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OPINIONPoliticsApril 14, 2022

James Shaw: The case for rent controls

snow and money falling on houses
Image: Archi Banal

New Zealand’s housing crisis won’t be fixed overnight, but there’s one thing the government could do that would make an immediate difference, writes Green Party co-leader James Shaw.

Economists aren’t always right about everything. 

Conventional economic wisdom says that minimum wages cause unemployment. That theory doesn’t hold in reality – unemployment in New Zealand is currently at its lowest level in recorded history while the minimum wage is at its highest.

The same kind of thinking applies when it comes to rent controls. 

Rents are currently out of control, rising nearly twice as fast as wages in the twelve months leading up to December 2021. With rent taking up almost half of take home pay, people are struggling to pay for power and food. Rent increases are displacing families from their communities, forcing kids to move schools repeatedly and lose connections with their friends.

Last week the Green Party launched an open letter to the prime minister calling for a temporary rent freeze until rent controls can be put in place. It wouldn’t be the first time the government has done this in response to a crisis: there was a rent freeze in place between March and September 2020 as part of the response to the Covid-19 pandemic. 

Conventional economic wisdom says that rent controls dampen supply. But the theory isn’t supported by a great deal of empirical evidence, particularly in addressing an overheated market. 

A recent report from the UK Collaborative Centre for Housing Evidence found that rent stabilisation, along with stronger tenancy conditions, could make a positive contribution. The report also pointed out that rent controls should always be seen in the full context of housing policy.

It’s obvious that supply will rise or fall based on a wide array of policy choices. Just this week, research for the Infrastructure Commission showed, in damning detail, that constraints on urban intensification have caused our housing affordability crisis.

James Shaw (Photo: Hagen Hopkins/Getty Images)

The long term solutions are to improve planning and infrastructure settings. Done right, this can also be a key part of reducing carbon emissions. When we start to build cities for people, rather than cars, we see more affordable housing, lower household transport costs and lower carbon emissions. 

Auckland is a natural experiment in enabling more housing in existing urban areas. The Unitary Plan is having a terrific impact: building consents are booming and rent increases in Auckland have slowed down. 

Rental bond data showed that in the year to February 2022, rents in the Auckland region increased 2.6%, compared to a whopping 6.8% in both Wellington and Canterbury and an eye-watering 9.8% in Otago. Which would suggest that increasing supply does lead to lower rental increases. 

Conventional economic wisdom would say that this renders rent controls unnecessary. But that just doesn’t stack up, for two reasons. 

First, it’s an inconsistent argument that doesn’t hold itself to its own rules. You cannot say on the one hand that limiting the rate of rent increases via controls will kill supply, then on the other that supply increases will always keep rents stable. If stable rents can coexist with increasing supply, that must be true whether rent controls are in place or not.

The second problem is that it takes time for supply changes to make a difference. The Unitary Plan became operational six years ago, and only now are rent increases starting to stabilise – albeit at punishingly high levels. 

We can’t let renters bear another six years of increases like we’ve seen in Wellington, Canterbury or Otago while supply is increased nationwide. People can’t live in a projected future equilibrium.

A rent freeze, followed by rent controls pegged to inflation, would be a sensible measure to prevent displacement of whānau from their communities while supply catches up to demand.

In a functional market, rents wouldn’t increase faster than wages, let alone at double the rate. It’s simply not tenable to ask renters to sit tight, shell out, and hope the construction sector magically finds the ability to build tens of thousands of homes overnight. 

Rent controls must be part of the immediate response, while we also get to work fixing the fundamental problem, which is that we need a lot more housing.  

The Green Party supports a range of measures to increase housing supply, including allowing eight stories rather than six in areas close to city centres and public transport links, and using development bonuses to unlock more development capacity when new apartment blocks are built to higher standards of energy efficiency and accessibility. 

Both Labour and National voted against these proposed changes last year on the Housing Supply Bill, despite claiming that supply is the main lever they’re going to use. 

The Greens also support government underwrites for community housing providers and iwi to scale up and increase supply of affordable rentals, and have been calling for the Income Related Rent Subsidy to be expanded to local government, so they too can build more rental housing. We’ve also called for Kāinga Ora to increase their construction capacity, so they can deliver public housing at scale, without being at the mercy of monopolistic building supplies companies. 

These policies, together with rent controls, will create a housing sector that meets everyone’s needs.

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