While I totally agree with and support the proposed rental policy reforms from TOP and Renters United, I think they don’t go far enough and are skimming around the elephant in the room, which is ever-increasing rents. Seriously though, why the heck is no one saying that rents are too high!
The right to housing is a fundamental human right. I think of it like a social service similar to education or healthcare. It is essential for the well-being of our citizens. I propose that housing be removed from the free market environment which it currently resides. Privatisation of social services is always a bad idea and doesn’t work out well i.e. think prisons or healthcare in the USA. Making money from social services by trading basic human rights is wrong and perpetuates inequality, poverty and homelessness. The New Zealand economy already heavily favours property owners. It’s time for our top and middle income classes to stop bleeding our lowest income earners dry through the highly competitive speculative rental market. But how do we actually do this? As far as I can see the best viable option is to tie rent to some value or metric.
Option 1: Tie Rents to Income (Sub-Optimal)
The optimal rent level is said to be around 30% of your income. However, if this were put into law and implemented on an individual basis, it would be very difficult and expensive to monitor and manage. It would also suppress motivation to earn more (similar to current benefit system), disproportionately affect higher wage earners and potentially encourage dishonest reporting therefore criminalising the ones we’re trying to help.
On the plus-side, rents would be fair and affordable for everyone. However, you could end up getting very cheap rent on a ten-bedroom mansion in Remuera. That’s why the next option is probably a better one.
Option 2: Tie Rents to Rates or Capital Valuation (Better)
This option more fairly attributes rent to property value. The ratio can be set to something like 0.1% of CV e.g. CV is $400k then weekly rent is $400. Rents become much more transparent, fair and affordable. Landlords and investors too can easily calculate returns and evaluate decisions. Multi-room letting situations (1+ tenancies in same property) can either revert to a single tenancy or else move to the private sector and adhere to regulations similar to motels and B’n’Bs. AirBNB type properties would have to have a maximum occupancy time or this could be a loophole.
Now, I do realise that my rantings here won’t ever be taken seriously, let alone considered as an actual alternative to the current rental system. However, if it ever did happen it would probably have to be brought in slowly and incrementally. You’d have to give time for landlords to evaluate their situation and take action.
Will this cause the property market to crash? Probably, but this bubble which has been inflated by the greed of older generations is not sustainable. So, apart from making rents more affordable, the next question is surely; what would happen if the property market did crash (or as I like to think of it; correct)? What other effects could such a policy have?
Let’s start with the good stuff. The benefits for society of lower rents and permanent tenancies are terribly exciting. Inequality and poverty levels will decrease. People will have more money in their pockets. The benefits of this for the economy, health and well-being of citizens is not to be underestimated. We might even see the impacts go as far as decreasing crime rates, obesity levels and promoting better educational outcomes.
Property prices would likely plummet. Both before and after such a policy was rolled out. This is good news for those currently priced out of the market. Finally the kiwi dream will return and be achievable for the average kiwi again.
Wealthy people (above average income with assets) are not worth worrying about as any excuses they spout just sound greedy and self-serving. These people will always be okay, however, you can bet your ass that they will make the most noise about this policy. Unfortunately this group have considerable influence on the media and government. The upper class voice is heard disproportionately louder than middle and low income kiwis.
The people likely to be most adversely affected would be the young strugglers who have worked and saved hard and just bought into the market at it’s peak with a large mortgage. Their property value would drop below the mortgage they have (negative equity position).
Down the line, all the kiwis currently funneling all of their savings and investments into property will start looking at other options i.e. businesses and innovation. More capital flowing into businesses means more jobs, higher wages and more new businesses. We all need somewhere to spend all that extra disposable income we now have! Most economists will tell you that this scenario is more preferable in terms of economic growth than trying to get rich selling and renting houses to each other.
I mean, who knows, with this system maybe Labour’s Kiwi Build program might not even be required as we realise the problem isn’t that we don’t have enough houses, but that they were just overvalued.
Please bear in mind, this whole thing is just the start of the discussion. There are sure to be problems I haven’t thought of. The whole thing might in fact be ridiculous. It’s just my thoughts and I’m putting them out there for criticism and analysis (i.e. sneaky refinement into something better).
