Healthy homes yes — but who pays?
Many landlords will either increase the rent or sell property
It’s hard to disagree with Phil Twyford: as the new Minister of Housing and Urban Development said last month, every New Zealander deserves a warm, healthy home to live in.
It’s even harder to disagree with the numerous studies that show significant pockets of New Zealand’s housing stock are below par by world standards — and fair to assume that rental properties are disproportionately represented in those pockets.
Any improvement to housing standards for rental properties will improve the health and wellbeing of Kiwis — particularly by reducing respiratory illnesses such as asthma and rheumatic fever, which are closely linked to cold and damp housing and which can have devastating effects on children and elderly people in particular.
It will also generate economic benefits, both obvious ones, such as reduced costs to the health system, and somewhat less obvious ones, such as improved productivity by healthier workers and better educational outcomes for children.
However, these benefits will come at a cost: the capital outlay required to bring properties up to the new, and as yet undefined, standards required — making it pertinent to ask just how these costs should be shared.
There are only three candidates. The property owner (by absorbing at least some of the capital cost), the occupant (via increased rent), or the government (via a scheme that helps fund the cost of complying with the new regulations).
Each alternative will find favour with some; however, each presents some difficulties.
Property owners may seem the obvious place to start; however, while house prices are always in the headlines, the returns generated by owning a rental property are very much in the small print.
The Productivity Commission’s 2012 report into Housing Affordability cites 2008 data from the Department of Building and Housing in saying that: “Although estimates vary, the net cash yield on rental properties over the 2000s house price boom is estimated to be well below 4 per cent” — often less than you could get from your local bank.
The report also noted rents were increasing “significantly less than real house price inflation” and noted that the ratio of house prices to rents had “increased markedly”.
Last year, MBIE’s new Housing Affordability Measure concluded that housing affordability for renters “is consistently better than for firsthome buyers” and that this was the case across the country.
Many landlords will be unable to swallow an increase in costs: they will either increase the rent, or sell their property.
Given the current shortage of housing stock, a sale would likely be to an owner occupier.
This would have the surely unintended consequences of reducing the stock of rental housing on the market and improving the alignment between property prices and yields (in other words, further increasing the cost of renting).
However, many tenants are not in a position to pay more either.
The Ministry of Social Development’s 2016 Household Incomes Report said the lowest 20 per cent of earners spent 54 per cent of their income on housing in 2015, compared with just 29 per cent in the late 1980s. Then-Prime Minister John Key acknowledged that rising rents were “putting real pressure on some people”.
Installing a heat pump won’t improve the living environment if it comes with a rent increase that makes the electricity required to run it unaffordable.
It is right that the Government is considering intervening in the rental property market to ensure minimum standards are met: the benefits to people living in those properties and to the economy as a whole are clear.
Government initiatives and incentive programmes that support improving the housing stock, such as insulation grants, are important to help in making implementation cost effective.
However, for any such intervention to achieve its stated objective, the costs will need to be evaluated thoroughly, and apportioned appropriately.