The cash benefit fuelling NZ’s housing crisis
It is a major-ticket subsidy that helps support over half a million New Zealanders and is received by 100,000 more households than JobSeeker and Sole Parent Support combined. Yet, surprisingly it flies under the radar.
The Accommodation Supplement (AS) deserves far more attention – more infamy and ignominy. While it is supposed to help with housing costs to protect living standards of low-income people, most recipients are still consigned to poverty, and its bad design actually helps fuel New Zealand’s housing crisis. Meanwhile, many low-wage workers miss out on AS because they don’t know they’re entitled to it, or because it requires them to go to Work and Income, or because the value of their assets is above the extremely strict limit.
In 2017, even Treasury agreed “AS does not adequately alleviate housing stress” and New Zealand’s existing housing subsidy structure is “not fit-for-purpose”.
For all these reasons, the Child Poverty Action Group’s just released report, The Accommodation Supplement: the wrong tool to fix the house, calls for the Government to remove the AS for most recipients while significantly raising incomes of all benefit recipients and low-wage workers. We authored this report with Alan Johnson, co-convenor of the CPAG.
So what is the Accommodation Supplement? It is a cash subsidy linked to recipients’ actual rents or home ownership costs. It is available to most low-income people with low cash assets regardless of whether they receive a means-tested benefit or NZ Superannuation or neither, and regardless of whether they are renting, boarding or own their own home. It is miserly; one in five AS recipients receives further supplementary assistance to help pay their housing costs. More recipients probably need such assistance, but Temporary Additional Support is not without its barriers, requiring interaction with Work and Income every few weeks to prove you still need it.
A major problem with the AS formula is that entitlement is directly linked to actual housing costs. Evidence suggests this link helps keep rents high and makes it difficult for recipients to save money by moving to cheaper accommodation because, as their housing costs go down, their AS entitlements also go down. Besides, if they do save, they quickly become ineligible for the AS due to the cash assets test.
To get off this treadmill the Government needs to increase incomes for low-income families with children, and for working-age people, by increasing benefits, increasing Working for Families entitlements and raising the minimum wage at a faster rate than scheduled.
The AS is a significant government subsidy of the private rental market, covering the cost of approximately 10 percent of the $10 billion to $12 billion rents paid to private landlords a year. Although it assists some recipients with mortgage payments, the AS helps neither the state nor the vast majority of its low-income recipients accumulate or maintain assets for themselves. To be fair, this transfer of wealth from the state to landlords is only partially due to the AS link to housing costs. The main problem here is that successive governments over 25 years have neglected adequate building programmes and policies to encourage home ownership.
At the same time, the annual $1.5 billion of AS assistance to low-income families is desperately needed, making the AS seem difficult to remove. The inadequacy of New Zealand’s social security system is appalling. CPAG’s research indicates that even some full-time working families who receive the AS will have incomes below the poverty line of 60 percent of the median residual income (after housing costs).
For most benefit-recipient families with children, the situation is far worse: they are likely to have after-housing-cost incomes below 40 percent of the median and if they cannot access further piecemeal support, some of them will be living below the 30 percent line. In order for these families to get out of poverty, we estimate that their core incomes need to be increased by 30 to 50 percent, depending on their circumstances.
To get off this treadmill, the CPAG report recommends the Government increase incomes for low-income families with children, and for working-age people, by increasing benefits, increasing Working for Families entitlements and raising the minimum wage at a faster rate than scheduled. These three income streams should be increased to the point where they cover the loss of all AS income and guarantee nearly all New Zealanders an adequate income. AS could be scrapped completely for all current recipients, apart from superannuitants in need (CPAG concluded that this group may need ongoing housing-related subsidies).
The recommendation to scrap the AS assumes that the Government will also dramatically increase its housing market interventions, as required to ensure New Zealand has an adequate supply of housing, and so that more low-to-mid income families have options other than renting privately in perpetuity.
While an increase in the minimum wage would help pay for the recommendation, CPAG estimates that it would still cost the Government an additional $3.4 billion a year to scrap the AS while ensuring all families with children are at or above the poverty line of 60 percent of median after-housing-costs income and others (without children) are at or above the 50 percent line. The cheaper option – scrap the AS while ensuring everybody is at or above the 50 percent line – is estimated to cost $2.2 billion.
These are serious price tags – but they are value for money. We can finally stop robbing our children of their potential and ensure all New Zealanders have adequate income to flourish and participate in society. An extra $3.4 billion a year looks paltry if considered against future saved social costs, a more productive and stable workforce, and less healthcare spending.
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