By Edward Yiu & William Cheung*
New Zealand’s unaffordable housing market has left many low and middle-income families reliant on the accommodation supplement to cover rent and mortgage payments.
But our new research has found the scheme, which costs the government almost NZ$5 billion a year, might not be an effective tool in addressing the country’s housing affordability crisis.
Introduced in 1993, the accommodation supplement is a weekly, means-tested payment designed to subsidise part of a household’s rent or mortgage. The supplement is calculated independently of actual rent or mortgage payments.
But our study looking at data from Auckland between 2019 and 2023 found accommodation supplement rental subsidies were not delivering meaningful improvements in affordability for renters. Subsidies used to support mortgage payments, however, appeared to be more effective in offering relief to low-income households wanting stable and affordable housing.
Our results raise questions about whether the current policy of subsidising private rentals is working to address housing affordability in New Zealand.
Renters left behind
Our study compared the proportion of household disposable income spent on rent between households receiving the supplement versus those in the same income group who did not receive it.
The results revealed a striking gap.
In 2023 renters in the middle-income bracket who received the accommodation supplement were spending, on average, 35.6% of their income (including the supplement) on rent. Similar households without the subsidy spent 25.85% of their income on rent. This suggests the support is not significantly narrowing the affordability gap between subsidised and unsubsidised renters.
This study also picked up potential signs of landlords inflating the rents for tenants receiving subsidies. This is known as “subsidy capturing”. On average, middle-income tenants receiving the accommodation supplement paid NZ$539.40 per week in rent in 2023. Non-recipients paid $502.90. That’s a 7.3% difference.
Further research is needed to determine whether this discrepancy is due to rent inflation or differences in housing quality. But the finding aligns with international studies showing that subsidies can unintentionally drive up market rents.
If landlords are capturing part of the subsidy by increasing rents, then the benefit meant for vulnerable tenants is being diluted.
Greater promise with mortgage support
Our data suggests mortgage support seems to level the playing field more effectively than rental assistance. The mortgage-to-income ratio for subsidised households stood at 25.55% and 29.95% in 2022 and 2023, respectively (income includes the supplement). This closely matches the 26.6% and 27.5% recorded for non-subsidised households in the same income group.
One reason for the difference in the effectiveness of the supplement is that homeowners are typically required to contribute more upfront – a deposit – giving them a greater financial stake in their housing. This commitment may encourage better financial decisions and housing choices. It may also offer long-term benefits such as asset building and housing stability.
Rental subsidies are essential for immediate relief, especially in emergencies or periods of transition. But our research calls into question their effectiveness in enhancing affordability. More targeted support for low-income homeowners could offer a more sustainable path forward.
Intentions must match results
The accommodation is undoubtedly grounded in good intentions. But considering how much of the national budget is being spent on housing-related welfare, it is essential the programmes deliver the best possible results for taxpayers.
Measuring effectiveness is not about questioning the intent but about ensuring public resources truly achieve meaningful objectives.
Simply increasing funding for subsidies is unlikely to solve the problem. As New Zealand confronts an ongoing housing affordability crisis, this study adds to growing evidence that policy effectiveness – not just how much is spent – is what truly matters.
*Edward Yiu, Associate Professor, School of Business, University of Auckland, Waipapa Taumata Rau and William Cheung, Associate professor, University of Auckland, Waipapa Taumata Rau.
This article is republished from The Conversation under a Creative Commons license. Read the original article.
13 Comments
Got to keep the Ponzi going
Accommodation allowance just flows into the hands of property investors (and increases cash flows going into existing housing - increasing the present value of cash flows ie prices), thus amplifying the housing problem we have.
As I’ve been saying on here for years is that we should remove all accommodation allowances and see who screams the loudest - those renting who can’t afford the market price of rents, or the property investors who paid too much for their investments (as the free market without government intervention doesn’t justify current rents/house prices as many people can’t afford to live in the country given our productivity/income generating capacity and thus ability make weekly rental payments demanded by landlords who have paid too much for their properties and have too much debt to service hence the high rents).
Ultimately if the renters can’t afford rents across the country without billions of dollars of market intervention by the government each year then the free market is broken and is being artificially manipulated to remain dysfunctional not for the benefit of the poor but for the benefit of those who got greedy buying up rental properties and are asking for cash flows to cover debts that the productivity of workers (ie renters) cannot afford to pay by going to work each week.
I propose we cut all accommodation allowances immediately and use the $5 billion for the coming financial year to be spent on building additional new homes - thus completing flooding the market with excessive property for rent/purchase and then watch the screams of those who have been abusing the system the past decade or so for their own selfish financial interests.
Working for families is the same rort, just pay them a fair wage.
Imagine how high inflation and this interest rates would be if that were to happen - ie we need parts of society to be completely on struggle street to keep inflation (limiting aggregate demand of consumers) low.
I get the sense the past 40 years of economic though/reality is being tipped on its head right now (driving interest rates lower and making parts of society excessively wealthy while other parts have little to no hope of breaking even on a weekly basis without a top up from the government).
or the property investors who paid too much for their investments
100% this is the issue and it was massively accentuated when interest on debt was a tax deduction. If we want to keep our educated and hard working youth in NZ a reset of price needs to occur.
Though the Coalition of Chaos was going to help here but turned out they had their own rentals, starting from Helen forward.
Funny how if you work in government, own a business and create legislation to benefit your own investment in that particular business this is illegal/dodgy - but if you do this for your property portfolio (which people claim to be a business model when it suits them) it’s no worries mate.
As I’ve been saying on here for years is that we should remove all accommodation allowances and see who screams the loudest
While I agree with what you're saying, the Ponzi is largely responsible for the money supply. Base into broad money. Developed economies typically see commercial banks responsible for creating 90–97% of the total money supply. And realistically that has to be mortgage lending to feed the Ponzi given that the Aotearoa economic model is not really about production. With such a heavy concentration on credit creation for bidding up house prices, it becomes increasingly risky to unwind. Nobody among the ruling elite wants to be the one to shift to a more sustainable economic model. Pull the pin on the Ponzi and all hell would break loose IMO.
https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/20…
And the only way you can remove the subsidies from the market is to regulate the market. Simple as that.
As I have said a few times recently, the average kiwi saver (60-65yo) balance is around 1/10 the value of the average NZ House. Our retirement savings model is woefully to heavily weighted towards property.
As people watch their Kiwisaver balances decline how do you think many may react?
No debt on kiwosaver, unlike other assets.
Kiwisaver is the other side of the debt
I'm not sure where the authors got the figure of $5 billion pa on Accommodation Supplement (AS). My guess is that figure might include social housing costs as well? The authors should clarify this as I think they have that wrong.
I use the data from HYEFU 2024;
https://www.treasury.govt.nz/publications/efu/half-year-economic-and-fi…
Table 5.2 'Welfare benefit expenses' (page 138) - Accommodation assistance (which include Emergency Housing costs, see footnote) is $2,411 billion.
Emergency housing (EH) costs (according to MSD Fact Sheets) made up just under $600 million in the year to June 2024. My understanding is that in the second half of the year, Accommodation Supplement costs went up and Emergency Housing costs went down - so around $2 billion was paid out in Accommodation Supplement (AS) in the 2024 fiscal year.
And as EH costs have continued to decline in 2025, we might expect AS costs to have risen as these tenants move to private sector or community housing.
I don't know the breakdown between AS paid to mortgage holders vs AS paid to tenants (it would have been nice if the authors had clarified this), and I'd need a lot more data to agree with their conclusion that;
More targeted support for low-income homeowners could offer a more sustainable path forward.
Given homeownership rates are on the decline and the percentage of people living in rental accommodation increases, I can't imagine how one could justify any decreases in AS for renters.
Typical of most authors/academics, discussion of regulation of the private rental market seems to be 'out of bounds'. If the authors are reading this, I suggest they familiarize themselves with the research paper linked to in my article below from the Social Policy & Parliamentary Unit (SSPU) of the Salvation Army;
https://www.interest.co.nz/property/132074/katharine-moody-suggests-reg…
The focus of rental market pricing must be anchored to median incomes in the area/district/community concerned. This is what the SSPU research has done using the Community Compass database information.
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