Politics

Rent supplement could be in line for a boost

The Accommodation Supplement, a benefit that has remained unchanged for a decade, could be in line for a shake-up at the Budget. But how do you fix something that is “hamstrung”?

A major welfare benefit may be increased for the first time in a decade, in this year's budget.

Not since 2005, when Don Brash was leader of the opposition and the British and Irish Lions were last touring, has the accommodation supplement risen, in spite of average rents soaring over that period.

In Auckland, median rents have risen 56 percent from $320 a week in early 2005 to $500 a week now, while the national median rent has risen 60 percent from $250 per week to $400 per week, according to Tenancy Bond data collected by the Department of Building and Housing.

The supplement, a weekly, non-taxed payment designed to help people with their rent, board or cost of owning their own home, was introduced in 1993.

It is not for those living in social housing, but is tied to people’s incomes and family situation and can be up 70 percent of housing costs minus an entry threshold.

The maximum payment depends on where the recipient lives, with New Zealand broken into four areas.

But, quite surprisingly, those rates have not risen once, not even to match inflation, since 2007 when it was pegged to 2005 rates.

Back then the Government spent $891 million on accommodation benefits.

By 2014/15 that had reached almost $1.13 billion and an estimated $1.15b in 2016/17.

According to Treasury, the number of people receiving some form of accommodation assistance peaked at an average of nearly 320,000 in 2010/11.

Since then it has fallen, but is expected to pick back up while the average amount paid out per recipient is also expected to keep rising. 

Treasury itself was aware the supplement was inadequate and, in a 2010 briefing paper,  recommended increasing it.

It pointed out that income-related rent subsidies paid to Housing NZ tenants were adjusted to market rents, while the accommodation supplement was not.

“The IRRS is markedly more generous than the AS for a large number of people … a number of AS recipients appear to be facing significant stress due to housing costs,” Treasury wrote, seven years ago.

Recently there have been signals from the Government there may finally be some changes to the supplement, and perhaps Working for Families, in this year’s Budget.

In September Social Development Minister Anne Tolley told RNZ a lift was “worth considering” while Prime Minister Bill English did not rule it out when directly asked by Lisa Owen on The Nation earlier this month.

Whether that move is a rise in the threshold, the maximum payment or rolling the supplement into a wider benefit package remains to be seen.

But making those changes is not a simple task.

Getting off the “treadmill”

Canning the supplement altogether has been suggested before as the best way forward.

The main argument is that the money is simply a windfall for landlords, with any increase simply fuelling rent rises.

There is some sense to the idea; if a large group of tenants were suddenly flush with extra cash it wouldn’t take long for the market to respond.

Diverting the money into the root of the problem – a lack of housing – could be a better use but doing so is not that simple.

Cancelling more than $1b in support would leave hundreds of thousands of low-income earners unable to pay their bills.

The Salvation Army’s Alan Johnson says the Government is in a tricky spot.

“It’s a real treadmill policy, it’s one of those things you can’t get off, you just have to keep on going spending money on it because the disruption and hardship that’s caused in stopping the policy could be quite severe.”

Putting more money into the supplement was like “throwing good money after bad” and rather it should be diverted into ramping up housing supply such as through modest income home-ownership programmes.

Johnson admits cutting the supplement would cause “chaos”, but says the reality is the sooner changes are made the easier they would be.

“There’s some pressure going on Government on how much they’re spending on emergency housing support.

“Well, to be honest the best time to start doing something about that was eight years ago – when’s the next best time to start doing something about it? Today.”

Last year the results of a cross-party inquiry into homelessness between Labour, the Greens and the Maori Party were released.

It made 20 sweeping recommendations including increasing state housing, removing the Housing New Zealand dividend, and introducing income-related rent subsidies for community housing tenants.

It also suggested reviewing the accommodation supplement.

Labour’s social development spokeswoman Carmel Sepuloni says there is a real problem with the payment, but it’s not feasible to drop it altogether and leave people unable to pay their rent.

Reviewing the supplement and creating a comprehensive package to tackle the housing problem is the best way forward, she says.

“The accommodation supplement needs to be reviewed, but reviewing the supplement on its own is not going to solve anything.”

Delegation for the area now lies with Social Housing Minister Amy Adams.

Noting the Government will spend $2.3b this year on subsidies, temporary accommodation support and the supplement, Adams is coy on exactly what changes, if any, may be seen at the Budget.

“We do review settings periodically and assess them against all other fiscal pressures, and we’ve previously said this is something we’re open to looking at.”

A good policy hamstrung

Dr Eric Crampton, head of research at the New Zealand Initiative, believes the supplement is a far better way of assisting low-income tenants than state housing, but only when council zoning restrictions allow.

Housing New Zealand’s stock has become dated and in need of repair; it is also the wrong configuration as the make-up of families has changed.

Selling those properties where land is valuable should allow the Government to fund the supplements, allowing renters to choose where to live.

Unfortunately, council zoning restrictions mean that, instead of encouraging new development and assisting the supplement system, they work to subsidise existing landlords.

“In a functioning housing market, accommodation supplements would boost demand for the type of housing demanded by lower income tenants, and developers would then work to bring forth supply.

“That has not been working lately because councils have made it far too difficult for developers to build new housing of any kind,” Crampton says.

This theory sounds fanciful to Susan St John, an associate professor in economics at the University of Auckland.

The real problem, she says, is low benefits and wages, which increase the need to top-up assistance and lead to rising benefit statistics.

While the supplement is income and asset tested it is impossible for recipients to try and build up a deposit to purchase their own home and means they rely more heavily on it.

“We’ve got people that need that money, and they need it now, but the problem is the way it’s designed and the way it interacts with other parts of the welfare system, it’s part of the poverty trap.”

Trap or not, it appears there’s a consensus that after a decade there needs to be some change.

We’ll just have to see what form it will take. 

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