Working Paper 02/04: The Effects of the Accommodation Supplement on Market Rents

This working paper investigates the effects of the Accommodation Supplement on market rents. Analysis is undertaken by Infometrics, who have updated the econometric model of market rentals they produced in 1999 for the Housing New Zealand Corporation.

The report covers:

• how the model is updated for New Zealand as a whole
• the incorporation of the Accommodation Supplement into the model to ascertain whether it is having any measurable effect on market rentals (using as the dependent variable both mean rentals and the lower quartile of market rents)
• the issue of causation (ie do changes in the Accommodation Supplement tend to lead changes in markets rents, or does the reverse apply?)
• the effects of the Accommodation Supplement in Auckland
• whether the Accommodation Supplement has caused a level shift in market rents.

The analysis strongly suggests that changes in the Accommodation Supplement have not affected market rents. It is possible that alternative modelling approaches could better identify any effects of the Accommodation Supplement on market rents that may exist. Various reasons are outlined why there may truly be no effect.