Accommodation supplement decision based on 2005 housing market and outlier research

4 JULY 2017
FOR IMMEDIATE RELEASE

The accommodation supplement increase in Budget 2017 was based on research findings that differ from every other major economic research report on the subject of landlords absorbing increases in accommodation supplements through higher rents. In addition, the single study relied upon was based on the Auckland housing market in 2005 – a completely different beast to the housing market today.

Prior to the ‘Family Incomes Package’ in Budget 2017, the Government received advice from the Ministry of Social Development as to whether landlords would capture the accommodation supplement increase through higher rents. The research showed that a 2005 increase in the accommodation supplement had a negligible effect on rent (i.e. landlords did not hike prices to capture the increase in demand).

Mac Mckenna, an economist at the Taxpayers’ Union, says, “The single piece of research the Government has relied upon is a total outlier. Its conclusion differs from almost every other piece of research in this area – including advice from New Zealand Treasury.

“The literature on this topic suggests 30-78% of the increase in housing subsidy will be captured through higher rents - as the report's author, Dean Hyslop, points out. Yet this research, which led to the Government undoubtedly increasing the accommodation supplement in Budget 2017, concludes rents only increase by 2%.”

“Perhaps what is more concerning than the outlier results is that the data is based on the 2005 Auckland housing market. Nobody would dispute that the housing market is very different today than it was twelve years ago. As Eric Crampton from the New Zealand Initiative points out, the median house price to median income ratio was six to one in 2005. Today, it is approximately ten to one. So extrapolating results based on 2005 data is very questionable.”

“Only time will tell whether the increase in the accommodation supplement will add fuel to the housing market fire. But a responsible Government would do more to cut the RMA and other regulatory taxes which are choking housing supply.”

ENDS

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