Should Government Dictate Private Rents?

Dr Muriel Newman

Speech to Whangarei Electorate Meeting

7.00pm Friday 2nd July 1999

Owning your own home is very much the Kiwi dream. A home is the largest investment that many families will ever make. Using the security of their property, families are able to build up sizeable savings in their home as, over time, they gradually repay their debt. Since the majority of families borrow to buy their home, the performance of the property market is of considerable interest to them. For many families, the increase in equity in their property over time enables them to trade up, gradually moving to more expensive properties, increasing their equity and asset value in the process.

As well as interest rates, there are many other factors, which influence the property market. The most significant of these is the demand for houses. The demand for houses has been on the increase over the last two decades due in the main to the growth in total household numbers, caused by our ageing population and the significant increase in separated families.

Steady upward pressure on the existing property market has also been brought about by the rise in the costs of building a new home. These increases are particularly associated with Resource Management Act and the emergence this decade of a raft of regulations with associated compliance costs. Collectively, these additional charges have pushed up the price of constructing new houses to the extent where it has been estimated we pay a premium of 20 to 30% over Australian house prices, maintaining the rising market value of existing properties. Further, rental incomes have increased as a consequence.

According to the 1996 census, there are 1,276,332 private dwellings in New Zealand, of which, almost 400,000 are mortgage free. Some 470,000 are owned with some form of mortgage, and around 300,000 are rented out or leased. These 300,000 rented or leased properties represent almost a quarter of the whole New Zealand property market, with a fifth of them owned by Housing New Zealand.

Since the 1930s, government has had a hand in the housing market. In order to assist low-income families, houses were either built by the government or by local authorities and rented out at favourable levels. The problem was that there were never enough houses. By the mid-eighties, as state house numbers peaked at 70,000, waiting lists reached record highs, as families desperately tried to obtain cheap state house rentals As a result of the pressure on state housing, the Labour Government introduced housing subsidies and market rents. These initiatives led to the present government's housing policy, which provides accommodation subsidies to low-income families, irrespective of who owns the property. Over 300,000 families currently receive the accommodation supplement, far more than ever received housing assistance under the last Labour Government.

The recent launch of the election year housing policy of the Labour Party, however, signals an end to the stability that has been evident in the property market. Apart from the glitch last year, when the government intervened in the market to make state house rentals market followers rather that market leaders, there has been little political interference. Even that move, however, saw some home values decrease by an estimated 10%, with wider consequences only being averted by falling interest rates.

As one of its election pledges, the Labour Party has signalled a return to cheap rents for state houses. If someone is lucky enough to qualify for a state house, they will be able to rent the property for 25% of their income. Meanwhile their neighbour, next door, who earns the same income but either wasn't lucky enough to get a state house or didn't have the right contacts, will have to pay much more.

Labour have also signalled an end to the successful home buy programme, which has seen thousands of state house tenants to buy their own home.

However, the property market will be significantly affected by Labour's commitment to "driving down private sector rentals". The implications of this are far reaching. If a Labour Government actively drives down the rentals on a quarter of a million homes. They will drive down the value of those properties. New Zealanders who own rental properties, in many cases bought as a retirement investment, will find their equity disappearing.

The effects will be widespread. Home owners, who have bought at the lower end of the property market, will find their values eroding away. Since the rental sector is so large, making up a quarter of New Zealand's property market, a fall in its values will de-stabilise the whole property market. Home owners investments will be put at risk if a Government enters the property market in this way.

Labour's raising of taxes, will push up interest rates, at a time when their housing policy will drive down values. Hardest hit will be low and middle-income families who have bought a home and will find the value of their property falling, eroding their equity base.

State Houses were originally built to meet the need of families who could not afford to buy their own homes. At that time there was not the surplus of houses for private owners to rent out properties. Today we are a very long way from that with the private sector now providing most of the rental properties in the country. The accommodation supplement has seen an end to the unfair policy that only gave housing assistance to those people living in State houses.

This change has also allowed low-income families the chance to escape the State Housing ghettos that the state housing policy forced them into. They can now choose where they want to live because the accommodation doesn't discriminate between private and state houses.

Government assistance for those families needing help with their accommodation shouldn't discriminate. Neither should the Government assistance impact on those New Zealanders who work hard to own their own homes or save for their retirement by investing in property. ENDS

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