Phil Twyford (remember?) is working on rent controls but maybe he should dump the idea

The Bay of Plenty Times in an article which revealed how taxpayers are bearing the brunt of Tauranga’s social housing crisis –  brought rental costs into the picture.

Among the data uncovered by the newspaper, three community housing providers have been paid almost $17m towards income-related rent subsidies in the last two financial years . These subsidies are the difference between market rents and the amount paid by a tenant in income-related rent.

Four transitional housing providers which provided warm, dry and safe short-term accommodation received about $2.3m over the same timeframe and $1m was spent on emergency housing special needs grants including motels, $624,000 of this mainly to motels in Tauranga from October 2018 to December 2018.

Accessible Properties, which took ownership of the 1138-home Housing New Zealand portfolio two years ago, has projects under way to build 44 more homes in the region with a commitment to build another 125 – for 3500 people.

Chief executive Greg Orchard said demand for housing in the city was incredibly high:  nearly a third of Tauranga’s rental households were in rental stress, paying more than 30 per cent of their income on housing costs while only 2.5 per cent was public housing compared with 4.5 per cent nationally.

This news reminded Point of Order not only of Housing Minister Phil Twyford’s less-than-stellar performance in providing new housing. His policy agenda also includes a shakeup of the Residential Tenancies Act.

On August 27 last year, Twyford issued a press statement to ask for public feedback on new Government proposals “aimed at making life better for renters”.

He urged landlords, tenants and other interested people to have their say on the proposals covered in a discussion document on reforming the Residential Tenancies Act released that day.

The discussion document covered proposals on:

  • ending no cause tenancy terminations while ensuring landlords can still get rid of rogue tenants
  • increasing the amount of notice a landlord must generally give tenants to terminate a tenancy from 42 days to 90 days
  • whether changes to fixed-term agreements are justified to improve security of tenure
  • limiting rent increases to once a year
  • whether there should be limitations on the practice of ‘rent bidding’
  • whether the general obligations that tenants and landlords have remain fit for purpose
  • better equipping tenants and landlords to reach agreement about pets and minor alternations to the home
  • whether further controls for boarding houses are needed to provide adequate protection for boarding house tenants
  • introducing new tools and processes into the compliance and enforcement system.

The consultation ran for eight weeks until October 21.

Who can tell us what has happened since then?

Meanwhile, when we made one of our visits to the Freakonomics website, we found an article titled Why Rent Control Doesn’t Work.

We learned median rent in the US has doubled since the 1990’s, outpacing inflation.

Politicians and the public think rent control is the solution.

Spoiler alert: it’s not.   

Economists say controls help a small but noisy group of renters, but keep overall rents artificially high by disincentivising new construction.

Stanford economist Rebecca Diamond is quoted as noting that almost all the most expensive cities in the US have rent control and the appetite for more controls is spreading.

Ed Glaeser, a professor of economics at Harvard who teaches microeconomic theory and the economics of cities, was given one minute to convince someone that rent control is a terrible idea.

His response:

 All right. So, I’ve already squandered five of my seconds. It’s not particularly fair. It’s not a good way of allocating scarce space. It’s not a good way of helping the downtrodden. It’s a way that freezes a city and stops it from adjusting to changes, a way that freezes people in apartments and stops the motion that is inherent in cities.

According to Freakonomics, there are decades’ worth of economic research describing the downsides of rent control. The first major paper was written in 1946 by Milton Friedman and George Stigler.

Milton FRIEDMAN: Rent control is a law that supposedly is passed to help the people who are in housing. And it does help those who are in current housing. But the effect of rent control is to create scarcity, and to make it difficult for other people to get housing.

The scarcity partly comes from developers having less incentive to build new housing when a ceiling constrains what they can charge.

There’s much more about this on the Freakonomics website.

This includes interviews with people who don’t believe the economic research on rent control.

It’s worth noting the advice given to Twyford by officials:

Housing Minister Phil Twyford’s package of tenancy law reforms would likely drive up rents by causing some landlords to get out of the market, officials have told him.

Officials said while most of the tenancy law overhaul and other changes to the rental market considered by the Government would not have much of an effect on their own, their cumulative weight could lead some landlords to sell their properties to owner-occupiers.

Because owner-occupiers typically have less people in a house than renters, this could lead to a further shortage in rental properties – and higher rents.

The advice came in a paper produced for Twyford in April last year by the Ministry of Business Innovation and Employment.

The longer it takes for Twyford to move on this package of reforms, by the sound of it, the better off the market will be.

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