A regulatory framework that allowed for affordable rentals could provide another avenue for philanthropically minded property owners to support the housing continuum in Aotearoa.  Currently there is no incentive to rent out a property below market rent, nor maintain it at this lower rate.  

Providing incentive to property owners in the form of tax deductibility if their property meets strict Affordable Housing guidelines could help bridge this gap in the continuum.  Without action in this area, there is no logical reason that a property investor would engage with the Affordable rental space and help bridge this affordability chasm between Social Housing and Private Market Rentals.  

NZCCSS Kaitātari Kaupapa Here Matua, Senior Policy Analyst Rachel Mackay

The Affordability Chasm 

When observing the Housing Continuum, the step between Social Housing and the Private Rental Market is a category we don’t really have in New Zealand – Affordable Rentals. Affordability in terms of housing is a vague category, but is usually considered to be when housing costs are no more than 30% of the total household income. When a household is in Emergency, Transitional or Social Housing, they receive Income Related Rent Subsidy (IRRS) which caps the household’s contribution to their housing costs at 25% of their income, with the rest being supplemented by the government. In January 2023, the median weekly rent rate across the nation was $575 –  in order for this to be considered ‘affordable’ the household would need to be earning $1916 a week, or approximately $99,600 before tax annually. A household with two adults working 40 hours at minimum wage has an annual gross salary of approximately $94,500.  

Private rentals in Aotearoa are not only consistently unaffordable when you commence a tenancy, there is almost no regulation on the increase in rent that can be issued annually. Legislation indicates that the increase should be ‘reasonable’ and related to average market rent for the property type and suburb, but since there is no regulation on the amount an empty property can be advertised for, large increases in the rental rates of other properties in the area can result in the market rent, and the resulting ‘reasonable rate’ for a tenanted property, to go up dramatically in the twelve months between rent reviews. Many families cannot make the jump from Social Housing to the Private Market but could conceivably move up the continuum into an Affordable Rental to make space in the Social Housing market for other whanau to move out of Transitional or Emergency Housing. 

How do we then bridge this gap between housing being firmly within the realms of affordability by design and outside it and annually edging further away? 

Building the Bridge 

Affordable rentals are a specific category of housing where the rental rate is specifically and consistently set below market rent or set as a determined percentage of the tenant’s income. To our understanding, there are no such dedicated programmes within Aotearoa, though the Housing Continuum relies on them for progression and there is a large demand for them. Individual property owners may choose to keep the rent at a lower rate, or rent for below market, but there is no ready identification of such properties, nor any network or regulatory settings to support them. Property ownership for rentals is viewed very much as an investment, and as such the goal is to return the greatest profit. While there are undoubtedly property owners who see themselves as providing a service, the unaffordability of private market rentals is only exacerbating the housing crisis while providing them with not only increased income and growing capital.  

Housing-based philanthropy is limited almost exclusively to the support of CHPs, either by renting your property to a CHP for Social Housing (a process now incredibly limited) or used by other homelessness intervention services such as Rapid Rehousing or Housing First. While properties managed by CHPs have many of the same risks and rewards as owning a property managed by professional property managers – as most CHPs have experienced, knowledgeable Tenancy Managers, often with private property management experience – renting through programmes such as Housing First is often associated with an increase in risk to property damage as the individuals involved in these programmes are the chronically homeless with high support needs. While this perceived risk may or may not result in property damage, it is prevalent enough that it is incredibly difficult for property owners who wish to engage in these services to obtain insurance, and even when they can obtain it, they find it is with shockingly high premiums. The major draw card of engaging with these services (if you can afford the insurance costs) is that they provide the otherwise-lost tax benefits that owners of rental properties used to enjoy.  

A regulatory framework that allowed for affordable rentals could provide another avenue for philanthropically minded property owners to support the housing continuum in Aotearoa.  Within the mindset of rentals-as-investment that pervades the New Zealand market, there is no incentive to rent out a property below market rent, nor maintain it at this lower rate.  

Providing incentive to property owners in the form of tax deductibility if their property meets strict Affordable Housing guidelines could help bridge this gap in the continuum. Having properties identified as Affordable through specific clauses in the Tenancy Agreements would create a protected and discrete set of housing within the continuum, and an easy way to provide evidence to IRD for tax purposes. Strict limits on their rental rates (for example, 15% below equitable market rent) and rental increases (no more than 5% annually, or only to match the same 15% below equitable market) governed by a specific Affordable Housing clause in the RTA would regulate this effectively. This could provide a real opportunity to incentivise private property owners to move their housing stock from a focus on pure profit to balancing profit with social outcomes – with a little tax benefit in there for good measure. As it stands, without action in this area, there is no logical reason that a property investor would engage with the Affordable rental space and help bridge this affordability chasm between Social Housing and Private Market Rentals.