Rental Properties Over-priced by 43% | The Jackal

11 May 2011

Rental Properties Over-priced by 43%

A recent OECD report has confirmed what a lot of renters already know; their residential rents are overpriced, on average by 43%. The OECD's price-to-rent ratio shows the high over-valuation utilising figures gained in the past 20 years. Effectively renters are paying top dollar for crappy housing; that is adversely affecting their health and ability to escape the poverty trap.

Despite the Green Party initiative that has warmed up 100,000 Kiwi homes with a $347 million insulation scheme, many houses remain cold, dusty and run down. This contributes to poor health, particularly for people in lower socio-economic groups. Insulation is just one part of the equation that has been getting worse for a long time. Affordability, a lack of maintenance, ability to heat and slack tenancy laws that give tenants little protection all contributing to what is a disgraceful rental market infrastructure.

The National government first introduced full market rents in 1991 to reduce the state role in housing provision. Full market rents for State housing increased many rents by 300% Even after the new accommodation supplement, this meant there was precious little for tenants to survive on.

National’s policy to sell off state houses first started in the 1950's and the negative trend continued in the 1990s until a new Labour-led government placed a moratorium on further sales in 1999. However much of the damage had been done, poor people could not find affordable accommodation, which resulted in socially destructive dynamics such as overcrowding and families living in garages. On the 15 September 2009 National once again offered state houses for sale, promising that new state houses would be built and only state houses that were unoccupied would be sold. This was despite there being an extensive waiting list of around 10,000 applicants in urgent need of a state house. National now say that there are 3,867 market rent tenants living in homes that are available for purchase, which makes it appear that their tenancies are not secure.

John Key in front of his $7M mansion
To date, National has made more than $19 million from high-value state housing sales in its latest sell off. There's around 186 properties valued at more than $700,000 remaining in its portfolio, many of which were built on large sections in areas that were once cheap, but had become desirable. Despite the extensive profits, there's been limited investment in building or modernising state housing which represents 4% of the total housing estate. The evidence shows that maintenance spending has been too low to keep pace with wear and tear.

Extensive waiting lists for state housing continue to this day, which inevitably leave many applicants out in the cold. The state housing stock has not been maintained or replenished with one, two and five bedroom houses as required and promised by National. Their negative policy created a greater concentration of the private housing stock in fewer hands and a smaller pool of cheap housing, which has also increased rental prices in the private sector. Nationals reliance on the free market to set rental prices has been very detrimental to New Zealands poor. Their policy of market prices for state houses, the cost of living and a lack of suitable, affordable and healthy accommodation also has far reaching adverse effects on our society.

But it’s not just the poor who are feeling the pinch from New Zealands housing crisis. The International Monetary Fund found that house prices are over-valued by around 15 to 25 per cent compared to the average over the past 20 years. The OECD's house price to income ratio is contradicted by Statistics New Zealand's recent upward revision to household income, which in turn does not properly account for the significant rise in the cost of living in New Zealand.

Under the OECD model real house prices rose by 150 per cent in the 15 years to 2007, the report said, making it one of the strongest increases among advanced countries.