MSD: "Housing subsidies capitalised into higher rents"

Time does not allow me to read these reports presently but MSD have just released a literature review into the effect of housing subsidies. The results and recommendation are unsurprising. To quote from the rationale for the investigation and  summarised findings:

The review provides a systematic review of New Zealand and international empirical research literature – specifically regarding the extent to which housing allowances are ‘captured’ by landlords through rising rents.
The question of whether, and the extent to which, demand side housing subsidies such as the Accommodation Supplement are capitalised into rents as opposed to achieving other objectives, is a key question for how and how much support is provided to low income people to assist with the costs of housing.

Targeted, means-tested housing subsidies are intended to reduce the living costs of the low income - both employed and benefit-dependent. But like family tax credits, which can and do subsidise employers, AS subsidises landlords.

A key finding of this review is that there is relatively scare literature available on this issue, so strong conclusions cannot be drawn from it.

That's their typo but quite a funny one.  The conclusions from what they did find are quite scary from a social policy viewpoint.

However, based on the evidence available, AHURI conclude that:

• The literature review found evidence to support the contention that a proportion of demand-side housing subsidies is capitalised into higher rents in the private rental market.

• All studies noted that the responsiveness of housing supply is the key factor that impacts on the degree of landlord capture and that, at least in the short run, housing supply is relatively fixed.

• Estimates of the magnitude of landlord capture vary from 30 per cent to 78 per cent of the increase in subsidy. AHURI advise that their view is that New Zealand is likely to be toward the lower end of these estimates, but also advise that the estimates need to be treated with caution as all papers make a large number of assumptions and in many cases the method and modelling used are able to explain only a small part of the overall variation in rents.

So certainly 'some' evidence. But the 'some' is very uncertain in terms of extent.

This review suggests that based on the evidence available, it is correct to be concerned about the impact that any increases in Accommodation Supplement could have on rent levels. 

So the government is really no further advanced with respect to the best way to deal with high housing costs for the 'poor' especially in Auckland.

If AS increases aren't a goer, what else?

Rent regulation? A claw-back on landlords through the tax system? Any move that makes being a landlord less attractive could exacerbate housing supply, driving up rents.

What a pickle welfare has us in.