once there are school-age children involved.
Kate. It is exactly akin to that. You are saying a little bit of poison kills, but lots of poison has no effect. It is a genuinely stupid, illogical argument.
So, locking in tenants is not a crappy outcome? Tenants unable to follow jobs, unable to move to locations that suit them better? Neighborhoods not able to intensify or respond to changes in demand? Higher long run rents? Higher levels of building neglect?
Those are good outcomes?
No. They are not. Those are universally poor outcomes. Not just for the people themselves, but overall economic welfare. This is not a contentious issue in econ.
So what you explained to the select committee is premised on the fact that you believe everyone should be a homeowner because when you have kids, renting is a nightmare? So while we are at it, why don't we force all houses to be 3 bedroom because anything less is an annoyance when you have kids?
What an embarrassing argument to make on the record that housing stock should be controlled centrally by some reckons about what people want and some misguided idea about how landlords set prices.
Luv the poison analogy. Kate seems to think rent control will work if it's universally applied. But she views the issue from a pov the policy is good and worthy if it leads to higher home ownership. But why would anyone move out of their secure rental into a house they can own if it costs more? The policy is a barrier to that end. Renters with significant cash would know they can invest it elsewhere
Nymad, you misinterpret me by raising non-sensical analogies. Market regulation is not a poison - indeed we regulate the use of poisons/toxic chemicals - are you against that?
My formula approach locks in no one - as it is universally applied - just like GST is universally applied.
It anchors rents to cap them at a percentage of median household incomes in a district or area - recognising that median incomes vary across NZ. It is an affordability measure, aimed at releasing the burden on the taxpayer of providing a subsidy to a market that is not functioning properly.
It has no effect on intensification or not - it was the application of rent controls in San Fran that gave rise to the intensification of those specific properties that were rent controlled. But I'm not advocating for only certain properties being subject to rent controls. So, that is a non-issue (i.e., not one of the unintended consequences we would see here - even though the actual consequence there was not necessarily a bad thing - in other words, urban renewal is generally a good thing).
And this sort of statement;
So while we are at it, why don't we force all houses to be 3 bedroom because anything less is an annoyance when you have kids?
What are you on about? I'd have more success talking to a 10 year old.
Read the academic paper and the conclusion: government subsidies are preferable to rent controls. If you're happy with that - okay, just say it - the taxpayer should pay for the mal-investments of landlords.
lol. Okay. Enhanced analogy time.
There is a pharmaceutical company who trials the happiness drug - it's intended to make everyone happy. During controlled trials, it is discovered that it makes people less happy (a crappy outcome). They write all about these adverse effects and decide to abandon it.
During the next winter, everyone is very unhappy and Kate decides the best course of action would be to give everyone the happy drug she is so fond of in concept. She bases this on the fact that because it wasn't tested on the entire population, the original conclusions of its effectiveness were invalid.
Be it noted that Kate is not a clinician or expert in pharmacology.
1 - my comment on capital intensification was with regard to your statement about lack of gentrification being a good thing.
2 - The conclusions of the paper are: Rent controls result in really crappy outcomes. In fact, they are so crappy that, when presented with a single alternative of direct subsidy, policy should favor subsidy. This is not contentious among economists - subsidies are bad, but price controls are universally worse.
However, there is a third option which all economists agree on as the best form of rental assistance/control - build more god damn houses and stop tinkering with policy to address outcomes of other crappy policy.
The worst thing anyone could possibly argue as a solution to the effects of a shortage of housing is policy which further reduces housing availability!
There is a problem with the 'we just need to magic up' more houses economics theory - it's very similar to the 'we just need to magic up' more money economics theory. The latter being known as QE.
You can choose to 'pretend and extend' housing supply will someday meet demand, but I fear it's not gonna happen in this financial climate. Too much pretend already extended.
We can of course, sit back and pretend we can forever throw more taxpayer subsidies at this landlord class, or we can - as taxpayers - say enough is enough - it's time to regulate.
No, I'm not an economist but I have been a regulator - so amending legislation and writing regulations are a part of my work experience. Hence, I know this is a 'way out' of the crippling accommodation subsidy mess we've got ourselves in to. Add a significant jump in unemployment due to some kind of international shock - and the accommodation subsidy doubles or trebles overnight - $10 billion in the blink of an eye.
"A very simple rule of any system is this - the more you regulate something, the less there is of it."
There is not a fixed amount of rentals that NZ requires to function. More people would choose to own their own house rather than rent if the value of those houses was lower.
The more we dis-incentivize being a landlord, the lower house prices go as landlords leave, selling to first home buyers who may previously have been renters.
Of course, unless landlords decide to demolish the dwellings and sell the vacant section. Given the state of some rental properties, this too would be a net benefit to society.
https://www.lawrenceandgibson.co.nz/product/rat-king-landlord-renters-u…
Of the 39,795 properties in Auckland that were unoccupied on census night, 22,407 were because the residents were away, and 17,358 were empty.
https://www.goodreturns.co.nz/article/976520835/empty-home-owners-not-w….
Haven't you been reading the news, people lie on the census forms all the time. Lots of people don't fill in the census forms.
If a household doesn't fill out the census form, it'll likely be registered as empty won't it? So if you're claiming "lots of people" don't fill in the census forms, then there are a lot of properties incorrectly flagged as empty.
Do you think maybe 22,407 households in Auckland didn't fill in the census form?
Of the 39,795 properties in Auckland that were unoccupied on census night, 22,407 were because the residents were away, and 17,358 were empty.
https://www.goodreturns.co.nz/article/976520835/empty-home-owners-not-w…
Hmm. Firstly, the arguments aren't "partisan". They are from dozens and dozens of economists. Secondly, your international analysis is full of "would be, could be" statements that have no basis in proven reality. Very much like communists|socialists, it didn't work because it wasn't done properly. There is no disagreement that there are many variations on rent control that can be used, Ireland have rent controls. But they allow landlords to increase rents up to 10% per annum! But in general, according to the majority of economists that have done any work on this, they don't work. I listened to Eric Crampton yesterday, and he said the NZ Economic Association had done a survey among NZ economists. Over 80% either strongly disagreed or disagreed with rent controls.
Lol Kate, it couldn't possibly be because the data is in, and the 80% KNOW from that data, that they don't work, could it?
Suen 1980, Glaeser and Luttmer 2003, Sims 2011, Bulow and Klemperer 2012 Olsen 1972, Gyourko and Linneman 1989, Autor, Palmer, and Pathak 2014, Diamond, McQuade, and Qian 2018, DIW Berlin 2018, Sagner 2022 (Germany), T Ellingsen and P Englund (Sweden) 2003, the list goes on and on and on Kate.
I assume these are all reviews of overseas rent control policy implementations, and I've yet to come across one that is looking at a universally applied rent control based on a formula approach, giving a specific maximum weekly rent to each individual property and based on affordability for a median household income in the district/area. I know mine is not an easy concept to understand, but in case you haven't read it before - here it is again;
https://www.interest.co.nz/property/119377/katharine-moody-takes-look-r…
It is mathematically sound, but granted, it doesn't 'fit' the current economics narrative (which btw missed predicting the disruption caused by the GFC) - and it took the profession (in England) four years to answer Queen Elizabeth's very simple question (Why did you not see this coming);
https://oecdecoscope.blog/2017/11/22/a-response-to-queen-elizabeths-que…
Why would you anchor your rents to the option value of the asset?
Rents represent a consumption value in the current period (in some very long-term leases this changes, but those are not common in NZ). Yet, you are intrinsically linking the rent to an option value of the land asset. It makes no sense.
If you are proposing market intervention, it may pay to first understand the conceptual basis for what the market represents.
If by 'option value' you mean rating valuation, I used it because I first determined some fundamental principles regarding such regulation before such time as I started thinking about a formula approach - these were those four principles:
•Universal application – to avoid unintended consequences as per overseas experience with rent controls
•Higher-value properties should attract higher rent
•The median-value property should be affordable for the median-income household (thus reducing the need for accommodation supplements)
•Both property values and incomes vary throughout the country
And hence the formula I eventually derived and tested, accommodated consideration of all those matters.
I'd be really interested if you wanted to propose a means of rental market regulation based on consumption value - I get what you mean by the difference.
Well market rents tell you exactly what the consumption value is.. I thought that would be obvious?
Instead, you are literally proposing that rents be anchored to things that the renter doesn't consume. Seems like you didn't at all think of any principals of regulation of markets.
No, market rents don't tell us what the consumption value is at all - they are presently "out" by (a minimum) of $3 billion dollars per annum (which the taxpayers are picking up the tab on).
Consumption value applies to functional markets and goods and services that are non-necessities.
https://www.acrwebsite.org/volumes/11556/volumes/ap02/AP-02#:~:text=Con….
Water, shelter, food - not so applicable.
Kate. Rents are literally a function of the attributes of a given property. This is standard utility theory. This is true of necessity or luxury goods.
Stop making up definitions.
Either way, this doesn’t detract from the fact that your rental regulations implicitly force renters to pay for something they do not benefit from.
Kate. Rents are literally a function of the attributes of a given property. This is standard utility theory. This is true of necessity or luxury goods.
Totally agree - and that's why I used rateable value (land value + value of the improvements) as a proxy for those attributes (i.e., the utility) of each given property.
First you said I should have anchored the formula on 'option value' - then you changed that to 'consumption value' and now you got to attributes/utility value - and you think I'm making up definitions? And;
Either way, this doesn’t detract from the fact that your rental regulations implicitly force renters to pay for something they do not benefit from.
Now you've really lost me. Are you saying renters will not benefit from paying an affordable rent? I'd be really interested in that explanation. Only thing I can think of is that a property with a really high land value raises the rent beyond reason (and hence the tenant does not benefit). But if that's your point, my point would be that the very high land values are typically in highly desired suburbs (close to amenities, good schools, or perhaps a large yard for kids/pets, etc.). So in that sense there is benefit in the land (which is reflected in its attributes, or utility value) depending on one's lifestyle needs/objectives.
You misunderstand. I never said you should have anchored the value to anything that embeds an option value. I said that the fact that you do is the issue.
You fail to understand that the land value represents the utility bearing characteristics of location and size + some option value. It is location and size attributes that can be consumed period on period, however the option value cannot. It factors things like future expectation of scarcity, future development potential, etc. This is stuff that capitalises into land prices, but not rental prices.
So, when you anchor your idealised rental value to the CV (or RV) you are implicitly anchoring it to a benefit that the renter does not receive. This is the issue you fail to see.
This is also besides the fact that the 'mathematically sound(?)' approach is completely arbitrary in its design and also why I couldn't imagine any semi-competent policy analyst ever taking any of this seriously.
Right, I get your point now but I think it rather moot in the sense of it being theoretically sound, but of no practical value in this context.
Instead of focusing on utility bearing characteristics of land, to my mind the key, or 'anchor' (as you call it) in this context is a weekly rent maximum price - where the median value property is affordable to the median income household in a particular area/district.
That affordability measure is that adopted by MSD, as being no more than 30% of gross household income spent on housing costs.
The idea being that asset prices can go up and down - yet this is of no consequence to rent prices - as they are anchored to median household incomes. If incomes go up - rent maximums go up - if incomes go down - rent maximums go down. And the taxpayer is forever off the hook, so to speak.
Not arbitrary in its intent at all. Very firmly designed around median incomes and an affordability measure. One could decide to change the affordability measure (for state housing, that is set at 25% of household income, I believe).
I know it goes against all existing principles with respect to the notion of yield, but these are not commercial properties - they are residences.
I've gained a lot from the discussion, nymad. We won't agree, I can see that. But the one thing you've not explored or enunciated a solution to is the accommodation subsidy.
The losses in our dysfunctional property market are being socialised via the accommodation subsidy, while the profits are privatised.
Given all the great economic minds of today cannot solve that one - they've conveniently more or less forgotten about it, and always turn to the taxpayers for a bailout.
That has to end..
No practical value? If you told renters they had to pay for not just what they consumed but also for the value of an intangible that accrues entirely to their landlord, I think you'd have some pretty unhappy renters.
If you genuinely believe that economists have forgotten about this issue or don't care, you obviously have paid zero attention to the almost weekly columns/reports/etc from economists bemoaning restrictions on development and our non commitment to increasing housing supply. Look at the research that is coming out on the effects of upzoning/housing supply in Auckland on supply and rent prices. Economists most certainly are heavily invested in this issue - they are simply more interested in addressing the cause and not creating further distortions by responding to effects.
The signalling of rent caps has provided another immediate negative for renters. Many landlords have not increased their rents to keep up with the market but will now be incentivised to do so just in case this policy gets implemented.
Rent caps would put put pressure on rental supply which is already failing to meet demand in most parts of NZ
Rent caps would reduce quality of the rental stock as lack of profit means less maintenance will be spent on rental properties.
Rents caps are very difficult to implement because of arguments over what the price should be? This would be an administrative nightmare to implement, very costly and unhelpful to solving the rental crisis.
Renters may support the idea of rent caps & vote Greens but the reality will be many will get displaced when their rental gets sold & they will complain when they get put into emergency housing because they will find it more difficult to find another rental.
Agree with that, Tony. Rent price freezes and/or caps in rent increases are nuts when rents are already out of the ability for most (i.e., the median household income) to pay - hence the burgeoning costs of the accommodation supplement yoy as more people qualify for bigger and bigger top ups.
I ran the data from tenancy.govt.nz across a sample of market rents on offer in the 2 months following the lifting of the COVID rent freeze - and found an average increase of 14% once the freeze was lifted. It was that sudden 'shock' of rent rises that got me interested in the dynamics of our rental market in the first place.
Which is why I felt far more nuanced/serious rental market regulation was needed if we were to relieve ourselves of the noose that the accommodation supplement has become (not to mention the emergency housing expenditure).
As I told the Select Committee when explaining my proposal, I estimate up to 50% of all rental owners would likely sell under my proposed regulation. And to that end, I suggested that, given landlords expect a renter to pay all their costs (plus some profit) based on current property values (i.e., a yield equation) - the only difference between a landlord and a tenant was a deposit.
50% of the properties I surveyed over a 2 month period had been purchased enough years ago, that (provided the owner had not over-leveraged and borrowed for additional properties based on unrealised capital gains) they would still have a very handsome return-on-investment if they held. The other half would sell up.
And yes, this would induce a serious 'shock' to the market. Hence, my suggestion was that government would need to beef up its shared-equity scheme in order to fast-track existing renters to prospective homeowners.
"As I told the Select Committee when explaining my proposal, I estimate up to 50% of all rental owners would likely sell under my proposed regulation."
And there we have it, folks. Confirmation that exactly the effects of rent regulation (as predicted by theory and evidenced by data) she said would not happen, will actually happen.
When did I say that no landlords would be driven out of the market?
Anytime new regulation is introduced (no matter what the market) investors/businesses adjust. What I have said is that generally, tenants will be able to purchase their landlord's properties, particularly if the government introduces a good shared-equity scheme. Hence, the doomsday prediction of people in tents won't happen.
In other words, the only difference between a tenant and a landlord's ability to purchase is a deposit (and in many cases landlords did not have the deposit either, but instead leveraged-up based on unrealised capital gains). From what I can gather from RBNZ data and my discussions with property investor/industry NGOs - I'm picking that it could be up to 50% of landlords that over-leveraged.
So let me just get this straight.
You have this vendetta against conceptual and empirical research that says increasing rental market regulation will reduce rental stock yet your very own 'policy' to regulate rents would do exactly that? But that's actually okay because renters can simply just buy properties that landlords are selling.
You cannot see how utterly bonkers that position is?
All I can say is that you must really hate renters, Kate. Much like the Green Party, evidently.
No, I don't have a vendetta again the research at all - as I said I thought the findings all valid, but not applicable to the universal formula approach I'm proposing. And I've never worried about rental stock per se as the homes remain. There would be a correction back to our long-run home ownership stats for sure. I don't see that as a bad thing.
And why is that bonkers - that a 'flush' of renters could become homeowners? As I say, there will always need to be some rental properties available for students and others who want the flexibility to move on short notice, but they aren't anywhere near the majority of renters. And there will always be a need for the state to provide housing for extremely low income households, including a lot more pensioners in future.
And no, I don't hate renters - I hate the ridiculous prices all my friends who rent are paying for their rent. And I hate the idea of families being housed in motels because they can't afford rent in the private market, but are well down on the state house wait list.
I don't get you, nymad - if you feel sorry for, or love (not hate) renters, surely you would support any regulatory measure that would make their rent affordable? And surely - given over a third of our households in NZ are renting - you don't imagine they are all unemployed or such like?
Once again, "the sky is falling" approach to rental market regulation is irrational. Give the market a year or so to understand exactly what the regulation is and when it will be introduced and there will be a smooth transition.
By your very own admission the research is generalisable.
The theory and research says, if you control rents in a sample of properties one of the outcomes is lower supply. Your idea is to control rents universally and the effect of that is to reduce supply. But somehow you arrive at the position that these two things are fundamentally different. Or, the results of the research in subsamples is not generalisable to the full population.
I say your position is bonkers because you believe that simply the difference between a landlord and a tenant is a house deposit when it most certainly is not. This is because people have heterogeneous preferences for consumption of housing and financial means.
people have heterogeneous preferences for consumption of housing and financial means.
LOL. A classic theoretical platitude. For a moment, cast your mind away from the Econ 101 textbook that you perceive the world to function under and read about real on-the-ground experiences in our housing market;
https://www.salvationarmy.org.nz/article/tales-trenches-realities-housing-new-zealand
Social choice preferences don't come into it when individual preferences themselves are removed from the equation.
Seems to me that so much of the discipline's resistance to change is a kind of 'let them eat cake' theoretical argument. But, I admire your devotion and persistence.
Just re-looked at the comments I made on my first article here in January; and yes, I've always had that 50% estimate for those that will hold, as opposed to sell under these controls;
by Kate | 28th Jan 23, 10:43am
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).
Link above if you want to read the entire thread.
Find me a law that can't be circumvented. Some time ago we created a law limiting how much alcohol you can consume before driving, that's circumvented all the time.
It all goes well until you piss off your tenant and you find they were clever enough to document/record all conversations. Many tenants already have a gripe with Landlords, so you'll give them ammunition. Maybe the penalty/deterrent is a full refund of rents paid?
It will depend on how much the tenant likes the property. If he likes it and thinks it's a reasonable deal, he'll go along with it, if he decides to make an example of the landlord, he might get notice and have a lot of trouble getting a good reference for his next property.
- "Hey Landlord, it's been a pleasure but we're moving out here's my notice. Can you provide me a good written reference?"
- "Sure thing, you paid your rent on time and kept the place tidy. Here you go, always a pleasure"
- *tenant moves out*
- 3 weeks later you receive a notice, the tenant has dobbed you in for breaching rent controls.
Assuming the penalty for breaching rent controls is a refund of the tenants rent paid, why would they not dob you in after the fact? They're not your mates.
Interesting perspective, though I would note that as a Human Geographer, Tom is not an economist. This is apparent when he attempts to draw a large distinction between limiting rental increases to 3% per annum vs freezing rents full stop. These two things are not as far apart as would be suggested.
Looking at only the limiting rent increases to 3% per annum part of the policy, the direct and clear effect this will have is a reduction in the responsiveness of the market, to provide rental dwellings, when the demand for rental dwellings in the market is such that increases in rent of greater than 3% per annum would otherwise occur.
The thing about price signals, is they help market actors allocate resources. If you have high and persistent increases in rents year after year and the market doesn't provide more dwellings you need to ask yourself why? The answer in New Zealand's case is pretty clear, we put too many obstacles in the way, and tell you you can't build as many dwellings as high as you would like in the places demand is.
Rent controls treat a symptom of a dysfunctional housing market. Better to just fix the market.
All else equal, the only thing I can see happening from this policy, is a reduction in privately supplied rental properties over time, and an expansion in homelessness/temporary accommodation/state houses as a necessity to bridge the gap.
Rent controls treat a symptom of a dysfunctional housing market. Better to just fix the market.
Couldn't agree more, but thinking we can fix the market (build enough, and at an affordable level, to meet demand) anytime in the next 10 years is a very, very poor, and highly risky bet. Worldwide, we are far from the financial times of such market booms. Just look at the state of our infrastructure - not even governments can afford the basics in this financial climate - let alone the private sector. And conditions globally and nationally are both worsening at a frightful pace.
Which is why only good regulation of what we have to work with is the way to go.
If we are to build anything 'en masse' - in the next 10 years, it needs to be elder-tailored, communal-care living. So many older folks these days are trying to sell the big family home, unsuccessfully - as the prices for existing elder community living are so expensive - near equal to the cost of the family home they've owned for years.
We've got to get a whole lot smarter in future as 'cliffs' are popping up everywhere.
The problem with rent controls is it doesn't fix the fundamental problem, which is broader housing supply and affordability.
If we step through the effects of rent control:
1. 50% of landlords leave the market
2. Renters are forced to buy to get somewhere to live. The mortgage repayments will likely be equal or more than they were paying in rent and it will still be unaffordable for many people. (Buying a house is short term pain for long term gain)
3. House prices likely to drop due to renters unable to service mortgages at current prices and landlords leaving the market.
4. ... Which sounds like a good thing until you consider what happens when a house costs more to build than buy. Construction stops.
5. Which then means there aren't enough houses, which means they become unaffordable as prices are bid up again, and we end up with people sleeping in cars. Which means we've come full circle back to where we are now.
In my opinion the only answer is to allow much more freedom as to what and where people build.
Building a house shouldn't require hundreds of hours of highly paid experts to navigate. Someone hands-on should be able to build themselves a basic house like they did for much of history.
People shouldn't be forced to only use land in constrained areas where it is $1000+ per m2
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