Housing Allowances and Economic Efficiency

Housing allowances aim to make rental housing affordable for the recipients. Whether affordability for tenants is achieved in an economically efficient way is the question that is discussed in this essay. Three aspects of efficiency are focused on: disincentives to work, over‐consumption of housing and horizontal inefficiency. These topics are tackled through a discussion that focuses mainly on the principles, but also on some of the outcomes, of the means‐tested housing allowance systems in six Western countries: Belgium, Germany, the Netherlands, the United Kingdom, the United States and Sweden. Conclusions concern the apparent unimportance of the poverty trap or the unemployment trap specifically for rental housing, the concept of notional rent used to tackle over‐consumption, and the frequent existence of some form of horizontal inefficiency.