Have rents 'tended to mirror wage growth' as Prime Minister Jacinda Ardern claims?

Rents have "tended to mirror wage growth" in New Zealand, according to Prime Minister Jacinda Ardern, but the data to support her claim is complex. 

As Infometrics economist Brad Olsen explains, it depends which stats you're looking at - as demonstrated by data provided by National to dismiss Ardern's claims, and the Government to back her up.

National points to Stats NZ figures showing the median weekly income in 2017 at $612 while in 2020 it was $652 - that's about a 6.5 percent increase over three years.

Rental bond data from the Ministry of Business, Innovation and Employment (MBIE) shows the median rent in 2017 was $400 and is now $520 - an increase of about 30 percent.

It would appear based on those figures that incomes have not kept up with rent increases.

But a Government spokesperson told Newshub the Prime Minister was referring to other data, namely Stat NZ's rental price index and average hourly earnings

Here's how they compare: 

Have rents 'tended to mirror wage growth' as Prime Minister Jacinda Ardern claims?

The main difference is the income measure. National used median income, which includes people on benefits and even those who might have no income, whereas the Government looked at wages - only workers. 

Looking at wages - Labour's preferred measure - they seem to broadly track the rental price index, which would support Ardern's claims.

If you follow National's median income, you see a dramatic fall, showing rents far ahead of weekly incomes - seeming to contradict Ardern. However, a lot of that drop is due to the COVID-19 lockdown and associated restrictions on working.

So, technically Ardern was correct - if you follow wages. But Olsen says National's weekly income figure "is, in general, likely a better reflection" of the ability for people to pay their rent overall, because it takes everyone into account.

Infometrics senior economist Brad Olsen says both sets of data on rents and income - the Government's and National's - are technically correct.
Infometrics senior economist Brad Olsen says both sets of data on rents and income - the Government's and National's - are technically correct. Photo credit: Getty

Olsen concludes that changes in rent broadly track changes to wage rates, reflecting that as people earn more they can afford higher rent.

"However, lower income for some groups, particularly since COVID-19 hit the economy, means some people will be struggling to afford their rent," he says.

An example of this is the huge increases to the state housing waitlist as people can't afford a roof over their head.

Olsen's assessment is that both sets of data - the Government's and National's - are technically correct, but there's a fair bit of context needed for each measure.

"At the end of the day, some Kiwis are struggling to pay their rent, and there are concerns that renting will become even harder for some groups," Olsen says.

"More housing is needed to address the underlying issues of the housing crisis."

Where did this all start?

Ardern made the remarks on Monday, pushing back on "speculation" about rents rising because of the Government's trifecta of new housing policies, which aim to cool-off property investment and help first-home buyers. 

Landlords have threatened to increase rents over the Government's plan to phase out tax deductions on interest costs for investment properties, which Ardern has described as a "tax loophole" that "needs to go"

The increased cost won't apply to owner-occupiers or investors contributing to new-builds, the aim being to dampen investor demand on existing homes and bring rapidly increasing house prices under control.

Prime Minister Jacinda Ardern.
Prime Minister Jacinda Ardern. Photo credit: Getty

But there are fears landlords could dump the increase on renters. Economist Cameron Bagrie told The AM Show it was a "bad policy", describing it as the Government stuffing renters to appeal to first-home buyers. 

Finance Minister Grant Robertson told Newshub Nation at the weekend the Government isn't ruling out putting limits on how much landlords can hike rents, if investors turn out to be right and prices go up rapidly. 

But Ardern confirmed on Monday the Government has "no plans" to cap rent increases, and said it was "speculation" to suggest rents will rise because of the new housing policies.

"Yeah, and that's a hypothetical. When we saw increases in house prices, we then responded to that. But at this stage, it is speculative," she said.

"What we've seen in our rental market has not mirrored what we've seen with house price growth. In fact, more often than not it's tended to mirror wage growth."