Rates cap could force councils to charge market rents, officials warn

Friday, 27 February 2026

Officials from the Ministry of Housing and Urban Development (MHUD) say councils would likely be forced to charge their social housing tenants market rents if a nationwide rates cap is imposed.

Advice MHUD provided to the Department of Internal Affairs warned that any extra support for tenants would have to come through the Government’s accommodation supplement, because councils would be restricted in their ability to subsidise rents.

The change would affect about 10,000 council-owned rental homes - mainly pensioner housing - and is expected to increase housing need, particularly for older New Zealanders.

Local Government Minister Simon Watts said the Government did not anticipate market rents would go up and the advice was based on assumptions.

Final decisions on the design of the rates capping policy have not yet been made, he said.

The Government has not costed the likely increase in accommodation supplement payments it would need to fund as a result.

The MHUD advice, released under the Official Information Act, also said existing tenants facing hardship from the loss of council support would need to apply for the public housing register, further increasing wait times.

It also noted that councils would likely be restricted in their ability to invest in rates-funded programmes that fillcommunity gaps left by insufficient Government actionand funding, such as homelessness services.

The advice was not mentioned in the minister’s cabinet paper.

Green MP Tamatha Paul said pensioners living in council housing would be forced to live on the street if they had to pay market rent.

“They're not able to go back to work and they're on that fixed income. So if they have to pay a market rent, you will literally see elderly people on the streets.“

She said there would be little alternative for them, as the public housing wait list prioritised other groups, such as people with children.

People were struggling to live with their discounted market rents, with tenants describing having nothing left after paying rent to cover groceries, heating, GP visits and dental care.

“The reason that people live in council housing is because they have really challenging circumstances,” Paul said.

“To expect 10,000 households to pay market rents in a cost of living crisis is another punch in the face to the most vulnerable people in our country.”

She said the council’s social housing primarily served pensioners, noting that superannuation was calculated on the assumption that people aged 65 and over owned their own homes.

She said the Government had shown it was unwilling to fund enough Income Related Rent Subsidy (IRRS) places to meet demand, with Wellington Council’s housing provider already struggling to move tenants to Kāinga Ora because of long wait times.

The Government’s failure to cost the impact of higher accommodation supplement payments concerned her, saying it showed the policy was being pursued without having a full understanding of how it would affect New Zealanders’ lives.

Wellington councillor Geordie Rogers said the council had been responding to “massive” cuts by the Government to social housing for years, and would now have less discretion to respond in the same way.

With an ongoing agreement between the council and its provider Te Toi Mahana to ring-fence rent, he said Wellington tenants may not be impacted.

How social housing works

The Wellington City Council requires tenants to pay 70% of market rent, topping up the rest through rates and other revenue streams. The percentage councils pay varies across the country.

If councils restricted their support, tenants would see their rent increase by 30%, and would need to either be eligible for IRRS, or apply for accommodation supplements, which have different entry thresholds depending on the person’s job and living situation.

IRRS places are available to eligible Kāinga Ora tenants and community housing providers, with rent capped at 25% of the market rent, the rest paid by the Government.

To be eligible for IRRS funding, the tenant must be assessed as having serious housing need and be placed on the public housing register.