The Times Australia
The Times World News

.

364,000 New Zealanders rely on an accommodation supplement – but these 3 flaws need fixing

  • Written by Wasay Majid, Research Assistant, University of Auckland, Waipapa Taumata Rau
House with rent signs in front.

New Zealand’s accommodation supplement scheme is facing scrutiny, with Social Development Minister Louise Upston recently saying[1] “there is merit in considering whether the current settings are fair and sustainable long-term”.

The means-tested[2] accommodation supplement is a weekly payment helping households with rent, board, or mortgage costs. Following a NZ Herald Official Information Act request, the government revealed[3] in the year to January 31 2024, it paid out NZ$2.34 billion to 364,000 renters and mortgage holders.

Yet despite rising rents and an increase in accommodation supplement recipients, government spending on the supplement actually decreased by $37 million last year. In fact, the scheme rarely exceeds[4] its annual budget.

And my own research[5] shows it’s become an important part of many New Zealanders’ household budgets. Government spending on the supplement directly affects people’s spending on food.

So before the government makes any significant changes, it is worth understanding how the accommodation supplement works now – and how the government could make it fairer.

House with rent signs in front.
Last year, New Zealand government paid out NZ$2.34 billion in accommodation supplements to 364,000 renters and mortgage holders. Sandra Mu/Getty Images[6]

How the accommodation supplement works

The accommodation supplement can be traced back to New Zealand’s welfare reforms in the early 1970s. In 1975, the Labour government of the day introduced the “additional benefit” – a supplementary allowance for housing costs and special expenses. This evolved into the “accommodation benefit” in 1981, which later became the accommodation supplement in 1993.

The accommodation supplement is calculated with a negative income tax formula[7]. So for eligible taxpayers earning below a specific income threshold, the supplement is a cash payment deposited directly into their bank account, allowing people to spend it as they see fit.

The payment can increase or decrease independently of rent and mortgage costs. If a recipient’s income, tax credits, other sources of income, or personal savings increase, supplement payments decrease – and vice versa. Annual revisions of the main benefit can also lower supplement payments. Simply put, the supplement functions as an income maintenance scheme.

Read more: NZ’s housing market drives inequality – why not just tax houses like any other income?[8]

Accommodation supplement eligibility is based on income and wealth levels of households, not rents or housing choices.

My own recent research[9] on the accommodation supplement has shown supplements do not distort the rental market by pushing up prices.

Current policy settings

Maximum payment settings for the accommodation supplement have been revised only twice since being set 1993. That is, clients’ payments can not exceed the maximum payment for years on end and essentially remain capped for around 13 years.

Current settings divide New Zealand into four geographical areas for rental payments, ranging from the most expensive (urban centres such as Auckland, for example) to the least expensive (rural communities). Even if the policy was revised to adjust payment settings annually to fairly reflect rent changes, compensation would not take into account local rent variations.

Read more: As NZ struggles to resolve its long-running housing crisis, investors should be taxed for keeping homes empty[10]

Capped maximum payments mean recipients depend on their income and not the supplement to cushion rent rises, keeping government spending on the supplement to around 0.5% of the gross domestic product.

Research from the United Kingdom[11] found reducing housing allowances does not lower rents, but may cause overcrowding. Whereas maintaining the supply of accommodation allowances[12] in the United States helps low-income households stay in their homes despite rent increases.

The flaws in the system

If the government wanted to make accommodation supplement work better to help the 364,000 renters and mortgage holders who rely on it today, there are three key issues it needs to address.

  1. The supplement does not provide relief proportionate to market rents and housing affordability. Rents have increased, but the accommodation supplement has not.

  2. Means and asset testing disqualifies couples from the supplement if they have cash assets exceeding $16,200 (for singles, the limit is $8,100). This is 1.75% of today’s median house price, restricting a couple’s ability to save for a mortgage deposit while receiving the supplement. This limit was around 17% of the median house price when it was last adjusted in 1988.

  3. Finally, the supplement has a mixed impact on recipients. It allows homeowners accessing the supplement to build housing equity, while renters can’t accumulate enough for a home deposit, widening wealth disparities. The supplement also benefits banks as they can use supplement eligibility to assess mortgage applicants.

Widely recognised as a measure to address rising rental costs, the accommodation supplement needs to be more responsive to changes in rental expenses.

Rather than scrapping the supplement, or reducing the number of people who receive it, changes can be made to ensure the policy is more effective in helping New Zealanders with housing during the current cost-of-living crisis.

References

  1. ^ saying (www.nzherald.co.nz)
  2. ^ means-tested (www.nber.org)
  3. ^ revealed (www.nzherald.co.nz)
  4. ^ rarely exceeds (researchspace.auckland.ac.nz)
  5. ^ my own research (researchspace.auckland.ac.nz)
  6. ^ Sandra Mu/Getty Images (www.gettyimages.com.au)
  7. ^ negative income tax formula (www.tandfonline.com)
  8. ^ NZ’s housing market drives inequality – why not just tax houses like any other income? (theconversation.com)
  9. ^ recent research (papers.ssrn.com)
  10. ^ As NZ struggles to resolve its long-running housing crisis, investors should be taxed for keeping homes empty (theconversation.com)
  11. ^ Research from the United Kingdom (www.tandfonline.com)
  12. ^ maintaining the supply of accommodation allowances (gerardtorratsespinosa.com)

Read more https://theconversation.com/364-000-new-zealanders-rely-on-an-accommodation-supplement-but-these-3-flaws-need-fixing-227667

Times Magazine

What AI Adoption Means for the Future of Workplace Risk Management

Image by freepik As industrial operations become more complex and fast-paced, the risks faced by workers and employers alike continue to grow. Traditional safety models—reliant on manual oversight, reactive investigations, and standardised checklist...

From Beach Bops to Alpine Anthems: Your Sonos Survival Guide for a Long Weekend Escape

Alright, fellow adventurers and relaxation enthusiasts! So, you've packed your bags, charged your devices, and mentally prepared for that glorious King's Birthday long weekend. But hold on, are you really ready? Because a true long weekend warrior kn...

Effective Commercial Pest Control Solutions for a Safer Workplace

Keeping a workplace clean, safe, and free from pests is essential for maintaining productivity, protecting employee health, and upholding a company's reputation. Pests pose health risks, can cause structural damage, and can lead to serious legal an...

The Science Behind Reverse Osmosis and Why It Matters

What is reverse osmosis? Reverse osmosis (RO) is a water purification process that removes contaminants by forcing water through a semi-permeable membrane. This membrane allows only water molecules to pass through while blocking impurities such as...

Foodbank Queensland celebrates local hero for National Volunteer Week

Stephen Carey is a bit bananas.   He splits his time between his insurance broker business, caring for his young family, and volunteering for Foodbank Queensland one day a week. He’s even run the Bridge to Brisbane in a banana suit to raise mon...

Senior of the Year Nominations Open

The Allan Labor Government is encouraging all Victorians to recognise the valuable contributions of older members of our community by nominating them for the 2025 Victorian Senior of the Year Awards.  Minister for Ageing Ingrid Stitt today annou...

The Times Features

How to Tell If Your Eyes Are Working Harder Than They Should Be

Image by freepik Most of us take our vision for granted—until it starts to let us down. Whether it's squinting at your phone, rubbing your eyes at the end of the day, or feeling ...

Ways to Attract Tenants in a Competitive Rental Market

In the kind of rental market we’ve got now, standing out is half the battle. The other half? Actually getting someone to sign that lease. With interest rates doing backflips and ...

Top Tips for Finding the Ideal Block to Build Your Home

There’s something deeply personal and exciting about building your own home. You’re not just choosing paint colours or furniture, you’re creating a space that reflects your lifes...

The Home Buying Process Explained Step by Step

Buying a home is a thrilling milestone, but it can also feel like navigating a maze without a map. With paperwork, finances, and decisions at every turn, understanding the home-b...

Thinking of Selling Your Home? Here’s What You Need to Know

Selling a home is more than just putting up a “For Sale” sign. It’s a strategic process that involves preparation, pricing, and negotiation - all aimed at getting the best value ...

Smart Ways to Earn Passive Income from Real Estate

Imagine making money without doing much work. You get paid even while you sleep, travel, or do fun things. This is called passive income. Indeed, real estate has great ways to do...