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Effects of housing allowance

Effects of housing allowance

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Libertas est Veritas posted on Thu, Jul 24 2008 3:32 AM
I'm curious what folks here think are the effects of the following.

Finland has a considerable housing allowance. It's quite complex and I won't pretend to know it exactly. But as an example, an apartment in a building built in 1972 will be approx. 50% compensated. And in an apartment building built in 2001 the compensation will be around 2/3. There are several variables which affect the allowance, like whether the building has central heating. Whether or not the allowance is granted depends on income levels of the individual and other members of the family. I'm not sure what the amount cap is, but in the most extreme cases there probably is none.

Housing allowance is widespread (students, low-income, unemployed, etc) and there are some rather annoying "abuses", like 16-year old children moving to an apartment of their own just because they can due to the allowance.

My initial reaction was that this raises rent prices. But does it raise housing prices by upping the returns on housing investments? What other consequences would you see from this?
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fsk replied on Thu, Jul 24 2008 9:39 AM

Government distortions of the market are always damaging.

Consider the example you gave, where the State provides subsidies to people who buid apartment buildings.  That money comes from somewhere, either taxes or inflation.  The net effect is that people who don't own apartment buildings are subsidizing the profits of people who own apartment buildings.  A renter will pay less in rent, but his income taxes will be higher to compensate.  Overall, the renter is worse off with no State intervention in the market.

Another problem is this subsidy causes too many apartment buildings to be built.  If you subsidize apartment builders but not individual housing, then most people will live in an apartment instead of a house.

The bottom line is that nothing is free.  Someone is always paying the cost via taxes or inflation.  Such sleight of hand tricks enable people to have the illusion that government is helping them when it's really hurting them.

I have my own blog at FSK's Guide to Reality. Let me know if you like it.

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Anonymous Coward replied on Thu, Jul 24 2008 7:50 PM

Finland is the one that pays for its socialist programs out of oil revenue, right?

It also gives a pretty good disincentive for someone to get a job if they can get free housing and a bunch of other 'free' things from the government while if they do work they get their 'excessive' income taken away so that others can live off 'society's bounty'.

They don't have rent control over there so this increase in demand for rentals doesn't drive the price way up?

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Libertas est Veritas replied on Fri, Jul 25 2008 12:29 AM
Anonymous Coward:
Finland is the one that pays for its socialist programs out of oil revenue, right?


That'd be sweet, but sadly no. That's Norway.

Anonymous Coward:
They don't have rent control over there so this increase in demand for rentals doesn't drive the price way up?


Helsinki has some rent controlled apartment buildings, that I know of. Other cities usually don't. Did you mean having rent controls would keep prices from rising?
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Anonymous Coward replied on Fri, Jul 25 2008 10:47 PM

Libertas est Veritas:
Did you mean having rent controls would keep prices from rising?

Yeah, they set a cap on rents or make it so you can only increase it by a certain arbitrary percentage per year.

It certainly raises demand, people have all sorts of schemes to get rent controlled apartments like monitoring the obituraries or sub-letting from someone who doesn't want to give up their piece of socialistic paradise.

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