Economists warn of impacts of rent control changes

by Roxanne Libatique07 Apr 2021

ASB economists have issued a warning on the impacts of any changes to rent controls in New Zealand following the government’s launch of a new housing package.

In ASB’s latest Economic Weekly report, economists updated their housing market forecasts and emphasised the benefits of rent controls.

ASB economists, led by ASB chief economist Nick Tuffley, said rent controls benefit incumbent renters (regardless of their financial circumstances) of properties “brought into the rent control web.”

“But pretty much everyone else bears costs,” Tuffley said. “Future would-be renters tend to face shortages of (rent-controlled) properties, as few incumbents want to give up their windfall gain and private landlords shy away from providing rental stock.

“Properties tend to either be undermaintained (New York’s post-war experience) or can be over-renovated in order to boost the rent if such adjustments are permitted (which impacts rental affordability).”

Tuffley noted Berlin’s year-old rent controls on pre-2014 dwellings, which have created a shortage of rent-controlled properties while sharply boosting the rents of exempt new builds as new renters have little alternative.

“Stockholm has an average 11-year wait to officially rent a rent-controlled dwelling.  A thriving black market has developed for sub-leases of rent-controlled dwellings, which has attracted criminal gang involvement and even sparked homicides,” he continued.

“In summary, a policy that distributes the benefits irrespective of need, and potentially constricts rental housing supply in the midst of a housing shortage, may not help resolve NZ’s problem of an expensive and undersupplied housing stock – for both would-be owners and renters.”

ASB economists believe the recent changes could force rents to soar much faster.

“Property investors on a 33% marginal tax rate will effectively face a 50% increase in debt servicing costs. It is inevitable that some landlords will attempt to pass some of that cost on. We have factored in an extra 15% in rents through to mid-2025 that will add roughly 0.3 percentage points to annual CPI inflation,” Tuffley said.

Most Read

NZ Adviser TV