THE COST OF HOUSING AND HOUSING SUPPORT.

• Author: Krishnan, Vasantha
• Position: Statistical Data Included

Abstract

This paper investigates what impact housing costs may have had on the financial outgoings of households over the past decade. Two sources of data are used for the analysis. The first is a population-level analysis of housing cost outcomes using Statistics New Zealand's Household Economic Survey. The second is data from Work and Income Systems on those receiving the Accommodation Supplement. This study demonstrates that escalations in housing costs have had the potential to affect the financial fortunes of individuals and households over the past decade. Housing assistance has been crucial in containing negative housing cost outcomes for many low-income New Zealanders. Housing cost outcomes are not uniform across the population, with considerable compositional differences in terms of who might be experiencing housing-related financial difficulties.

INTRODUCTION

The past decade has seen major changes in housing policy. The most fundamental of these changes saw a shift from the direct provision of housing to the provision of a tenure-neutral cash subsidy in 1993. This direct cash subsidy, Accommodation Supplement (AS), replaced all other existing forms of housing assistance. The underlying rationale, advanced by the National Government of the day, was that housing policy should focus on ensuring that people had enough money to participate in the housing market rather than ensuring an adequate supply of affordable housing through the direct provision of rental housing and mortgage finance for low-income households (Campbell 1999).

AS, administered by Income Support Services, replaced subsidised rents, home loans and several smaller programmes. In addition, state tenants were gradually moved from income-related to "market" rents and the Housing Corporation was restructured into Housing New Zealand and the Ministry of Housing. Housing New Zealand administered state rental housing as a commercial enterprise, while the Ministry of Housing provided policy advice to the Minister and managed Tenancy Services, an information and disputes-resolution service relating to tenancy law (Campbell 1999). A final element of this reorganisation was the Cabinet reshuffle in August 1998. This resulted in removal of the position of Minister of Housing and a shift of responsibility for policy advice on housing to the Social Policy Agency of the Department of Social Welfare.

The election of the Labour Coalition in 1999 signalled a partial reversal of this policy. The reintroduction of income-related rents for state house tenants had been a major election platform. From 1 December 2000, the rents of state house tenants (who meet eligibility) will be set at 25% of their income and state houses will be allocated on a needs basis to those with serious housing need. Those currently in receipt of AS, who do not rent from the state, continue to receive AS at existing levels.

This current shift in policy will involve the merging of Housing New Zealand, the Housing Corporation of New Zealand and Community Housing Limited into a single organisation. The new integrated agency, known as Housing New Zealand Corporation (HNZC), will deliver integrated housing services for low-income New Zealanders and community groups. Housing policy advice will also be provided by HNZC.

These changes in housing policy over the past decade have been accompanied by research and criticism about growing poverty and hardship, with some commentators arguing that housing, and in particular the cost of housing, has had a worsening effect on poverty and financial hardship in New Zealand (Stephens et al. 1995, 2000, Brosnahan 1995, Campbell 1999, Christchurch Housing Network 1994, New Zealand Council of Christian Social Services and Roberts 1992).

This paper attempts to investigate what impact housing costs may have had on the financial outgoings of households over the past decade. Two sources of data are used for the analysis. The first is a population-level analysis of housing cost outcomes using the Household Economic Survey. The second is data from Work and Income Systems on those receiving AS (many of whom are beneficiaries) who, in order to qualify, must be experiencing financial difficulties in otherwise paying for accommodation. The analysis provides an indication of:

* whether housing cost outcomes have worsened for households below defined low-income thresholds; and

* whether housing cost outcomes have worsened for beneficiaries and others on low incomes who receive AS.

It must be noted however, that this is not a definitive analysis of poverty or financial hardship, nor is it a comprehensive analysis of housing affordability in New Zealand. It is merely an attempt to quantify to what extent housing costs have affected the "affordability outcomes" for different groups in New Zealand over the past decade. It must also be acknowledged that "affordability outcomes" measured more comprehensively would attempt to quantify the ability to purchase other essential goods and services after paying housing costs. In this sense, the affordability outcome measure used in this paper is a narrower definition of affordability, but has been applied as a constant benchmark to monitor before-and-after housing assistance changes over time.

METHODOLOGY

The analysis in this report is based on two sources of data:

* Data on recipients of AS held on the Ministry of Social Policy's Information Analysis Platform; and

* Statistics New Zealand's Household Economic Survey data(2).

AS was introduced on 1 July 1993. Recipients of AS include those receiving core income support (beneficiaries and New Zealand Superannuitants) and those not receiving any core income support but qualifying for and receiving AS (non-beneficiaries). AS data used consist of snapshot profiles of recipients of AS as at the end of June each year from 1995 to 2000.

A measure of hardship is defined using a residual income ratio. Residual income is income that is left after housing costs have been paid. The residual income ratio is calculated using the following formula:

(net income1 - (housing costs - housing assistance)) / net income2

Net income1 is total net income excluding family support.

Net income2 is the relevant benefit rate + family support for beneficiaries, or the basic unemployment benefit rate relevant to a particular family configuration + family support for non-beneficiaries(3).

This approach allows for the standardisation of net income2 for non-beneficiaries so that a comparison can be made between the two groups. The residual income ratio that results has the inherent qualities of being price-adjusted, and adjusted to family size and family type. The formula subtracts accommodation assistance from housing costs, treating accommodation assistance as additional assistance to deflect accommodation costs, rather than as a general income supplement.

Because housing assistance is netted out...