The Greens chaotic thinking over rent controls

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The Greens’ calls for rent controls have been persistent for years with little evidence provided to back up claims they work.

Thursday, July 6th 2023, 9:44AM 1 Comment

by Sally Lindsay

In its latest attempts to push rent controls, the Greens say rent increases should be limited to 3% a year, a claim which has been ridiculed and angered landlords.  

Across the country, the overwhelming bulk of rental accommodation is provided by the private sector. About 40% of Kiwis live in rental accommodation and this number has been consistent over several census periods despite the sharp rise in the overall population over the past couple of decades.

Exact rental house numbers aren’t known, but there are about 525,000, of which about 85,000 are owned by Housing New Zealand, local authorities and non-government organisations that provide social housing.

The remainder – about 440,000 rental homes – are provided by the private sector, and the overwhelming majority of these are owned by mum and dad property investors, typically owning a family home and another property.

When it comes to the rental market, economists are unanimous in their opinion rent controls are bad. Rent control in their eyes is just a form of price control, and they have failed in almost every country that has tried them.

A different planet

Well-known New Zealand political historian Dr Michael Bassett agrees and says it is hard not to think the Greens live on a different planet.  The party appears to know nothing about the history of housing or rent controls, either in New Zealand, or anywhere overseas, he says. 

“The Greens’ great nostrum for helping low income people in 2023 was first tried using a series of rent restriction acts during World War One, more than a century ago. The idea proved to be disastrous. And when revived by the first Labour Government it was no more successful.

Bassett says his research shows many private investors who owned rental properties in 1914 and who found their rents frozen at below the inflation rate, sold their houses, and invested elsewhere. This severely reduced the stock of rental housing.

Thirty years ago, he went carefully through the official records of the then Department of Industries and Commerce and briefly included some details in his book The State in New Zealand. “There are other sources of information in Wellington that are easily accessible to the Greens which give no encouragement to their brainwave.”

After an initial decade of rent controls came the question of what was a “fair rent”. Efforts to legislate this did nothing to ease the growing shortage of rental houses, Bassett says.

“And this lack of rental houses, due to the law of supply and demand, pushed up rentals on any that were still available. To get any sort of decent rental housing in Auckland, families had to pay to landlords exorbitant amounts of ‘key money’ up front.”

Bassett says difficulties in this area were one of the factors in the first Labour Government’s decision to construct state houses. They enabled ministers to bypass the private sector.

In Europe where a higher proportion of homes have always been rented, experiments in rent controls proved even more futile. In many cities the private rental market collapsed. A Swedish economist observed in the 1940s that only pattern bombing had done more damage to Europe’s cities than rent controls.

“But the Greens don’t bother to do any research about issues,” he says. “Its MPs react to problems instinctively; they blurt out those reactions and then label them “policies”.

The Greens, of course, have reason to be worried, Bassett says. “With the Labour Party fading before their eyes, suffering from collapse within the Cabinet – think Stuart Nash, Meka Whaitiri, Michael Wood, Jan Tinetti, Kiri Allan – the Greens haven’t yet been gathering strength from Labour’s decline. They have obviously decided to make a bold strategic play for extreme left-wingers who are as ignorant and unreflective as they are themselves.

“But before we get too excited about the other option – National and ACT - let’s analyse what they stand for,” he says. We know National is opposed to rent controls, and is generally sounder on economic policy.”

Having slammed the Greens for their off-the-top-of-their-heads announcement on rent controls, Bassett says he perhaps should be pleased that National seems to be being super cautious. “But the clock is ticking towards election day and more clarity from the centre right is surely necessary?”

Not buying

New Zealand Property Investors Federation Carterton-based central area representative Tim Horsbrugh, in a letter to the local newspaper, says rents have increased 4.3% in the past year, which sounds steep. However, that is tame compared to rates, insurance and interest rate increases.

“New taxes and higher costs have meant investors are not buying. In fact, a recent NZPIF survey of member found 15% more property owners intend exiting the market at a time the country is expecting an annual gain of more than 60,000 people through migration. This will require 19,000 more houses, only putting more pressure on renal demand.

“Right now, many landlords are stretched with poor returns from such an investment,” Horsbrugh says.

“Many are topping up the rent to keep the tenant living in their rental home, so although rent is expensive, people need to realise it is still cheaper to rent than buy.

“If the current picture is not good for landlords and tenants and demand keeps increasing then the outlook is rather bleak.”

NZPIF president Sue Harrison says whether the Labour or National blocs win the next election, they will need to change the existing Government's portrayal of private rental home owners as “uncontrolled, tax dodging speculators”.

The vast majority of rental home owners are hardworking investors helping tenants into good homes and the only part that is speculation is how far a Government will go to bring a sledge hammer to the housing market, she says.

Tags: rent control

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