Research Discussion Papers, Bank of Finland
Does housing allowance feed through into rental prices?
Abstract: This paper deals with the incidence of housing subsidies,
which is analysed using Finnish panel data. The main data set comprises 50
000 households that received housing allowances during the period
2000–2008. In addition, we utilize repeated cross-sections of all Finnish
households for 1989–2008, the annual sample exceeding 10 000. Estimation
results suggest that a part of the subsidies will indeed feed through into
rental prices. A conservative estimate of the size of the feed-through is
one-third, but it is certainly possible that the number is, in reality, as
high as 50 per cent. On the other hand, the subsidy seems to have increased
housing demand more than the subsidy-induced income effect would have
implied, which is in accordance with the goals of the subsidy programme.
Our results seem to be consistent with other studies, which have also
indicated relatively high rent effects. If this is indeed the case, we are
advised to reconsider the need for reforming the system of housing
subsidies, at least with regard to the share of costs that remains on
households’ own accounts and the implicit indexation of the system.
Keywords: housing market; income transfers; incidence; housing allowance; (follow links to similar papers)
JEL-Codes: H22; I38; R28; (follow links to similar papers)
32 pages, May 5, 2011
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