Greens Hammered Over Rent Control
If the Greens had dug into New Zealand history the party would have realised it does not work here, claims a prominent political historian.
30 July 2023
In its latest attempts to push rent controls on to landlords, the Greens want rent increases limited to 3 per cent a year.
However, economists across the country are unanimous in their opinion rent controls are bad. Rent control in their eyes is just a form of price control, and they have failed in almost every country that has tried them.
Well-known New Zealand political historian Dr Michael Bassett says the Greens appear to know nothing about the history of housing or rent controls, either in New Zealand or anywhere overseas.
“The party doesn’t bother to do any research about issues,” he says. “Its MPs react to problems instinctively; they blurt out those reactions and then label them ‘policies’.”
If they had done any sort of research they would have found rent controls have never worked here. “There are other sources of information in Wellington that are easily accessible to the Greens which give no encouragement to their brainwave.”
Rent controls in New Zealand were first tried using a series of rent restriction acts during World War 1, more than a century ago. The idea proved disastrous. And when revived by the first Labour Government it was no more successful.
Bassett says his research shows many private investors who owned rental properties in 1914 and who found their rents frozen at below the inflation rate, sold their houses and invested elsewhere. This severely reduced the stock of rental housing.
After an initial decade of rent controls came the question of what was a “fair rent”. But efforts to legislate this did nothing to ease the growing shortage of rental houses, Bassett says.
“And this lack of rental houses, due to the law of supply and demand, pushed up rentals on any that were still available. To get any sort of decent rental housing in Auckland, families had to pay to landlords exorbitant amounts of ‘key money’ up front.”
Bassett says difficulties in this area were one of the factors in the first Labour Government’s decision to construct state houses. They enabled ministers to bypass the private sector.
In Europe, where a higher proportion of homes have always been rented, experiments in rent controls proved even more futile. In many cities the private rental market collapsed. A Swedish economist observed in the 1940s that only pattern bombing had done more damage to Europe’s cities than rent controls.
Bassett says the Greens have obviously decided to make a bold strategic play for left-wingers.
New Zealand Property Investors’ Federation Carterton-based central area representative, Tim Horsbrugh, in a letter to the local newspaper, says rents have increased 4.3 per cent in the past year, which sounds steep.
However, that is tame compared to rates, insurance and interest rate increases.
“New taxes and higher costs have meant investors are not buying. In fact, a recent NZPIF survey of members found 15 per cent more property owners intend exiting the market at a time the country is expecting an annual gain of more than 60,000 people through migration.
“This will require 19,000 more houses, only putting more pressure on rental demand.”
“Right now, many landlords are stretched with poor returns from such an investment,” Horsbrugh says.
“Many are topping up the rent to keep the tenant living in their rental home, so although rent is expensive, people need to realise it is still cheaper to rent than buy.
“If the current picture is not good for landlords and tenants and demand keeps increasing then the outlook is rather bleak.”
NZPIF president Sue Harrison says whether the Labour or National blocs win the next election, they will need to change the existing government’s portrayal of private rental homeowners as “uncontrolled, tax dodging speculators”.
Most rental homeowners are hardworking investors, helping tenants into good homes, and the only part that is speculation is how far a government will go to bring a sledgehammer to the housing market, she says.