This is another guest post by Lucy JH
In this blog post, I want to focus on the accommodation supplement which I think is probably a small but significant contributor to housing unaffordability in Auckland. I also think it’s a bad benefit for a few reasons. To explain why I wanted to begin by giving a quick example.
You are a landlord and for some time you have been renting your two bedroom unit in Auckland Central to your tenant at a rate of $310/week. You decide to make your rental more profitable you will raise rents by $50/week. This is within market rents for the area so a fair and legal thing to do.
You go to your tenant who is working full-time but only earns $800/week and they tell you that they cannot afford the higher rent and will soon move out. Eager not to lose them, you say, “Well, why don’t you apply for the accommodation supplement? It will mean you get an extra $60/week in subsidies so you actually pay less rent, while I collect more.” Your tenant applies and is granted a subsidy. Everybody is happy.
For some reason, when I first heard about the Accomodation Supplement this is literally the first scenario that popped into my head. While obviously, nobody in this scenario has done anything wrong (the landlord is helping out a tenant, the tenant is applying for a benefit they’re entitled to) the overall effect on NZ society might not be so good.
I think this scenario also demonstrates that the Accomodation Supplement is quite open to being exploited in some cases.
Now maybe nobody else in the whole of New Zealand has had these thoughts but, even if they haven’t, I still don’t think the Accommodation Supplement is a good benefit, especially from a perspective of improving housing affordability. In this blog post, I want to explain why.
For those of you who have never heard of the Accommodation Supplement, you can read more about it here. Basically, it’s an allowance that the government pays out to people who earn below a certain amount to help them with their living costs.
You can get the Accommodation Supplement anywhere in New Zealand but it is highest in areas where housing costs are more expensive (you can see a breakdown of the areas it covers here). Many of the top areas (where you are eligible for most support) are in central Auckland or the North Shore.
It is not available to people who live in state houses who get a different kind of housing support.
The amount of money our government spends on the accommodation supplement is really quite high – $1.2 billion in 2011. This is also predicted to increase quite rapidly to $2 billion by 2016.
Government expenditure figures are typically pretty meaningless to most New Zealanders. So just to put that sum in context, that is more than twice the amount of money – $441 million – our government spent on Conservation in 2011. It is also still fairly hefty compared to the whopping $8.8 billion we spent on the pension, which is our most expensive benefit by a country mile.
So we’re spending quite a bit on the accommodation supplement and it would be nice to think we were getting a good return. But I think it is actually a deeply problematic benefit for a few key reasons.
First, the accommodation supplement distorts markets because it is a direct subsidy to help people pay for just one cost (housing). It seems quite likely that an unintended consequence of such a subsidy would be to drive up house prices and rents, particularly in the areas where the accommodation supplement is most generous. How much of an impact the Accommodation Supplement has actually had on rents I don’t know – has anybody seen any research on this topic?
Second, the accommodation supplement is not tightly targeted enough to those in genuine need. You can see the various cut out points and thresholds online but here is one table as an example.
For example, if you’re a single person and you earn less than $953/week (before tax), you live in Auckland Central and you pay more than $51/week (I think although I feel I must have misread this) in rent you’re eligible for the accommodation supplement. True, you probably don’t get a huge amount per week – maybe say $50 – but you still get a state subsidy to cover your living costs.
I know that life is hard for a lot of New Zealanders, costs are rising and wages are stagnant. I absolutely agree that those who are earning lower incomes probably desperately need this benefit to get by. I don’t want to comment on single parents or couples with children because, not having any kids myself, I don’t think I can say much about their situation.
But I have spent most of the last five years living in central Auckland on salaries of less than $950/ week and I’m pretty confident you can live quite comfortably in that situation and even save some money.
To me it seems odd that this benefit is available to even those at the top end of the scale (e.g., over $800/week as a single person or $1000/week as a couple).
What do you think – do you reckon the Accommodation Supplement is distorting house prices or rents?
Do you think it is too loosely targeted? Is it acting as a “subsidy to landlords” as some critics claim?
Are there ways the government could either make this benefit more effective or eliminate the need forit and, if so, how?