As more New Zealanders rent and rents continue to climb, new research shows government support is failing to ease housing stress.

New Zealand’s accommodation supplement is doing little to improve affordability for renters, according to a recent study.

Although rental subsidies offer some relief, the study authors say they’re not significantly closing the affordability gap between lower- and higher-income groups.

In contrast, the researchers show that mortgage subsidies work more effectively, helping to level the playing field between low- and high-income homeowners.

Associate professor Edward Yiu and Dr William Cheung from the University of Auckland’s Business School compare the rent-to-income ratio and mortgage -to-income ratio of Auckland households receiving the accommodation supplement with those that don’t.

They compare households within the same income bracket, and using data from 2019 to 2023, show that rental subsidies do little to improve affordability.

“While rental subsidies offer some help, they fall short of creating comparable affordability,” says Yiu.

Renters receiving the supplement pay more than renters who don’t

Renters receiving the supplement spent more of their income on rent than those not getting it across all five income brackets the researchers analysed.

Studies in other countries have shown that landlords may raise rents in response to subsidies, leading to higher rental costs for people on rent support payments, says Yiu. “This could be why renters receiving the accommodation supplement are paying more in Aotearoa.”

In 2023, in the middle-income bracket, renters on the accommodation supplement were spending 35.65 percent of their income on rent alone, compared to 25.85 percent for those not on support payments.

When excluding the accommodation supplement from household income, the rent-to-income ratio of households receiving the supplement jumps to 39.15 percent. This indicates that while government support provides some relief, it’s ineffective in bringing rent-to-income ratios down to a more affordable level, says Yiu.

“We’re facing a bit of a dilemma when it comes to rental subsidy policy. Raising subsidy levels could provide immediate relief but it might also contribute to rent inflation.”

Housing affordability is a critical challenge in New Zealand, with many low-income households struggling to meet housing costs.

“While the accommodation supplement is intended to support households with rent and mortgage costs, our findings suggest it’s not providing effective relief for renters,” says Cheung.

Mortgage supplement levels the playing field for homeowners

Homeowners receiving the mortgage supplement experience significantly lower mortgage payments than those who don’t, according to the study.

In 2023, households collecting the supplement paid $32,000 annually in mortgage repayments compared to $39,250 for homeowners (in the same income bracket) not receiving the supplement.

“Mortgage subsidies effectively level affordability between low-income and higher-income homeowners,” says Yiu.

This, he argues, suggests homeownership support payments offer more consistent and lasting affordability benefits than rental subsidies.

“The limited effectiveness of rental subsidies suggests a need to rethink the role of the accommodation supplement in assisting low-income renters.

“A shift toward policies that support transitions to homeownership, such as shared equity schemes or targeted mortgage support, may provide more sustainable affordability outcomes. A direct provision of public rental housing could also be a potential solution.”

© Scoop Media