Prime Minister Jacinda Ardern confident Budget 2021 benefit boost won't spark rent increases

The Prime Minister is confident the benefit boost in Budget 2021 won't end up sparking higher rents, because she went "back through the evidence" to identify any correlation. 

Beneficiaries got a $3.3 billion bump in the Budget, which will see the Government go beyond recommendations made two years ago by the Welfare Expert Advisory Group to increase benefit levels to help reduce poverty. 

The Government increased the benefit by $25 a week last year. From July 1, it will lift by $20 a week and a second increase will occur again next year. Families and whānau with children will also receive a further $15 per adult per week.

It means weekly benefit rates will increase by between $32 and $55 per adult by April 2022. The Government expects that 109,000 families and whānau with children will be, on average, $175 a week better off as a result of changes to income support, since 2017.

But with rents continuing to rise - the national median rent is $495 - the Government had to consider if landlords might bump up rent prices knowing that beneficiaries have more to spend.  

"On rents, one thing I would say is people have raised the question: will these increases in main benefits go directly to rent increases or cause rents to go up?" Jacinda Ardern told reporters on Friday. 

"We went back through the evidence, through recent times [when] we've had changes to the amount of assistance people receive, and we haven't seen a correlation that rents go up as a result."

The Government has been warned about sparking rent increases before. A document dump last month related to the big housing policy announcement in March showed rent caps were considered to stop landlords passing on increased rents.  

In that policy announcement, the Government announced plans to phase out tax deductions on interest costs for rental properties over four years, among a raft of other measures, to help first-home buyers and bring down ballooning house prices. 

The documents showed the Ministry of Housing and Urban Development warned that "most landlords may consider increasing rents" to meet the shortfall, and some would be "likely to sell", with potentially significant consequences for renters. 

Property investors immediately threatened to increase rents to make up for the increased costs. But Ardern stood by the policy, because investors now make up the biggest share of buyers in the housing market.  

But the Government's housing policies - including extending the investor tax bright-line test to 10 years and expanding eligibility for first-home buyer assistance - could pay off, according to Treasury forecasts in Budget 2021. 

Treasury predicts house price growth will peak at 17.3 percent in June before levelling out to 0.9 percent by mid-2022. The slower pace of house price growth "means house prices end up around 4 percent lower in June 2025", Treasury says. 

National MP Simon Bridges doubts house prices will go down, telling The AM Show on Friday the predictions are "UFO stuff".  

Ardern is between a rock and a hard place when it comes to house prices. 

"We don't want massive house price growth, but also, for many New Zealanders, once they are entering into the housing market, their house is the most important asset they have, so if you see a sudden dive in the value of their asset, that equally creates problems for the New Zealand economy and for homeowners, so it's about getting that balance right.

"What we of course, with our significant interventions earlier in the year - our housing package - we wanted to see that house price growth come away, and so you can see now Treasury are saying that they believe that will be successful, because those massive increases in house prices weren't good for anyone, including those who already own homes."

Ardern said she's proud of the Budget her Government delivered. 

"It's an important one. I think I'll look back on this one and see it as a real milestone for us in just making sure that New Zealand is a place that we believe it to be - fair, a place that when you need help and support that you're able to access it."