Government asked for advice on temporary rent controls as it prepared massive housing package

Housing Minister Megan Woods asked for advice on temporary rent controls as the Government prepared to extend the bright-line test and end interest deductibility in its shakeup of the property market in March.

But officials believed the costs of these changes would largely not be passed on to renters who were already paying about as much as they could.

Yet the officials warned there could be an increase of “churn” in the rental market, putting low-income renters in the stressful position of having to find a new tenancy.

And they believed that even with drop in house prices, only a quarter of renters at most could actually afford to buy a first home.

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In a paper prepared by the Ministry of Housing and Urban Development for Housing Minister Megan Woods in December, officials laid out what they believed would be the impact for renters and landlords of the Government’s sweeping housing package.

The advice was made before the Government opted to exempt new builds from the measures.

The officials noted that over a third of landlords (37 per cent) reported rental losses already, although much of this was for expenses that could still be written off, such as maintenance.

They believed “most” landlords would consider increasing rent to cover the increase in costs – but said it was unlikely the full cost could be passed on to renters.

“Property investors will weigh up their willingness and ability to pay for any increased up-front costs against the returns to the investment, including rents and untaxed capital gains. It is unlikely that investors will be able to fully pass on additional costs through increased rents,” the officials wrote.

“Stressed renters are already at the limit of what they pay and may respond through sharing housing costs and crowding. Rising rents can also lead to more well-off renters opting to buy, subject to being able to raise a deposit, or paying higher rent to secure properties. Both factors would limit the extent rents can be increased.”

The officials did not believe there was any real risk that properties would be taken off the rental market and left vacant, and thought the risk of rentals becoming AirBnB-style-accomodation was low due to the Covid-19 tourism environment.

The landlords in highly-leveraged positions who chose to sell could end up selling to first-home buyers, the officials noted – but not in huge numbers. The officials said that a “generous estimate” was that only a quarter of New Zealand’s 1.4m renters could afford mortgage payments on a first home, and many of them might not be able to save up for a deposit.

If the landlords sold to other investors who did not continue the tenancy or to first-home buyers this would lead to an increase in “churn” as renters sought to find new properties to move into.

This would impose one-off costs such as bond and moving costs – and could put low-income renters in a very tough position as they found it hard to find a new home.

Officials warned this could put even more strain on the public housing waitlist and lead to an increase in emergency motel stays.

“There is a risk that for some renters in the lower-priced parts of the rental market, that they will not be able to find a new rental property at a price they can afford. This could lead to either further pressure on emergency special needs grants, transitional and public housing, or to overcrowding to enable rent to be affordable.“

Officials said Treasury had suggested temporary rent controls to limit the amount being passed on to tenants.

They contended this could increase churn while those who retained property would simply put up rents when the temporary controls lifted.

“If the government introduces a temporary rent control then this could incentivise more investors to sell, but international evidence shows that those that retain rental properties will try to find other ways to increase rental income and/or increase rents up as soon as the period of rent control ends.”

Woods told media after the package came out that she did not expect a huge spike in rents.

Stuff