31 Mar 2021

Rent caps debate garners mixed views on effectiveness

11:25 am on 31 March 2021

The government has not ruled out attempting to control the country's soaring rents perhaps in the form of rent caps.

House  with "For Rent" sign in front

Photo: 123rf

Finance Minister Grant Robertson said he could not predict what effect the housing package would have on rents but said the government would act if necessary.

But Opposition leader Judith Collins said caps had never worked.

"The government needs to rule out all together rent caps and they need to actually mean it when they say it," she told Morning Report.

"We have already a rental shortage. The last thing we should be doing is having fewer people wanting to be landlords or fewer people having places they can rent."

She referred to the rent freezes from 1980s New Zealand - "it has never worked".

"I understand economics. If we have landlords already being bashed by the government, we have mum and dad investors ... it just doesn't work."

Collins could not give any other examples of when a rent cap had failed.

"I don't need to look at Colombia or somewhere else. It simply doesn't work."

The government would have to become the "biggest landlord".

She said investors had already started exiting the market.

Collins asked how rent controls would "keep landlords in the business of being landlords?"

However, a renters advocacy group says short-term rent caps are effective and have worked in European countries.

Property investors have been vocal in their opposition to the new housing policy announced by the government.

Renters United spokesperson Ashok Jacob backed caps and told Morning Report there had been a flurry of property management companies and landlords "threatening to increase rents as a result of having to pay slightly more tax on their investments".

"If there's one thing we've learned over the past three or four years is that landlords and property managers will raise rents every year regardless of what their finances look like."

He said a rent hike would have happened either way and did not depend on the cash flow of the businesses.

"Over the past 30 or 40 years, the government has said to people: 'You can invest in property and you can borrow a lot and we will guarantee a return on investment for you'.

"In reality that was misleading because there's no way can you guarantee a return on investment without having negative consequences."

He said those consequences were being seen now with the massive increase in house prices.

Jacob said his group had been pushing for rent caps for some time.

"New Zealand is fairly unique, there's no requirements on what landlords have to do to increase rent. Several other countries have systems by which rent can only be increased if there's significant value added to the property."

In western Europe, he said, there were countries that have had rent caps "for several decades".

"In countries that are experiencing crises as well, such as Germany, they have recently have imposed rent freezes for the next five years, while the government takes longer and medium-term action to increase supply.

"Rent caps are a fairly effective short-term solution to take the pressure off of people who are really struggling."

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