By Aamy Roshan
One of the greatest issues facing tertiary students is the ever increasing cost of living. Stats New Zealand found that a quarter of renters spent 40 percent of disposable income on housing. In 2022, Auckland rent prices increased by 3 percent annually. To address this issue, the Green Party has introduced a new Renters’ Rights Bill, which would establish rent controls. But if implemented, what would this entail?
What is Rent Control?
The current regulations on rental properties allows landlords to only increase rent prices once every 12 months. If renters feel that their rent is disproportionate to the area they live in, they can go to the Tenancy Tribunal to ask for a reduction to a “market rent.” A rent control would act as another regulation that would cap the annual increase of rent at 3 percent per year. If the inflation rate is lower than that figure, the cap would be adjusted to the new inflation rate, or 1 percent below the average wage increase, depending on whichever is lower.
Why Shouldn’t We Have Rent Controls?
Craig Renney, policy director and economist for the Council of Trade Unions, states that rent controls are only a short term solution to a long term problem. Firstly, the implementation of a rent control could deter landlords from renting out their properties altogether. Secondly, the Greens’ policy is not a standalone policy, but rather a part of the new Renters’ Rights Bill, which contains a host of policies to ensure that rentals are “safe, warm and healthy to live in.” However, this bill could potentially have the opposite of the intended effect. Rent controls could increase the burden of maintenance for landlords, as they may lose the ability to absorb costs through lowering the cost of rent. As New Zealand economist, Brad Olsen, pointed out: “they’ll do the absolute bare minimum because changes in the market can’t be reflected in price.” Consequently, this could lead to the quality of rental homes falling. However, these are only potential consequences, whether they hold up in practice is a different story altogether.
Why We Should Implement Rent Controls
One of the key supporters of rent controls is Renters United, a New Zealand-based group that advocates that rent controls are necessary because it prevents landlords from exploiting renters. They support their stance with the fact that 13 OECD countries have implemented some form of rent control, citing successful examples, such as Germany. In Germany, more than 50 percent of households rent and rent contracts are regulated by the German Civil Code. Similar to the Greens’ proposed policy, Germany’s policies ensure the quality of rentals and prevent prices from being increased more than 10 percent above the local average rent. In 2022, German households on average spent 27.8 percent on rent, whereas in New Zealand, nearly 30 percent of renters spent 40 percent or more of their incomes on rent. The many existing examples of successful rent controls enacted by OECD countries not only make a strong case for its implementation, but they can serve as a model for New Zealand.
Rent controls can also alleviate the many negative impacts of high rental prices on society. Te Kahui Tika Tangata, the Human Rights Commission, found that rising rent costs can force households to reduce their spending on essentials like food and energy, increasing the burden faced by students and low income households. It can also force people away from their areas of work, as they may move to places with cheaper rent, leading to gentrification. As Chief Human Rights Commissioner, Paul Hunt, asserts that “the government of the day has to ensure all New Zealanders can meet their basic living needs. The Cost of Living Payment doesn’t go far enough to address unaffordable rents faced by many low-income renters.”
Final Thoughts
Although rent control initiatives have not been promoted by other parties, aside from the Greens, the policy should not be completely dismissed. Rent controls can help to address and shift the focus to providing adequate renter protection. While a rent control alone may not be enough to address all the issues faced by New Zealand renters, it is still a step in the right direction. However, the viability of the policy depends on the success of its implementation, particularly within the broader context of Renters’ Rights Bill and advancing its aims.
References
https://www.1news.co.nz/2023/07/02/green-party-pledges-landlord-register-rent-control-measures
https://housing.hrc.co.nz/urgent_government_action_needed_to_support_renters_human_rights
https://www.greens.org.nz/reasonable_rents3
https://www.teaonews.co.nz/2023/07/04/pm-rules-out-greens-rental-cap/