COMMENT: Over the past few weeks, the spotlight has been on the appalling situation in Rotorua, where hundreds of families are living in motels because of a lack of more suitable accommodation.
The situation is not exclusive to Rotorua, of course but Rotorua has come under particular scrutiny because of the sheer number of people accommodated in this way, and because of the massive escalation in crime and anti-social behaviour which has resulted from this approach to emergency housing.
Homelessness under this Government has skyrocketed – from 5000 registered on the Social Housing waiting list in 2017 to over 27,000 now - the highest levels that it has been in our nation’s history.
To be fair, the Social Housing Register has become a record of “want” rather than “need”. By this I mean that some of the explosion in the number of people registered on it can be explained by the fact that there is now a greater degree of subjectivity in eligibility than there was under the previous Government. Under the current eligibility criteria, an applicant family can earn around $71,000 per annum and still be eligible – just shy of the 2020 median household income of $75,000. This means that not everyone on the Social Housing register is homeless, and that some have registered because they would like a state provided house at a significantly lower rental (and who can blame them?).
Start your property search
But that doesn’t completely explain the extraordinary increase in numbers, nor the shortage of houses to accommodate these people. To understand that you need to go back and review the unintended consequences of the Government’s anti-landlord measures and legislation. Since 2017 I have repeatedly predicted that those measures would lead to a rental crisis including here, here and here – and now those chickens are coming home to roost.
It doesn’t take a degree in economics to understand that the following measures would inevitably lead to a shortage of rental housing:
1. Big changes to the way property investment is taxed
An extension of the Bright Line test from two to ten years (which treats property investors as if they were speculators), removing the ability to claim interest costs as a deductible business expense, and the ringfencing of tax losses have all heavily impacted on the private rental sector and have made the retaining rental property and providing new rental dwellings, far less attractive. This last measure, in particular, is the most serious because it stops property investors from offsetting significant losses against other business income in the early years of owning a rental property – so even if an incoming new Government were to reverse the other measures, leaving this in place means we won’t see growth in the national stock of private rental housing. National needs to take note of this and declare its hand in this regard.
Ashley Church: “Homelessness under this Government has skyrocketed.” Photo / Ted Baghurst
2. Increased Compliance costs
Both this Government, and the previous one, have progressively introduced new measures with which all landlords must comply. These include measures around making rental properties warmer and drier and, to be honest, most landlords broadly support them. However, this doesn’t reduce the impact of the costs associated with compliance and, particularly for existing dwellings, this has been another factor in reducing the attractiveness of rental investment.
However, as significant as these measures have been in reducing the stock of rental accommodation – it is the third change which, in my view, has so dramatically impacted on the rental sector – and which explains why the situation is so serious in Rotorua.
3. Changes to the Residential tenancies Act
Since 2017 there have been many changes to the Residential Tenancies Act – but the most significant of these came in the form of an amendment, which took effect last year, which made it almost impossible to evict a tenant for reasons other than personal use of the property by the landlord or sale by the landlord. While the impact of this has been huge, the most significant unintended consequence has been the decision, by many property management companies, to give notice to landlords that they would no longer manage habitually troublesome dwellings where tenant behaviour was an ongoing problem. The rationale behind this is easy to understand – it’s hard enough managing a property with difficult tenants but being unable to evict such tenants made the situation near on impossible.
The knock on-effect of this has seen landlords choosing to leave some properties empty rather than try and manage them, themselves – and in cities like Rotorua, the consequences of this are particularly pronounced with a large number of tenants finding that private landlords are no longer prepared to rent them a home.
As a result, these people turn to the landlord of last resort – the Government – and suddenly the cause of the crisis in Rotorua and other centres becomes clear.
All avoidable, and all entirely the fault of a naïve and inept Government which is big on ideology and short on wisdom.
- Ashley Church is a property commentator for OneRoof.co.nz and a real estate business owner. Email him at [email protected]
---------
* A previous version of this article incorrectly stated that Kāinga Ora was responsible for emergency housing in New Zealand. Kāinga Ora does not offer emergency housing. This is organised through Ministry of Social Development. OneRoof apologises for the error. For more information on emergency housing and how to apply visit here.
