New research from the University of Auckland suggests the accommodation supplement isn't doing much to help renters. Photo: RNZ / Nate McKinnon
More than $2 billion is paid out annually in accommodation supplements, but new research from the University of Auckland suggests it isn't doing much to help renters.
Associate professor Edward Yiu and Dr William Cheung from the University of Auckland's Business School compared the rent-to-income ratio and mortgage-to-income ratio of Auckland households receiving the accommodation supplement with those who did not.
Using data from 2019 through to 2023, they found that the supplement was not significantly improving affordability.
People who received the supplement spent more of their income on rent than those who did not get it.
Yiu said there was some research that showed that landlords raised rents in response to accommodation supplements.
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.
"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."
How much households can get in the accommodation supplement depends on where they live and their housing costs.
A single person earning $500 a week with no children, paying $450 a week in rent to live on the North Shore of Auckland could get up to $165 a week.
In the 2024 year, there was $2.104 billion spent on the scheme.
CoreLogic data has shown that rent is at record levels compared to income. A recent update showed the median rent to median household income ratio was at 28 percent, compared to 26.4 percent five years ago and 25 percent ten years ago.
Yiu said people who were paying a mortgage were better helped by the supplement.
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.
He said that could indicate that support for homeownership was a better option than rental subsidies.
"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."
Kelvin Davidson, chief economist at Corelogic, said there was a sense for both renting and buying that government support or subsidies would have the same effect of boosting overall costs.
"I don't think it's necessarily clear-cut that encouraging people to buy houses as opposed to renting will genuinely help with overall affordability, given that home ownership carries a lot of other costs too.
"Ultimately if we can simply get a larger housing stock in relation to our population, as the government is currently trying to achieve, this is surely the best outcome."
Last year, Housing Minister Chris Bishop highlighted the accommodations supplement as a costly form of housing support as the government reviewed its housing programmes.
His office said this week that ministers received ongoing advice about how to best support people with housing needs, including consideration of the accommodation supplement.
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