Rise in accommodation supplements cause modest rent increases

Jul 19, 2018

The accommodation supplement benefit is the government’s largest direct investment in private sector housing subsidies. It provides assistance with housing costs for 11 percent of the population, with about two-thirds of recipients being renters. It costs just over 0.4 percent of GDP.

In April, the government introduced a Families Package, which increased the level of accommodation supplement payments for individuals and families with high housing costs.

Dean Hyslop, a Senior Fellow at Motu Economic and Public Policy Research, has studied what happens when supplements are increased.

“Increasing the accommodation supplement is a response to rising housing costs faced by low income families not in public housing, but there is a concern that this money ends up in the back pockets of landlords,” said Dr Hyslop.

“Our study found that almost two thirds of the increase directly benefited recipients with more money for spending on non-housing related things,” said Dr Hyslop. “Of course, this means a third of the supplement went on housing costs.”

StatsNZ has set the cost of ‘affordable housing’ as 30 percent of disposable income.

The research uses data from the Ministry of Social Development to explore what happened when a 2005 policy change gave some areas in Auckland access to higher supplements. The maximum accommodation supplement increased 28–45%, depending on family size in central and northern urban areas.

“On average, accommodation related support payments increased by $6.81 more for people in the area with the higher accommodation supplement, and rental payments increased by $2.44 per week,” said Dr Hyslop.

“It’s important to note, that we couldn’t identify if the increase in rent was the result of recipients spending more to get better housing or if it was landlords increasing rents,” said Dr Hyslop.

Rent increases were largely confined to families with children. In 2006/7 the rent paid by sole parents with children and couples with at least two children in the area with the higher accommodation supplement increased around 3 percent per week more. For those receiving the accommodation supplement who didn’t have children, rent costs fell.

Most of the increases in rental payments were associated with changes in tenancy, possibly as that is when rent changes mostly occur.

“We found weak evidence of a reduction in the numbers of people living in houses in the area with higher supplements. This is possibly because the increase in rent payments allowed families to afford better accommodation and reduce crowding,” said Dr Hyslop.

Dean Hyslop and David Rea’s paper “Do housing allowances increase rents? Evidence from a discrete policy change” is now available on the Motu website.

Summary haiku

Centre of Auckland
had higher housing support
some gains for tenants.