29 May 2017

Govt pulled u-turn on accommodation supplement

9:02 am on 29 May 2017

Two years ago the government decided not to boost the accommodation supplement because of fears landlords could pocket the extra money, and rents could be pushed up.

State house in Titahi Bay, Wellington.

Photo: RNZ / Alexander Robertson

However, ministers have since changed their mind, introducing an increase of up to $80 a week for some families in last week's Budget.

The changes are to due to come into effect from next April. People who would benefit the most are those on lower incomes living in cities like Auckland.

But advice from officials from the 2015 Budget showed the decision was made not to raise the accommodation supplement that year because they could not be sure tenants would get the benefit of the extra money.

The concerns about what were described as "landlord capture" were contained in advice from officials at the Treasury and the Department of Prime Minister and Cabinet.

That year, benefit payments were increased by $25 a week, but a plan to raise the accommodation supplement was shelved after officials concluded the risk rents would just be raised as result was too great.

"Some of the lower cost, more targeted AS [accommodation supplement] options could also have been included in the package, but concerns about the risk of landlord capture of the assistance and fiscal cost led to them being set aside," said the officials.

Greens co-leader Metiria Turei said nothing had changed since then.

Greens co-leader Metiria Turei

Metiria Turei Photo: RNZ

"Just increasing the accommodation supplement without also engaging in a major state house building programme for those on lower incomes means that most of that money will go straight from the government to the landlords."

Both Labour and the Greens actually support the increases to the accommodation subsidy in the Budget, but Labour leader Andrew Little said it was problematic.

"As a means of assistance it is pretty crude and in times of a housing shortage ... simply ploughing more money into assisting people to pay their rapidly rising rent actually in the long run is going to force rents up."

Speaking to Morning Report, Prime Minister Bill English said the government's focus was on families, not on landlords, and he thought it would be worse not to increase the supplement.

Watch Bill English front up to Morning Report's Susie Ferguson on the change of heart:

"If we pay greater Working for Families are the supermarkets going to put up the price of Weetbix? Well, they may or they may not. What we do know is that if we don't make these changes those families remain under pressure and there's no possibility [of relief]."

"As I'm advised the only people that have actually done research on this is MSD, and they couldn't find any evidence that the changes in 2005 when it was last changed flowed to the landlords rather than the families."

He said the landlords were restrained by the market.

"They don't have the option of just banging up the rent to any number they can think of, I think that's a pretty unrealistic proposition.

"If rents continued rising in some dramatic fashion then it may be that families are back in the position that they're in at the moment - that some of then pay far too high a proportion of their income on rent - that's what we're trying to redress.

"It would be pretty silly for us to say 'in case a landlord does it, let's not provide this support to those families'. I think if you gave the families the choice they'd rather take the risk."

A few hours after the Budget was released one property investment advisor, Newland Burling and Co., posted on Facebook the news was good for property investors who were "feeling the pinch between sluggish rental income and increasing outgoings such as rates, insurance and repairs."

However, Andrew King, the executive officer of the Property Investors' Federation, said landlords would not necessarily know which tenants were actually getting the subsidy.

Andrew King, Executive Officer, New Zealand Property Investors' Federation

Andrew King Photo: SUPPLIED

And he believed many people wrongly assumed the payment went straight to the landlord, and that they would be able to put up the rent if the accommodation supplement was increased.

"Even some government officials may believe that - or assume, or think, 'the tenant has got the accommodation supplement, therefore they might put the rent up'."

But he said that did not really happen in practice.

Finance Minister Steven Joyce said the possibility of landlords pocketing the increase was considered by the government before the Budget was finalised and government agencies would be keeping a close eye on the market.

He said research done by the Ministry of Social Development since 2015, looking at the market response when the supplement was last increased in 2005, found no evidence landlords took advantage of the higher subsidy. RNZ has requested a copy of the research from the ministry.

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