Hive News Tuesday: Govt open to increasing Accomodation Supplement; Key downplays Goff's Vancouver tax idea...for now

John Key and Paula Bennett said yesterday they were open to most of the recommendations from the Labour, Green and Maori Party's recommendations in their Inquiry into Homelessness, including the big ticket item of potentially increasing the Accommodation Supplement (AS).

The Supplement has maximum levels that were last set in 2005 on 2003 rent levels, which has contained the annual cost at NZ$1.14 billion in 2015/16, but various groups, including the Child Poverty Action Group (CPAG), have called for it to be reviewed and increased because of rental inflation since then. Treasury has also suggested increasing it, including as recently as 2010 in this set of briefing notes.

"The maximum rates of AS were last adjusted in 2005, based on 2003 market data, and have eroded significantly in value since that time, such that about one third of recipients are now receiving the maximum rate," Treasury said in 2010.

About one in four families in private rented accommodation received the Supplement in mid 2010, which meant 605,000 people were supported on a benefit paid to 317,059 recipients. 82% of those received a benefit at that point.

Treasury also pointed out the Income Related Rent Subsidy (IRRS) paid to Housing NZ and other tenants was adjusted according to incomes and market rents, while the Accommodation Supplement (AS) was not, which meant the gap between the two was widening substantially.

"The IRRS is markedly more generous than the AS for a large number of people (approximately 181,000 AS recipients are financially worse off than if they were receiving IRRS). A number of AS recipients appear to be facing significant stress due to housing costs," Treasury said nearly six years ago.

This year's Budget included an extra NZ$200 million for Income Related Rents over the next four years, which will see its annual cost rise from NZ$703 million in 2014/15 to NZ$1.050 billion by 2019/20. Over the same period the Accommodation Supplement is forecast to be broadly flat, rising by less than NZ$50 million to NZ$1.18 billion.

One for Budget 2017?

Key told his post-Cabinet news conference the Government would look at changing the Supplement, but was not considering it at the moment.

"All of those things will be considered for a later date, but we haven't considered that at the moment. It's true that the Accommodation Supplement hasn't gone up in recent years, and clearly there's been an increase in rents in most parts of the country, so there's probably some pressure in that area. We'd acknowledge that, but it's not something we've considered today," he said.

"Anything you move in that area is quite expensive so we'd have to have a look at it."

Elsewhere, Key was open to the Inquiry's other recommendations, although he was not specific, given some including a significant ramping up of Housing New Zealand stock don't fit with National's current policy.

"The bulk of the recommendations are either things the Government is already working on or are not of a huge sort of magnitude," Key said.

"We've never said that we've got a monopoly on good ideas so if there's one or two things that come out of it we'll look at it. There hasn't been anything startling."

Bennett also said she was open to Accommodation Supplement reform and said the Government was working on 17 of the 20 recommendations in the Inquiry's report.

"You have to say that it goes right back to 2005 levels and there's no way rents are still in line with that, so I'm always willing to have a look at that," she told reporters in Parliament.

However, the Opposition is less than united and clear on what reforms it would want to the Accommodation Supplement. The Greens have spoken out in the past against the Supplement as a subsidy for landlords and the money could be better spent building new state houses. Labour is reviewing its policy and the Inquiry noted that submitters questioned whether the Supplement was a "productive spend."

Key downplays similarity to Kiwibuild

Elsewhere, I asked Key about Bill English's comments about the potential for up to 30,000 houses to be built on Housing NZ land and on-sold to private buyers, which appears similar to Labour's Kiwibuild idea for up to 50,000 houses to be built in Auckland and then sold on to private buyers.

Key said it was a concept the Government had been working on for a long time through the likes of Housing New Zealand at Tamaki and the Hobsonville Land Company at Hobsonville.

"Within Housing New Zealand land, you've got a lot of opportunity to reconfigure Housing New Zealand stock, which would be both new and better configured for the needs of people these days because we know there's a shortage of both smaller one bedroom apartments and a shortage of bigger properties," Key said.

"Because of the way you can redesign these properties and the way you can configure things these days there's also the potential to release land for social and affordable housing. So you can get a bit of a win-win on both sides -- both the Crown getting the same or more properties, but also affordable properties being released," he said.

"The configuration of who owns what and what's affordable and what's social and what's owned by Housing NZ -- that's been a principle that the Government's been talking about for a long time."

Key downplays Goff's Vancouver tax idea

Meanwhile, John Key downplayed new Auckland Mayor Phil Goff's proposal for a Vancouver-style 15% stamp duty on foreign buyers to weaken housing demand and raise extra revenues.

The stamp duty applied in August has sharply reduced sales volumes and prices in Vancouver, particularly for high-end properties. See more in this Canada Mortgage and Housing Corp report and in this Real Estate Board of Greater Vancouver report.

See more on Goff's comments in our October 3 Hive News email.

"There's always ways of raising revenues. If the argument is about raising revenue then you'll raise some revenue, depending on how it's applied and who pays for it," Key said.

"If the concept is to try and dampen demand then our information we have at the moment in terms of the LINZ data we have would indicate it wouldn't do a lot because not many buyers fit in the category he is talking about," he said.

"My own personal view is that if his concern is about affordability and the deliverable goal of affordable homes then the very best thing he can do as Mayor of Auckland now is to organise the planning department, the consenting, to be streamlined to be efficient and well resourced and to deliver the consents at the speed and timeframe that we need. That will have a far bigger effect than worrying about some tax that a tiny proportion of people would pay," Key said.

John Key floated the idea of a land tax on foreign buyers in April last year ( see our July 27, 2015 Hive News for more detail ) and restated his openness to the idea in April this year ( see our April 26 Hive News for more detail ) He also said in late July ( see our July 28 Hive News for more detail ) a land tax on foreign buyers was possible before the 2017 election.

Asked whether the Government was considering such a tax, he said: "We're not considering it. But the point is: what's the objective? If the objective is about affordability, trust me, supply will be a much better way of dealing with that issue."

In other economic and financial news...

The NZ Manufacturers and Exporters Association reported from its survey of business conditions in September that total sales in August were up 8.65% from a year ago, with export sales up 11.3% and domestic sales up 4.5%. Net confidence rose to 22% from 6% in July.

ANZ reported its monthly inflation gauge found prices rose 0.2% in September, although it noted the underlying ex-housing inflation gauge had firmed of late. It described inflation as "dozy with some signs of life."

In other political news...

John Key announced the Mt Roskill by-election to replace new Auckland Mayor Phil Goff will be held on December 3. Labour has selected Michael Wood and the Green Party has agreed not to stand a candidate. National list MP Parmjeet Parmar is expected to put forward her name for National's nomination and Key said she would make a very good candidate, although he noted she had yet to be selected by the local board. ACT has also decided not to stand a candidate. He said it would be a "bit tricky" for National to win the seat off Labour, given the Labour-Green accommodation and that a sitting Government had never won a seat off the Opposition in a by-election.

Number of the day:

NZ$3.55 - The benefits in tourism spending and employment for every NZ$1 spent building and maintaining New Zealand's cycle trails, according to a report issued by John Key yesterday. He said 60 new businesses had been created because of the cycle trails and 40 existing businesses had expanded because of them, collectively creating 1,300 new jobs.

Coming up...

Statistics New Zealand will publish electronic card transactions data for September at 10.45 am today, which will give the first indication of retail spending for the month.

Reserve Bank Assistant Governor John McDermott is scheduled to deliver a speech later today in Rotorua on ‘Understanding low inflation in New Zealand’. The speech text and news release is due to be released by the Reserve Bank at 4 pm.

ANZ will publish its job ads measures for September on Thursday at 10 am. BNZ and Business NZ will release their Purchasing Managers Index measure manufacturing activity in September at 10.30 am on Thursday.

Statistics New Zealand will release its Food Price Index data for September on Thursday at 10.45 am.

ANZ will publish its Roy Morgan Consumer Confidence survey for October on Thursday at 1 pm.

Treasury is scheduled to release the Government's Financial Statements for the full year to June 30, 2016 at 1 pm on Thursday.

Have a great day.

cheers

Bernard