Green Taliban support selling of state houses…and rent control

The Green Taliban have come out with a housing policy that is surprisingly right wing in some areas. They support a rent to buy scam where tenants can buy their state house. In theory this is very right wing, but in practice almost always turns out to be a bum deal for the tenants.

In the second major part of their policy they revert to type revealing they are still statists intent on controlling every aspect of people’s life.

And like most Opposition policies, the Green Taliban’sloopy idea for rent control sounds good until you scratch the surface.

The problem is, it doesn’t necessarily work:

“This policy, meant to assist poorer residents, harms far more citizens than it helps”

They’ve ripped this policy off from the Green Taliban in the UK which announced it last year.

To be fair, rent control has had mixed results in Europe, and for places like Germany it has meant fewer Germans feel the need to buy their own home.

“Therefore, only 43% of German people own their house (the lowest in Europe)”

This paper (a bit dated now, but with luminary Milton Friedman as a contributor) makes some really interesting points both in terms of the housing crisis campaign, and the impacts of rent control:

From the point of view of the politically orientated policy maker, rent control has everything to offer. It silences (at least for a time) the noisy activists, it shows that the government is doing something about the housing crisis, and often as not it wins the political support of a large fraction of the voting public (over half of the households inmost urban areas are tenants). Moreover, rent control does not involve the use of government resources and hence doesn’t “cost” the government anything.

Tenant activists generally do not start out from the premise that “we must first ascertain the facts.” Quite the contrary. The objective of the tenant activist is to create a sense of crisis—to make policy makers and other tenants believe that the situation is truly desperate. A book entitled Less Rent More Control, which is “about rent control… and how tenants can organize to win and enforce it,” advises:

“Even if you can’t get good statistics, it’s often helpful to publicize specific cases of families paying a large portion of their incomes for rent.”  “Stories about specific families who are suffering from the housing crisis can be very useful in bringing statistics to life and in getting publicity for the rent control campaign.”

And we are seeing this for sure in the media here..with Campbell Live and the Herald campaigning for and on behalf of the Labour and Green parties.

The media for its part, always happy to advance the cause of the underdog—an admirable objective taken by itself—willingly cooperates in making notorious the plight of the underprivileged.

But does rent control help with a housing crisis…ermmmm…no it doesn’t:

Rent control worsens housing “shortage”.  Rent control makes rental housing relatively cheaper than it would otherwise have been. Accordingly, it increases the demand for housing. At the same time it reduces the profitability of investment in rental housing and hence reduces the supply.

With forcibly lower rents landlords have little interest in maintenance:

Rent control causes deterioration of the housing stock.  Faced with a rate of return on investment that is too small, many landlords recoup their losses on a current basis by allowing the physical stock of houses to depreciate at a faster rate. That is, regular maintenance and repair is neglected.

It’s just another tax:

Rent control redistributes income in haphazard fashion. Rent control is a form of tax that is levied on landlords, the proceeds of which are given to tenants. The amount of tax and subsidy varies according to the difference between the market rent and the controlled rent.

In large cities the effects of rent control could see large drops in the value of the rating system, as property values slump. Rates are aligned with values.

Rent control shifts the incidence of property taxation.  Rent control reduces the value of rental property.

Basically, in short simple words…Rent Control doesn’t work, ensures sums develop, and destroys value….yeah, no wonder the Green Taliban are keen on this.

  • rangitoto

    IIRC there was a scheme way back in the 1950’s where state house tenants could get a state advances loan at incredibly low interest rates to buy their state house. It may have only been available to returned servicemen. I can’t recall the exact details.

    • In Vino Veritas

      As late as the early 1990’s, Maori Affairs were giving loans out to “Maori” to buy houses. Some Maori who had taken loans out 30 years before had never had their interest rates increased with the market, and some had stopped repaying the loans without any intervention.

  • Sarrs

    I still consider rent control a superior option to a CGT in order to remove NZ’s reliance on rental properties for investment. NZ needs investment in the business sector, not the property sector, to speed up economic growth. This policy could be the best of a bad lot that is desperately needed to reduce our obsession with rental properties.

    They were also talking housing WOF to combat a lack of repairs and maintenance. I do share your concerns regarding the development of slums though

    • In Vino Veritas

      The problem is Sarrs, that NZ’rs in general, wouldnt invest in business, unless its via a super scheme. Most would just put it in the bank. With property, they can see it, feel it and they have control.

      • Sarrs

        I know and that is basically the problem. It’s just that there are so many great businesses in NZ, in particular technology and innovation, that are calling out for investment and there are people with pots of cash sitting in the bank or in rental properties. Surely there is a way to marry those two groups of people together – the businesses are not experienced enough in business to know how to go about raising capital and the people with the money are scared and risk averse. IVV – how about we go into business together. I can work with the businesses that need investment and you can work on investors who are willing to take a risk. We can take a fee on both sides :)

        • In Vino Veritas

          RIsk averse. That’s the nail on the head Sarrs. An awful lot of people who own rental properties have just enough to manage the repayments, maintenance etc. But can’t afford the risk that comes with the serious money needed to make a direct investment. Sure, they could buy a few hundred shares if a company was listed, but they’d never risk $100K on a technology company, because more often than not, they fail.

  • coventry

    So they expect ‘low income earners’ to pay $200 a week for interest, $100 a week for principal. yeah right, what about the other expenses ? food, insurance, rates – or are all these going to be govt subsidised (work for whanau).

    The bit I don’t get, they get one of these houses for say $300K, they live in it for 260 weeks (5 years) – they have paid approx $26K off the house – when it comes to be sold, is it resold by the govt @ $300K or at market rates ? Do they get back $26K or 8.666% of the sale price ?

  • Marc Williams

    As far as I know, isn’t there already a scheme in NZ for qualifying tenants to purchase Housing Corp homes? If it’s true, can anyone relate the uptake rate, and reasons why we don’t seem to hear much about it. I think there was a rather large ‘Welcome Home’ grant towards the deposit too.

  • Lopsy

    @Sarrs:disqus Valid point. Property speculation has been going for years in Nz because I believe it’s the only place, other than being self employed in a reasonably successful enterprise, that average Kiwis’ feel they can actually get ahead. This as we know has driven property prices far and above what they should be. Same as in the UK. Slow private sector wage growth coupled with ever increasing living costs like power, rates and sundries have prompted many to look for other avenues of wealth generation.

    Property is like a self fulfilling prophecy in many peoples eyes whereas picking winners in a business sense may seem like a bit of a lottery, particularly since many Kiwis’ seem to have a kind of ambivalence if not an antipathy towards the business world. Almost like it’s an evil that has to be grudgingly tolerated. Now the Greens want to interfere in this wobbly equation. Why does it always seem that they devise policy by reading the contents of a dunny bucket?. Approx 10% of the population must be completely, fence post stupid.

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