Rents will increase, regardless of Government's housing package — senior economist

Source: 1News

As long as the demand for rental properties outstrips supply, rents will continue to go up regardless of the Government’s housing package announced on Tuesday, a senior economist says.

It comes after an outcry from the likes of the National Party , the ACT Party  and  property investors  in response to the announced changes to mortgage interest deductibility rules, which they said would drive rental prices up.

The change means property investors can’t offset the cost of the mortgage interest they pay against their rental income when calculating their tax. 

But Infometrics director Brad Olsen said while the change may mean some landlords “jump the gun” and decide to increase rents, “to be clear, they were already doing that”.

Olsen said if the theory were true that landlords passed on their costs to tenants, during last year’s drop in interest rates, rents should have come down too. However, that wasn’t the case.

“This is not a cost pass-through. This is the difference of supply and demand,” he said.

Olsen said as long as there wasn’t enough supply of rental properties, landlords can continue to largely dictate prices. 

“Rents will go up, but they will not go up exponentially because of that policy only.”

Because there wasn’t a short-term fix for increasing supply in the rental or property market as part of the Government’s package, any “meaningful” improvement to the housing crisis for first-home buyers wouldn’t come until about three to five years, Olsen said.

In the short-term, there was little in the package for renters, he said.

But, he said, it was good to see there was some long-term proposals in place to try and fix supply, like the $3.8 billion fund for councils to develop infrastructure.

“At least now we’re starting to make some commitments.”

What mattered most now was delivery, given the Government’s poor track record with KiwiBuild, he added. 

“We’re on a different path now. We were never going to solve the housing crisis quickly. 

“There were no silver bullets that could flip the switch and make things more affordable, get people into homes, make the playing field level. 

“What this does do, though, is shows the Government is loading its bullets into the gun and starting to fire a few.”

Ultimately, it came down to the fact “we just don’t have enough damn houses in this country”, Olsen said.