Rotorua emergency housing, advertising and incentives

What happens when the government creates a system that generously rewards accommodation providers for providing emergency accommodation? You get this, as reported by the New Zealand Herald yesterday:

Some motel owners providing emergency housing in Rotorua have directly targeted potential out-of-town clients through social media.

A document shared by RotoruaNZ with Rotorua Lakes Council - aimed at informing “messaging” to the Government in March this year - shows examples of emergency housing motel advertisements on Facebook directly targeted at people in Tauranga and Whakatāne.

The advertising in Tauranga and Whakatāne was live at the time the document was produced.

Titles for some ads included “emergency Winz motel”, and “motel room for emergency accommodation” and listed their price as free.

Firms respond to incentives. For an accommodation provider, most of the operation costs are fixed, aside from cleaning. So, maximising profits is broadly consistent with maximising occupancy. That is true regardless of whether the accommodation provider is providing short-term tourist accommodation or long-term emergency housing. So, if a provider has converted their motel to emergency housing, they will want to ensure that they have as many emergency housing tenants as possible. After all, they've probably rendered their motel less appealing to the short-term tourist market, so their best option is to maximise from the emergency housing market. If there aren't enough emergency housing tenants in the local market, then they will try to get them in from elsewhere. And to do that, they need those potential tenants to know that the provider has housing available. At that point, advertising to those potential tenants is a no-brainer.

It's probably not a good thing for the emergency housing tenants though. They're already in a precarious situation, but moving to a new city where they may lack social connections and networks will make a dire situation even worse. So, it is reasonable for government to be thinking about how to reduce this problem. But, not this way:

On Wednesday last week, [Bay of Plenty regional commissioner Mike] Bryant told Local Democracy Reporting that as recently as November 2 MSD had contacted a Rotorua motel about a Facebook post advertising emergency housing to out-of-towners and “asked that they remind their staff not to do it”.

“When we know a Rotorua motel is advertising emergency housing in out-of-town social media groups, we reach out and ask them to stop.”

That may be the weakest response ever: "Please sir, stop advertising to get more tenants for your emergency housing motel". If the government wants a provider to stop advertising for emergency housing tenants, then the government should cancel the provider's emergency housing funding if they don't. Problem solved. Firms respond to incentives. If the incentives create negative consequences the government doesn't like, they need to change the incentives.