The nature of housing subsidies
Subsidies enable certain households to enjoy housing services far below the cost of involved in providing them through the free market. Such a broad definition covers:
1) The transfer of income from landlords to tenants by rent control;
2) Tax concessions enjoyed by owner-occupiers;
3) Direct subsidies of:
a) Central government grants to housing accounts of the local authorities
b) Fund contributions by local authorities.
c) Rent rebates and rent allowances to tenants on low incomes renovation grants.
Such subsidies have three broad objectives. First, they can be used to redistribute income more equitably, a decision which rests ultimately on a subjective judgment. Second, they can allocate more resources to housing than would be provided by the full price mechanism. This may be required because of the external costs of inadequate housing or because the government treats housing as a ‘merit’ good to which people should devote more of their income. Third, subsidies reduce the cost of housing, especially for local authority tenants, and may thus be a counter-inflation measure in taking the steam out of demands for higher wages. Property in India is thus witnessing different patterns of development with each passing year.
These objectives may not always be compatible. Thus reducing landlords’ income by rent control prevents resources going into the private rented sector, while subsidies to keep down the cost of living add to the Public Sector Borrowing Requirement (PSBR). But there are certain economic propositions, which are relevant to housing subsidies in general. We first state and examine these, and then consider to what extent they have been recognized in the implementation of policy, paying particular attention to subsidies given to public sector tenants.
1) The transfer of income from landlords to tenants by rent control;
2) Tax concessions enjoyed by owner-occupiers;
3) Direct subsidies of:
a) Central government grants to housing accounts of the local authorities
b) Fund contributions by local authorities.
c) Rent rebates and rent allowances to tenants on low incomes renovation grants.
Such subsidies have three broad objectives. First, they can be used to redistribute income more equitably, a decision which rests ultimately on a subjective judgment. Second, they can allocate more resources to housing than would be provided by the full price mechanism. This may be required because of the external costs of inadequate housing or because the government treats housing as a ‘merit’ good to which people should devote more of their income. Third, subsidies reduce the cost of housing, especially for local authority tenants, and may thus be a counter-inflation measure in taking the steam out of demands for higher wages. Property in India is thus witnessing different patterns of development with each passing year.
These objectives may not always be compatible. Thus reducing landlords’ income by rent control prevents resources going into the private rented sector, while subsidies to keep down the cost of living add to the Public Sector Borrowing Requirement (PSBR). But there are certain economic propositions, which are relevant to housing subsidies in general. We first state and examine these, and then consider to what extent they have been recognized in the implementation of policy, paying particular attention to subsidies given to public sector tenants.
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