Dr David Law
The New Zealand Initiative
The Government’s recent housing package announcement primarily focused on measures to dampen housing demand, particularly from those who provide rental accommodation services, rather than the key drivers of inadequate housing supply.
Focusing on these measures is likely to have little effect on housing affordability in the long run. However, it is expected we will see increases in rents, and a reduction in the supply of rental properties, which will be to the detriment of many, says new research released today by The New Zealand Initiative.
Rent controls: The next mistake in housing policy, written by Senior Fellow Dr David Law, explains why rent controls should be avoided and highlights why introducing rent controls would lead to renters being worse off.
Recently, Green Party MP Chloe Swarbrick has said rent controls should be considered, and Finance Minister Grant Robertson is not ruling them out at this stage. In 2013 when vying for the Labour Party leadership, he proposed rent controls, noting if elected, he would introduce a private members bill to stabilise rents in Christchurch.
The design of rent controls is varied. They can include placing a cap on the rent that can be charged or, more commonly, the extent to which rent can increase throughout a tenancy. To be effective, they are usually paired with restrictions on eviction.
“If rent controls are in our future, then we can expect even greater shortages of rental accommodation as supply is cut back and what is on offer may be of lower quality. Mobility will fall, as will the amenity value of our neighbourhoods,” said Dr Law.
“Rent-controlled accommodation does not necessarily go to those who might need it the most. In fact, evidence suggests that it is older, higher-income residents who gain the most from rent controls. Others face queues, sometimes decades-long, or miss out altogether.”
Most economists highlight supply constraints as being the main issue holding us back from improving housing affordability. For long-lasting improvement, with fewer negative unintended consequences, it is clear where policymakers should focus their attention.
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