Fact Check: Have home insulation grants helped the poor?

Geoff SimmonsTax and Welfare5 Comments

On today’s Morning Report the Prime Minister John Key put the home insulation grants in the top three things his Government is doing for the poor, alongside benefit increases and free doctor’s visits up to the age of 13.

But how much have home insulation grants really helped the poor? Like most government services, the subsidies have mainly helped the middle class, while those that really need the help tend to fall through the cracks.

History of Warm Up NZ

New Zealand’s housing stock is widely regarded as of poor quality. As a nation we seem to prefer to spend our money bidding up the value of land than investing in the actual housing stock.

As a result, historically many of our houses were poorly insulated. Almost half have visible mould, and during winter many of our children sleep in a room with the temperature of a fridge; 3 degrees. It should be little surprise that we have the 2nd highest rate of asthma in the developed world.

Warm Up NZ was an attempt to correct that. The grant scheme started in National’s first term back in 2009, offering 33% subsidies for anyone wanting to insulate their home. The subsidy was higher (60%) for people on low incomes. Between 2009 and 2013 the scheme had $347m to spend.

The scheme, managed by EECA, was hugely successful, with around 235,000 homes insulated. It has more than paid for itself in reduced hospitalisations among the elderly and young. In fact the cost of insulating a home is roughly the same as the cost of one night in hospital. It has also improved the amount of time children spend at school due to reduced illness. By some estimates the Warm Up NZ scheme returns between $4 and $6 for every $1 invested.

The trouble is that the scheme was mainly taken up by the middle class.

The remaining challenge

Like most Government subsidies (like Working for Families) the original scheme was picked up mostly by middle class home-owners, rather than the people that actually needed it. It shouldn’t come as a surprise; poor home owners couldn’t afford the part payment, and landlords have little incentive to invest in the wellbeing of their low income tenants.

The Government tried to account for that in 2013 by throwing in another $100m targeting the subsidy at low-income households with high health needs. But this didn’t change the incentives for landlords. As a result the insulation shortfall is still enormous amongst the poor. There are an estimated 300,000 people on low incomes living in uninsulated homes in New Zealand. According to EECA, around 120,000 of those are renting.

So in Budget 2016 the scheme was extended with another $18m and targeted entirely at low income rentals (with a community services card). This focus, although welcome, is tokenistic and woefully inadequate. After all the money spent on middle class housedholds, EECA only has enough money to insulate 20,000 more houses. The Government has made no sign about providing the funding to see this issue through to completion.

Regulation

After considerable pressure the Government has brought in some regulation around insulation in rental properties. This regulation seems more likely to bring positive outcomes for low-income tenants than the subsidy. However, the Government has included exception clauses, and the changes don’t come in for private landlords until 2019. It will be interesting to see how many landlords try to wriggle out of the requirement. Given these regulations, landlords should be eager to cash in on the 50% Government subsidy to do something that they will be required to do in a few years regardless.

In short, the Warm Up NZ grant has been a massive success. However, it has mainly benefitted the middle class; the focus on low-income tenants is too belated and tokenistic for John Key to claim it as a key policy plank to combat poverty.

Fact Check: Have home insulation grants helped the poor? was last modified: October 17th, 2016 by Geoff Simmons
About the Author
Geoff Simmons

Geoff Simmons

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Geoff Simmons is an economist working for the Morgan Foundation. Geoff has an Honours degree from Auckland University and over ten years experience working for NZ Treasury and as a manager in the UK civil service. Geoff has co-authored three books alongside Gareth.