The Slow Demise of the Accommodation Supplement

By Alan Johnson

In March 2010, the Treasury offered the Ministers of Finance and Social Development advice on increasing the maximum rates paid through the Accommodation Supplement. These rates had not been adjusted since 2007 and were then based on rent levels in 2005. The estimated annual cost of the proposed adjustment was $60 million [1] . Similar advice was offered to a Labour-led government in 2008. As in 2010, the advice was rejected and the maximum subsidies remained at levels according to 2005 rents – as they do still in 2016.

As any long-term tenant will know, rents have moved on considerably since 2005. There are various measures for rent inflation and if some are to be believed we don’t have a problem with unaffordable housing. The CPI series includes a rents measure and over the past decade this measure suggests that rents have risen only around 24% over the past decade. This is slightly more than inflation and much less than wages and salaries which have risen by 43%. According to this picture tenants are doing OK.

The reality for many tenants is quite different however. The Ministry of Business Innovation and Employment (MBIE) collect rent data when tenants’ bonds are lodged with the Tenancy Bond Division [2]. This is rich, accurate and up to date data on every local rental market in New Zealand. This data suggests that the rent for a three-bedroom house across all of New Zealand rose 43% over the last ten years – exactly the same as wages.

The picture for Auckland and Canterbury is somewhat different. Over the past ten years rents on a three-bedroom house have risen 51% in Auckland to an average $515 per week while in Canterbury they have risen 53% to $400 per week.

All this points to increasing financial hardship for tenant households, yet the main housing support programme the Accommodation Supplement is still based on rents ten years ago.

Of the 300,000 individuals currently receiving an Accommodation Supplement payment, almost 200,000 are tenants and of these tenants an estimated 150,000 are living on a working-age benefit such as the Supported Living Payment. These are the people worst affected by the rapid increase in rents because their incomes have been pegged against the CPI rather than wage movements that those receiving New Zealand Superannuation enjoy.

The outcome of these settings is that more and more low-income tenants are hitting the maximum payment available under the Accommodation Supplement. Consequently they have to pay any further rent increase from their remaining income. Those worst hit are likely to be tenants in Northland and Waikato, of whom almost two thirds are receiving the maximum payment. Less than half of tenants in Auckland face the same constraint because the maximum payment levels there are much higher [3]. Rents of course are also higher in Auckland so the after housing costs income of tenants in Auckland is estimated at around $50 per week less than in many other parts of the country.

None of this will be news to the army of analysts working in Treasury and the Ministry of Social Development yet there is little appetite for change. We can only speculate on why this is so, because it is not usually the case that bureaucrats and politicians give you a reason for their inaction. Is it because they fear that raising entitlements will fuel further rent inflation? Is it because it is simply too hard – that the Accommodation Supplement is too hard to fix and has created a dependency amongst landlords and tenants for the $1 billion in annual subsidies which is now too hard to shake?

Whatever the real reason for this lack of interest in the Accommodation Supplement, the value of the Supplement is falling and so it is becoming less important as an income support programme. Since the 2010 review discussed in the introduction, the real value of the Supplement has fallen 7% and there are no plans in any future budgets to spend any more [4].  We may be witnessing the ‘if we ignore it long enough it will go away’ tactic where the programme is eventually axed because it has been neglected so long that it can be demolished. That tactic is working for the sell-off of state houses so why not try it elsewhere.

Regardless of the motivations and tactics, this indifference and inaction points to a poverty of ideas around housing policy. Let’s have the Building and Housing Minister become pre-occupied with students falling off balconies [5] rather than have him show any concern for the hundreds of thousands of low- income tenants falling into housing poverty.

[1] http://www.treasury.govt.nz/downloads/pdfs/oia/oia-20150049.pdf

[2] http://www.mbie.govt.nz/info-services/housing-property/sector-information-and-statistics/rental-bond-data

[3] http://www.msd.govt.nz/about-msd-and-our-work/publications-resources/statistics/statistical-report/statistical-report-2008/supplementary-benefits/payment-rates.html

[4] http://www.treasury.govt.nz/budget/2015/estimates/v10/est15-v10-socdev.pdf

[5] http://www.stuff.co.nz/national/politics/77595598/dunedin-balcony-collapse--government-orders-investigation

This blog is based on a background paper presented to the Australasian Housing Researchers’ Conference in February 2016. Click here to view the full version of the paper.