Budget 2017

Housing and other social investment

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Accommodation supplement to rise from 1 April 2018

First increase since 2007

As part of today’s Family Income Package, Finance Minister Steven Joyce today announced Accommodation Supplement maximum payments will increase.

A three person family living in Auckland could receive an extra $80 per week.

On average 75,000 households receiving a benefit will see an increase of $30 per week.

Helping with accommodation needs

Accommodation Supplement is a weekly payment which helps people with their rent, board or the cost of owning a home.

The amount of any supplement depends on your income, assets, accommodation costs, family circumstances and – crucially – where you live. A solo parent with 2 or more children living in central or north Auckland will now be able to claim a maximum of $305 per week (up from the current $225). Living outside any of the main provincial centres that maximum comes down to $120 per week (up from the current $75).

An overdue adjustment?

Accommodation Supplement rates remain unchanged since 2007, and are based on 2005 rentals.

Rents have moved on considerably since 2005. All the main centres have had capacity problems and therefore pressures around supply and price. Mean private sector rentals in Auckland, at $531 for a three-bedroomed house, are 58 per cent higher than in 2005.2

On these grounds alone, an increase merely to restore the past position can be supported.

Of the approximately 300,000 recipients of the Accommodation Supplement payment, almost 200,000 are tenants. 136,000 receive the maximum rate. More and more low-income tenants are hitting the maximum payments available under the Accommodation Supplement, and struggling to pay any further increases. Consequently they have to pay any further rent increase from their remaining income.

Yet other data at a national level is unclear. The Government’s own experimental figures, released earlier this month by the Ministry of Business, Innovation and Employment, suggest that

  • Renting is consistently more affordable than buying a first home
  • At a national level, housing affordability for renters worsened following the Global Financial Crisis until June 2013, but subsequently improved3
  • Housing affordability for renters in Canterbury has been improving since 2011

Even so, 2/3rds of renters nationally fall below a proposed nationally affordable benchmark. We can see the case for action.

For the benefit of landlords or tenants?

It is not easy to know how much the increased Accommodation Supplement will address affordability needs. Who will benefit most – landlords or tenants?

At least in the short run, there must be a risk that the increased Accommodation Supplement will simply increase rentals, making landlords rather than tenants the true beneficiaries. That’s because in the short-run, the supply of rental housing is inelastic as it takes years for additional housing to be built. In the long-run the increased supplement could help to increase housing supply as renting out becomes more profitable and budding landlords invest capital into new stock. 

Final thoughts

There is a real need for more effective help for low income families who struggle with increases in rental costs or even with housing availability. 

Accommodation Supplement has been a cornerstone of housing assistance since the 1990s but there has never been a full review of its effectiveness. 

At a cost of $1.2 billion each year, even before today’s changes which will cost an extra $400 million, perhaps such a review should be the Government’s next step.

Investing in public services

Initiatives include:

  • Health $3.9 billion for District Health Boards, care and support workers, Disability Support Services, ambulance services, pharmaceuticals, elective surgery, bowel screening, mental health services and primary health care.
  • Education $1.1 billion for schools and early childhood centres, roll growth and demand, and an increase in operational grant funding for schools.
  • Vulnerable Children, Oranga Tamariki $424 million investment in the new Ministry and new model for working with vulnerable children, plus funding for caregiver support, Children’s teams, Family Start and Youth Justice.
  • Justice Sector $1.2 billion for a 10 per cent increase in police staff numbers, meeting increased demand for justice, courts and corrections services, initiatives in burglary prevention, reducing family violence, reducing youth reoffending, and supporting at-risk prisoners.
  • Social Development $194 million for Social Development initiatives including $64 million to support people into employment and $38 million for development of the new Social Investment Agency.
  • Social Housing $185 million for more emergency housing, to expand the Housing First programme and to provide a pathway into housing for people with a Corrections history

2 Ministry of Business, Innovation and Employment, Rental Bond data, April 2017
3 Government figures use date only up to June 2015