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Housing security - ownership or long term tenure

Security of housing is a basic requirement. Most would agree that moving house often or being reduced to a state of homelessness is not desirable.  A recent study by Growing up in New Zealand found that New Zealand families with children under 2 are moving more often than previously thought and more than similar families in other countries. The key determinant of residential mobility was housing tenure.

There is however less agreement about the best way to fill this basic need of security of housing.  In New Zealand the percentage of people achieving home ownership is reducing and the level of security of tenure offered in the past by Housing NZ and City Councils around the country has also reduced.  In addition, the Government has embarked on a campaign to reduce its portfolio of state houses.

The Salvation Army has responded to this campaign with a decision not to buy state houses. Other social housing providers throughout New Zealand have been warned by a newly formed State Housing Action Network (SHAN) of the consequences for low-income tenants and families if they agree to buy state houses from the government.  The alternative has been a call for state houses to be sold to tenants as they were in 1950.

At that time the then National government introduced legislation that allowed state tenants to buy their homes. Thousands of tenants took advantage of this offer. Initially the offer came with very generous terms – 5 percent deposit and 3 percent mortgage rate and a maximum purchase period of 40 years.(reference here).  Benefits to the former tenants from these sales are believed to be an enhanced sense of community, personal responsibility and progress. 

The Finance Minister, Bill English who is also the Minister Responsible for Housing New Zealand, is reported as saying that the sale of state houses to tenants and first-home buyers is already happening under two existing schemes. About 200 have been sold in the tenant home ownership scheme since 2009. And nearly 200 have been sold in FirstHome ownership scheme for first-home buyers since 2013.  Read the Finance Minister’s statement here.

There are however many who are unable to use current schemes to take that step in to home ownership and therefore realise all the potential physical and psychological benefits.  Traditionally a major group of renters has consisted of young people who enjoy the flexibility of renting and have made this choice as it fits with the particular stage of their lives. Marriage and children often change their attitudes towards stability and home ownership.  As the move into home ownership has become more difficult through rising prices of houses and restriction of credit through the application of LVR rules, this group has become longer term renters joined by many single parents, mature singles who may or may not have been in relationships and, increasingly, people over 65.

Mr Eaqub, an economist with NZ Economic Research Institute believes renting should be made more secure for the growing numbers of renters.

"If we can improve security of tenure, we can provide a lot of the home ownership-type benefits to people who are renting," he said. "For example, the standard rental contract that has a standard term of 12 months. If we had a standard term of three years, with a right to vary that as we have now, we would gradually see a shift to much longer tenancies."  Read the rest of his comment here.

A paper written by Michael Ball of the University of Reading in 2010 on the impact of extending security of tenure makes points of relevance to this country.  Ball points out that developments in the private sector are mostly driven by demand.  Supply of rented property rarely goes ahead of demand because vacancies are a high costs for landlords. The high cost of vacancies also works implicitly to enhance security for tenants as well.  Tenants who prefer or require long-term accommodation will find landlords who are happy with this arrangement.  Landlords have an incentive to value and retain good tenants willing to pay near the going-market rent.  On the other hand, if a landlord does not want long term tenants, selection of those most likely to move on could be used as a strategy to, in practice, get around any rules requiring the offer of long term tenure.

Greater security of tenure is offered in some European countries. This is either through medium-term contracts, or through explicit or implicit rules.  In these countries rent controls exist as well.  Some form of rent control is thought to be necessary to prevent landlords getting around tenure security rules by raising rents until tenants leave.

Ball concludes that regulations and the threat of more regulations put off investors.  “The paradox may arise where regulations deter good quality investors and the resultant accommodation shortages generate substantial financial incentives for those prepared to flout the rules”

Read the rest of this paper here.

The market forces in New Zealand potentially allow those requiring long term security of tenure to find private landlords who are able to accommodate this requirement to everyone’s benefit.  However the situation around the state housing and social housing sectors is currently in a state of flux and the need for security of housing for low income families and individuals is not easily being met.  It does not seem likely that changing the rules regarding security of tenure for private landlords will be the answer.



Tags: social housing

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