COMMENT: Ditching Accommodation Supplement not the answer
Wednesday 12 June 2019
Tenant advocates have long claimed the Accommodation Supplement benefits landlords over tenants but those demanding it be scrapped are ignoring some relevant facts, says NZ Property Investors Federation executive officer Andrew King.
In a recently released report, “The Accommodation Supplement: The Wrong Tool to Fix the House”, the Child Poverty Action Group (CPAG) has called for the Government to remove the Accommodation Supplement (AS).
Instead of having the AS, the CPAG wants the Government to significantly raise the incomes of all benefit recipients and low-wage workers.
The CPAG claims that the AS is a significant government subsidy of the private rental market and keeps rental prices high.
However, the CPAG’s own report disproves this.
It shows that private tenants pay 25% to 30% of the relevant benefit towards rent and the AS only covers 70% of any additional cost above this, up to a maximum ceiling.
This design prevents landlords from simply being able to raise rents as the CPAG claims, because the tenant still has to find 30% of the increase and 100% of any rent above the maximum.
Maximum rates were increased in April 2018, which caused an increase in the AS from $1.2b to $1.5b.
While many people believe that the AS is paid directly to landlords, this is not the case.
While the AS increased 25% in the year to April 2019, rental prices only increased by 4.6%. This was also at a time of large cost increases and new regulations.
If, as the CPAG claims, the AS drives up rental prices, why did rental prices not increase more when the AS limits were raised?
The report also states that “in a period of cynical neglect of the AS between 2005 and 2018, there was no change to the maximum rates”.
However, rental prices increased during this time – which suggests that the AS doesn’t have any impact on rental prices.
In the report, the CPAG says it wants to see a significant increase in state house building so that people can move from private rentals into publicly funded houses.
This would mean an increase in the Income Related Rent payments, which is the equivalent of the AS for state house tenants.
The report also says that by the year 2021, the AS will increase to $1.5 billion while the Income Related Rent subsidy will increase to $1.3 billion.
The AS provides assistance for around 290,000 households (an average $5,170 per household), while the Income Related Rent subsidy assists around 70,000 state tenants (an average of $18,570 per household).
Do we really want to move people out of private rentals?
While the CPAG claims that rental property providers are getting wealthy from the AS, their proposal to wipe it will cost an extra $3.5 billion of taxpayer funds per year in increased benefits.
If it is such a poor use of Government funds, why are state house subsidies rising at a faster rate than the AS and why will it cost an extra $3.5 billion in Government funds to remove it?
The CPAG’s proposal is a poorly thought out proposal that is not in the best interests of tenants or taxpayers.
*The CPAG’s report, “The Accommodation Supplement: The Wrong Tool to Fix the House”, can be read here.
Comments from our readers
Sign In / Register to add your comment
Covid-19 has not diminished the price expectations of property sellers with new data revealing that average asking prices hit record highs in seven regions in May.
Periods of house price decline are rare and "short-lived", says economist Tony Alexander, amid forecasts of a drop of 10%-15% this year.
The Reserve Bank says the commercial property sector is vulnerable to the Covid-19 crisis. But PMG Funds' chief executive believes that while there’ll be short-term pain, the biggest long-term impact will be structural change.
Mortgage lending fell to its lowest level on record last month as the property market ground to a halt during the Covid-19 lockdown.