Labour on housing

July 16th, 2012 at 9:00 am by David Farrar

John Hartevelt at Stuff reports:

Labour is urging a “hard look” at the accommodation supplement, amid claims landlords are pocketing a $1.2b “subsidy” despite providing substandard .

Housing spokeswoman said the Salvation Army had warned in the 1990s that the supplement to support low-income people would turn in to a subsidy for landlords – and that had happened.

Where is the proof for this claim that it has turned into a subsidy for landlords? Is Annette King saying that landlords are charging more to someone who is eligible for the accommodation supplement?

“It is a major subsidy for landlords but it hasn’t produced better housing or more access to housing or an ability for people to buy housing,” Ms King said.

It is not a subsidy for landlords. It is a subsidy for low income tenants who are renting.

“If we just let it keep growing year after year as more and more people struggle to pay rent, then we are doing nothing in terms of changing the ability to house people and it’s time that we had a highly focused look at how do you turn that into something that is a whole lot better.”

The supplement is paid in addition to other welfare payments at varying rates, depending on circumstances. It is meant to help cover rent, board or home ownership costs.

In 2007, the Government paid $877m through the supplement, but it is expected to top $1.2b this year.

If Labour is proposing abolishing the accommodation supplement, then they should say so. You could divert the $1.2b a year into new state homes through Housing NZ, which are then provided at 25% of people’s incomes. I suspect this is what they want to do.

The problem with this though is those low income families who get into a Housing NZ home get massive state support, while those low income families who do not get into a Housing NZ home would get zero, nil, nothing.

Ms King said the supplement supported people in rental accommodation but a lot of the houses were “incredibly poor quality”.

“Some of it is absolutely appalling housing and landlords take whatever the accommodation supplement is and add it to their rent,” she said.

Again, proof? Labour are smearing tens of thousands of landlords with this allegation.

“I think we need to take a hard look at how we could turn some of that accommodation supplement into providing affordable, decent, warm housing and how we could turn some of it into people being able to own their own housing.”

She did not know exactly how that might work but said it should be discussed.

So Labour actually has no alternative. They just wanted to smear evil landlords.

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42 Responses to “Labour on housing”

  1. swan (665 comments) says:

    Go learn a little basic economics please, Annette. It is embarrassing how uneducated some of our supposed national leaders are.

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  2. Viking2 (11,565 comments) says:

    If that gets taken away the hopeless and the spenders will be camping under hedges and Landlords will sell sell sell.
    MM, well they are doing that now.

    Given some of the trash we landlords actually house the Govt. should pay us way more and they should allow winz to pay the rent direct. Labour used to but winz have backed away from that (at least in this area),on the myth that bene’s should be responsible for their benefits and spending. doesn’t work of course, just clogs up the Tenancy tribunal which is currently about 8 weeks behind in many places.
    Trouble there is that the Tenancy Court is part of the Justice system that doesn’t work. Well not for most without waiting forever.

    Does anyone at Justice give a stuff. Well no, they are busy at the Waitangi fraud.
    The tenancy court should be accountable to tenancy not to criminal justice.

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  3. RightNow (6,995 comments) says:

    In the real world we understand rental yields are actually not keeping pace with rising house prices:
    http://www.interest.co.nz/images/RodneyJan19_1Big.jpg

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  4. anonymouse (721 comments) says:

    And based on that same logic, Working for Families is a subsidy for evil colluding racketeering supermarkets,

    also while we are at it, WFF is probably also enriching all those nasty foreign fat cat makers of iPods, cell phones and other fabulously middle class electronics…… quick back to food stamps for lots of lovely locally made products….

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  5. Auberon (873 comments) says:

    “Go learn a little basic economics please, Annette. It is embarrassing how uneducated some of our supposed national leaders are.”

    What about Hartevelt? Tintin’s been spun, big time. Again.

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  6. m@tt (631 comments) says:

    “Where is the proof for this claim that it has turned into a subsidy for landlords? Is Annette King saying that landlords are charging more to someone who is eligible for the accommodation supplement?”

    Landlords can advertise for say $300 a week, then get a friendly tenant to sign for $350 a week and charge $325. Go talk to a couple of dozen young renters and I guarantee you’ll find someone that has experienced this.

    When you factor in that boarders can apply for the supplement it gets even worse when, as is often the case, the boarder and primary lease holder are probably mates already. ‘Sure mate, you can move in. I’ll sign you up at $100 a week then you go get the supplement and just flick me fifty bucks…’

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  7. Bevan (3,924 comments) says:

    Clearly this can’t have been a problem between 1999 & 2008. Oh wait…..

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  8. Paulus (2,662 comments) says:

    What rent did Annette charge “little Ginga” when he lived at her house in Wellington ?

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  9. fish_boy (152 comments) says:

    1.2 billion a year would build around 55-60,000 new affordable homes in three years, which would nicely put an end to the housing shortage and mightily stimulate the building sector (and domestic economy) to boot. A brilliant policy idea from Labour if true.

    I am pretty sure that if the government worked to ensure they were well designed and located in cooperation with the councils (150 square metre family apartments on brownfield sites for example) then they would be very desirable as well.

    No wonder the slum lords, property speculators and the rentier class are shitting themselves, rents would fall and people would be clamouring for low cost, desirable, and affordable government housing!

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  10. teppic (9 comments) says:

    Some discussion from an actual economist here.

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  11. jcuk (713 comments) says:

    Obviosuly the system is going from bad to worse and both National and Labour should get their A’s in G’s and build more state housing so that the ramshackle private housing can be demolished. So that everybody who wishes state accomodation can have it from single person community housing through to large family individual housing … what one gets based on need with state tenants moving up and down as families leave home etc.

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  12. anonymouse (721 comments) says:

    1.2 billion a year would build around 55-60,000 new affordable homes in three years

    Maybe if it was a teepee in Hokitika !?!

    1.2 billion for 3 years is 3.6 billion, over 60K houses = 60K per house, there is no way in hades you could buy the land for a house in Auckland/Christchuch (which are where the major housing shortages are) for 60K let alone build a house on it….

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  13. RRM (10,018 comments) says:

    Where is the proof for this claim that it has turned into a subsidy for landlords? Is Annette King saying that landlords are charging more to someone who is eligible for the accommodation supplement?

    LOL, it’s always funny when a right-wing idealogue does an about-face and suddenly pretends to believe in the non-existence of markets whenever it suits his present argument…

    Australia tried giving first-home buyers a free $5,000 to help them out with a deposit a few years ago. Guess how much the price of all 2-3 bedroom houses went up by? (Hint: the answer is written in this paragraph.)

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  14. Colville (2,300 comments) says:

    I think we should test fish boi’s theory by stopping all housing related payments to the benificary scum and lets see if the rents do actually fall.

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  15. Colville (2,300 comments) says:

    hmmmm….. tho if fish boi advocates for building houses $60 – $65K each inclusive land places like Invercargil, Levin and Tokoroa are in for a boost! tho even Levin would be too upscale at $65K !

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  16. F E Smith (3,307 comments) says:

    Again, proof? Labour are smearing tens of thousands of landlords with this allegation.

    Simon Power showed that you do not need proof to successfully smear a group and then justify your desired course of action based upon your own smear.  The secret is to simply keep repeating the smear until it becomes accepted as being true.

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  17. iiq374 (262 comments) says:

    A shame we don’t have class action lawsuits to allow the landlords to get Labour to justify their defamatory allegations

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  18. Crampton (215 comments) says:

    If it’s impossible to build new housing, then any subsidy to the low end of the market mostly turns into increased prices for rental accommodation at the bottom end of the scale (although with perhaps some twisting of supply towards relatively cheaper units). If it’s easy to build new housing, then any subsidy to the low end of the market helps bring new supply into the market and mostly benefits poor renters. Once National gets around to implementing the Productivity Commission’s recommendations, the accommodation supplement will start doing what it’s supposed to be doing.

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  19. Dr. Strangelove (19 comments) says:

    Some actual economics plus a couple of questions.

    If you have a universal subsidy for some good then the subsidy will be split between the buyer, who pays a lower price out of pocket, and the seller, who can charge a higher price and still sell the same quantity. If demand is highly elastic (i.e. a small change in price produces a large change in how much of the good people are willing to buy) then almost all of the subsidy will go to buyers. If demand is highly inelastic (i.e. people keep buying the same amount regardless of whether the price goes up or down) then almost all of the subsidy will go to the seller. This is just Microeconomics 101 stuff so far.

    So here are the questions.

    (1) How elastic is demand at the low end of the real estate market? My best guess is that demand is highly inelastic. People need somewhere to live and you can’t buy less (a smaller house, a worse location) when you are already at the bottom. You could move in with relatives, but that’s last resort for most people. You can buy more of course, so if prices for low end units go up, some people in that segment of the market will respond by moving up to a better house.

    (2) How universal is the subsidy? If only a few people at the bottom of the market get the subsidy then it will have relatively little effect on the market price, but if almost everyone in the bottom segment of the market gets the subsidy, and demand is highly inelastic, then yes, sellers will capture most of the subsidy. The few people in that part of the market who don’t get the subsidy will be seriously screwed.

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  20. alex Masterley (1,523 comments) says:

    The department of building and housing suggest that a small home of about 145 sm could cost about $1401 per sq metre to construct(inclusive of GST) to construct in Auckland. Or $203145.00 per dwelling (including GST).

    If I used the Maltbys numbers I would get a similar number + or- $10k.

    It’s a bit higher than $65,000.00

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  21. Colville (2,300 comments) says:

    alex masterly

    $201K plus land. So $450K if on a tiny out of the way section.
    $1400/m2 assumes flat site and cookie cutter bland, group home ecconomy of scale builds.
    Any “state” house would need to be built very robust as the type of tennant is unlikley to give a fuck about the place.

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  22. s.russell (1,646 comments) says:

    I think your criticism is a little unfair DPF. In fact, Labour deserves praise for recognising that throwing money at beneficiaries does not actually solve the problem very well. Yes, they may indeed come up with an even more stupid solution. If so they should be caned for it. But recognition of a problem is the first step on the road to wisdom. Good on King for taking it.

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  23. peterwn (3,306 comments) says:

    Similar attitude to development levies imposed on land subdividers. Socialists see the levies as merely extracting a portion of the developer’s profits. In reality they increase the cost of a new home and this flows through to valuations of all homes – since some people will not bother having a house built if a suitable existing house is available at a significantly lower price.

    I think socialists (along with the likes of Bernard Hickey) would like to see private sector landlords driven away and all ‘basic’ housing provided by the Government.

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  24. grumpyoldhori (2,362 comments) says:

    Christ landlords are a fucking joke, they will rant how private enterprise is the best but still want the mug taxpayer to help fund their rental houses.
    I would have the low paid in tents if it helped fuck up landlords.

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  25. Jinky (188 comments) says:

    So DPF and others are happy for our tax money to be thrown at low income renters? You are all quite OK with that? What Annette King is saying is she thinks there MIGHT be a better way. Can any of you show that she’s wrong and that the current sytem is the best way to spend our money? I agree that she’s probably exaggerating for effect and will be out to score points by somehow making it all the fault of “rich pricks” but her general idea that spending $1.2 billion per year just to subsidise rents is not sustainable and needs review is of itself not a bad one IMHO.

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  26. bka (135 comments) says:

    This blog has complained about building regulations and constraint of land supply putting up the cost of housing for new home owners. This means dpf believes that the supply curve for new housing/rentals will be inelastic, as described in the above link that teppic provides. This means that according to normal economic understanding the accommodation supplement subsidises landlords and doesn’t increase new low cost housing. It’s a bit mean to accuse Annette King of smearing under the circumstances.

    This was something National introduced, Labour did nothing about in office having complained of it in opposition, but which National has always ignored as an issue, despite it being low quality spending. If they don’t free things up or change the way they provide assistance it is a sum of money that will continue to blow out without achieving anything.

    RE cost of a cheap house, there are some which seem to be a lot less than the $203, 000 the dept of building and housing told alex Masterly for example, http://www.c-style.co.nz/contemporary/acacia?layout=plan , same size for $70,000. There are quite a number of companies doing cheap modular units.

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  27. bka (135 comments) says:

    Belated edit

    If the supply of housing is inelastic as dpf accepts, then in theory the accommodation supplement would be expected to be a subsidy to landlords, so there is some burden of proof the other way, why does housing in NZ defy normal economics?

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  28. mpledger (425 comments) says:

    anonymouse (315) Says:
    And based on that same logic, Working for Families is a subsidy for evil colluding racketeering supermarkets
    ~~~~~~~~

    It’s a subsidy for low wage employers.

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  29. Colville (2,300 comments) says:

    bka, your $70K gem is a kitset. (and only 2 bedroom) It doesnt include trivial items like consent fees, plumbing, electrial, labour, the floor slab, carpets, curtians and all of the other funsie expensive stuff.

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  30. nasska (11,804 comments) says:

    A couple of points:

    1) Who says that new buildings need to be 150 sq/m? Much of NZ’s housing stock was built in the 60s & 70’s & seldom exceeded 1200sq/ft (110sq/m) & people managed full & productive lives in this area. Using the figures quoted above a 100sq/m house could be built for under $150.000 which would be a serviceable loan for many families. Which brings us to the expensive part:

    2) Land. If the government has to get involved in subsidising housing why not do it through putting up the capital to buy land & develop it into residential sections. These sections could be leased to home builders for say ten years at which stage they are bought by the homeowners or on sold to investors who continue the lease arrangement at market rates.

    Result is homeowners with a pride in their own homes & community & a freeing up of other housing for rentals.

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  31. wat dabney (3,809 comments) says:

    The real question is what sort of accomodation is King herself offering, and at what price.

    If she’s not offering any then she is the worst form of hypocrite and a landlord offering an “absolutely appalling” house would be her moral superior.

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  32. Colville (2,300 comments) says:

    nasska.

    You have all the one off costs like consent fees, a kitchen, 1 1/2 bathrooms, heating, fencing, landscaping and all those go into the price if its 150mM or 50M2. I would think a house of 110M2 would be $1600/M2 if it were built for a first homeowner who cared. It it were for a state rental more like $2000/M2.

    Its possible to build on a very Austrailan pattern where the bedrooms come off the lounge/living areas and this does away with the waste space of a hall. Also questionable if covered car storage is required. A small lock up shed would be for bikes etc.

    The land is where its at if “we” want to build cheap. The powers that be (Council or Govt) need to enter the market and buy land and sell it down in a controlled fashion with specific rules. Hard to do without building a slum tho.

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  33. nasska (11,804 comments) says:

    Colville

    We’re entering into territory that is a bit of a hobbyhorse for me. I & most of my mates in the early 70’s tried for a toe hold on the property ownership ladder in any way we could. In my case that involved a bank loan (we didn’t have kids at that point so State Advances weren’t interested), a second mortgage, our own savings & gifts from both our families in lieu of a flash wedding. That first house was an OYO unit about 850sq/ft but it got us started.

    If the government were to get involved in developing land they could stand on the throats of the big spending councils & that could really cut into the consent fees the parasites charge. It would be better if done in blocks of say 25/30 in different places or I agree that slum issues would arise. God forbid that NZ creates another Otara or Porirua. The thing is that fences, landscaping,garaging & even carpets are things that can be done over a period of time. The push nowadays seems to be a huge wishlist that involves architecturally designed semi palaces rather than homes to bring kids up in.

    Even lower income communities benefit tremendously from the pride that home ownership instills. I live rurally but I have noticed that urban “Nappy Valley” areas where houses are rentals rather than owner occupied the whole area goes backwards.

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  34. Viking2 (11,565 comments) says:

    rumpyoldhori (2,222) Says:
    July 16th, 2012 at 11:57 am

    Christ landlords are a fucking joke, they will rant how private enterprise is the best but still want the mug taxpayer to help fund their rental houses.
    I would have the low paid in tents if it helped fuck up landlords.

    From your caring lefty.
    todays news. Annette and Grumpyfuckinghori want all low paid people living in tents.

    horigrump said today that the mug taxpayer should fund more private rental houses. Most landlords think the fuckinggrumpyhori is a joke.

    Sincerly, the New (caring) Labour Party

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  35. Colville (2,300 comments) says:

    nasska.
    In 1989 brought a 1916 villa (one careful unmarried godfearing owner!) that needed everything doing. Worked 7.30 till 5 at work then 5 till sleep at home. Didnt own a tv :-) ahhhhh thems were the days!

    One way to tackle this is to not worry about housing land at all but make industrial land free/cheap in smaller centers. People will move to the jobs. Auckland sucks anyways and Loony Len wont need to build a trainset!

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  36. nasska (11,804 comments) says:

    Colville

    Loopy Len will have his choochoo, not because of any need now or in the future but because it is a vanity project. In his dreams he will see lesser mortals, decades into the future, prostrating themselves with gratitude that the great man had the vision to bring transport to the masses. Personally I suspect that he had a bad LSD trip in his youthful days. :)

    Unfortunately I think that Auckland will grow to the detriment of provincial NZ largely because of immigration but also because of gravitas drawing everything into NZ’s first metropolis.

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  37. Komata (1,201 comments) says:

    nasska: Re: ‘I have noticed that urban “Nappy Valley” areas where houses are rentals rather than owner occupied the whole area goes backwards’.

    Isn’t there some sort of cyclical-system in Economic-theory that accommodates this? can’t recall who first noted it, but from (distant) memory it goes something like this:

    Government builds rental accommodation which is followed more of the same, and the area becomes more progressively rental -focussed, to the extent that ultimately it becomes very poor and ‘undesirable – and ultimately local house prices reflect this. The cheap prices attract young couples who buy as a first home, then sell, followed by other owners who improve the area and lift it, before the cycle restarts. home owners become landlords and it’s once again down hill.

    Can’t recall who first noted this this, but casual observation suggests that it seems to be well-proven. Evidently some of the New Zealand state house ‘settlements’ ‘ are still going downwards . . . BUT there is hope – although it will only take another X number of years to achieve . . .

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  38. nasska (11,804 comments) says:

    Komata

    I see where you’re coming from…..it makes sense that as capital values drop first homeowners will be drawn into the market. We see examples of this in the ‘gentrification’ of some areas over the years eg Ponsonby in Auckland. One thing I’m sure of although & that is that building masses of state housing creates slums. Another wild card is that many of the homes built in the 50’s & 60’s are nearing the end of their economic life & may eventually be simply bowled over & the land reused.

    As a country we are better off assisting home ownership, perhaps along the lines of initially leasing sections. If my theory is correct the useless tenants will end up in the substandard housing & those with a bit of gumption & ambition will benefit.

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  39. Joseph Carpenter (214 comments) says:

    The comments above have it completely wrong. Basic market economics (supply X demand) does apply, but the market is severely distorted. In fact property demand is quite elastic (down to threshold at which a step change occurs). It’s SUPPLY which is highly INELASTIC. In fact the supply curve is nearly a vertical line (e.g. at $300K you have 100 houses for sale and and 100 buyers, if the price doubles to $600K you have only 50 buyers but only have 102 houses for sale because there are massive constraints) – in other words even a tiny upwards change in demand on a virtually fixed supply will send the price soaring. It’s not the normal “X” shape S/D graph but more “+” shaped. It’s mainly a supply problem (not demand): everything possible should be done to reduce the supply curve gradient to allow normal price signaling and equilibrium (i.e. allow allow the market to respond elastically to price). But in fact we do virtually everything possible to keep supply totally f’d up short of outright rationed/quota limited supply by diktat.

    And M@tt obviously learned Annette King economics and business: landlords have to declare their rent as income, what insane business would declare more income than they actually getting, to pay more tax on on income they didn’t actually receive? Bullshit, in fact IRD do check to make sure they aren’t understating their rents.

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  40. nasska (11,804 comments) says:

    Joseph Carpenter

    The housing market when all is said & done doesn’t differ greatly from the commodity markets. No matter whether you’re selling lamb, crayfish or cauliflowers it’s the last 5% of the volume offered for sale that will determine the price received. That small amount between under & over supply is everything.

    The additional problem in housing is the long lead in times between proposed new stock & when people actually move into the houses built. This makes it riskier for developers & naturally breeds a cautious attitude to investment.

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  41. V (749 comments) says:

    DPF, a little more reading is required on your behalf.
    If this was subsidy for anything else you would be railing against it. Why is this different?

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  42. Jinky (188 comments) says:

    Nice to read in today’s paper that Paula Bennett agrees with Annette that some landlords are ripping off poor people.

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