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The BulletinJuly 3, 2023

The rent is too damn high, say the Greens

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They’re pledging to introduce rent controls, but some economists say artificial caps do more harm than good, writes Catherine McGregor in this excerpt from The Bulletin, The Spinoff’s morning news round-up. To receive The Bulletin in full each weekday, sign up here.

Three is the magic number

The Green Party released a Pledge to Renters that would introduce rent controls limiting increases to 3% a year, including for new tenancy agreements. Rent increases larger than 3% would be allowed only if the landlord had made “substantial changes to the property that provide a material benefit to tenants”, such as major renovations, and the increase would need to be agreed by the tenants and the landlord before work began. The pledge also includes a “warrant of fitness” for rentals – a certification that every landlord would need to obtain at their own expense before letting a property. While the current Healthy Homes Standards are mandatory for new tenancies (existing private tenancies have until July 1 2025 to comply), enforcement is currently minimal, the Greens say. A WoF would take the burden off renters to enforce the law by taking their landlord to the Tenancy Tribunal.

An unsurprising thumbs down from landlords

The reaction from landlords has not been kind. The Property Investors Federation says rent controls would worsen the rental property shortage by encouraging landlords to sell up, and mean more tenancies being negotiated on the “black market”. Vice president Peter Lewis says singling out rents for price controls doesn’t make sense, given that rents are rising at less than the rate of inflation while costs to landlords such as rates and insurance skyrocket. He argues that restoring the mortgage interest deduction would do more to help tenants, through flow-on effects on rents. National and Act have also attacked the policy, while advocacy group Renters United is welcoming the proposals as “ultimately better for renters and landlords”.

Are economists right to disparage rent controls?

National’s housing spokesperson Chris Bishop says “almost all” economists agree rent controls are counterproductive. Is he right? In 2021, Stuff’s Mikaela Wilkes spoke to ​​Council of Trade Unions economist Craig Renney and independent economist Shamubeel Eaqub about rent controls, and both said they’re generally a bad idea. “Rent controls are a disincentive to build property types that are more likely to be rented, like apartments and small dwellings, and they are a disincentive for landlords to maintain properties to a level we would like,” said Renney. “It seems like a deceptively simple thing to do: just stop rents rising and everything will be fine,” said Eaqub. “But it isn’t that simple, there are known consequences.” Renters United forcefully pushes back on claims they don’t work. “The top performing economies in the OECD successfully implement rent controls,” their website argues. “This is not a radical idea that has never been tried before.” Vox also has an in-depth explainer that makes the case for rent controls.

For property investors, it all hinges on October 14

Labour has yet to release its election policy on housing, but it’s pointing to renter-friendly changes already introduced, such as rules limiting rent rises to once every 12 months. National is promising more help for landlords, including restoring no-cause evictions and the mortgage interest tax deduction, both removed (or phased out) under Labour’s watch. The differing approaches are encapsulated in an interview with a property investor by Stuff’s Geraden Cann. Brianna Kerridge says she and her husband will likely sell one of their four properties if Labour wins in October – but if National regains power, then they’re all set to buy a fifth.

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