A Lifetime Rental Bond

A Solution for New Zealand’s Housing Crisis

Home ownership in New Zealand has long been a cornerstone of the Kiwi dream. Yet, with house value to income multiple for New Zealand being 7.01, home ownership has become out of reach for many families who will become lifetime renters.  

The costs of renting for tenants can also be a challenge. To raise a four-week bond for a property at $630 per week, tenants must come up with $2,520 and the first weeks rent. Also, with pet bonds pending, a further two weeks would be required, meaning that the tenants may require a bond of $3,780 per week to cover their pets. An issue is that tenants may not be able to access their current bond under their tenancy until that tenancy ends.

One such solution is inspired by Australia's research think-tank organisation, The McKell Institute, which has recently published the Rewarding Renters report2. What they propose is the introduction of a one-off, lifetime portable rental bond. This concept could address systemic issues in our rental and housing markets, paving the way for a more equitable future. 

The Problem: Renting as a Life Sentence

New Zealand’s homeownership rate has fallen with one third of New Zealanders currently renting. More than one-third of New Zealanders are now renters, with many facing entrenched rental stress. This stress limits their ability to save for a home deposit and perpetuates economic disadvantage cycles. 

A Simple Solution: The Portable Lifetime Bond

The McKell Institute in Australia has proposed a National Portable Bond Scheme to alleviate renters’ financial burden. Here’s how the scheme works: rather than paying a new bond each time a tenant moves, renters pay a single, one-off bond held in a central government-managed account. This bond accrues interest, which is returned to the tenant upon exiting the rental market—providing a financial boost for homeownership or other purposes.  

Currently, in New Zealand, around $900 million in interest is being earned to help fund Tenancy Services. One can argue that this is the tenant's money and that they should be accruing interest from it.

Such a system proposed by McKell Institute could easily be adapted to New Zealand. Currently, renters must often save for multiple bonds as they move between properties, unnecessarily locking up thousands of dollars.

Why It Works for New Zealand

1. Financial Relief for Renters: With the median rent in New Zealand now surpassing $600 per week in cities like Auckland and Wellington, a one-off bond system would immediately ease renters’ financial pressures. For example, a $2,400 bond could instead be earning interest over a decade, potentially growing into a meaningful sum for a future deposit. 
2. Improved Mobility: Renting can be traditionally transient, with the average length of a tenancy being approximately 3 years. A portable bond would reduce the friction of moving, allowing people to seek better job opportunities without the financial burden of paying another bond. 
3. A Path to Homeownership: Historical data shows that homeownership in New Zealand has become increasingly tied to intergenerational wealth. By returning bond interest to renters, this system provides a modest but significant boost to those without the financial backing of family wealth. 
4. Enhanced Fairness: Under current systems, the interest accrued on bonds benefits landlords or government agencies. A portable bond scheme would shift this benefit back to renters, ensuring they aren’t penalized for their tenure in the rental market. 

The Time for Change

The McKell Institute have come up with a great initiative that can lead the way in rental reform, ensuring that renting doesn’t equate to financial stagnation. A lifetime rental bond system is a simple, actionable step that could transform the rental market, provide relief to millions, and offer a pathway to homeownership for future generations. It’s time we reimagine the renting experience - not as a dead end, but as a stepping stone to a brighter financial future. 

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