What form of subsidy is best in creating new social housing? Researchers from Australia set out to model the effects of different types of subsidy, against a background of falling numbers of new social housing supply.
The study begins with the familiar history in many Western countries of states switching from supply-side to demand-side subsidies such as housing benefit. In parallel, as access to grants was withdrawn, private lending became more prominent with housing organisations borrowing to build.
Although governments perceive private sector investment to be more efficient and innovative, there is evidence that it’s actually more costly.
The authors consider five policy levers: subsidised land cost, taking direct equity as a stake in social housing assets and operations, low cost debt financing, tax incentives and exemptions, and demand-side operating subsidies such as rent allowances to tenants or operating subsidies to the organisation. The authors note on this last subsidy type that the OECD estimates across the EU, the proportion of housing assistance spent on housing allowances between 2009 and 2015 rose from 54% to 75%, with the highest share in the UK, 85%.
Australia’s growing need for social housing and lack of subsidies means, the authors say, that organisations cannot even make inroads into the backlog of current need, far less plan for the future. Modelling each of the five subsidy types, they estimate that over a 20-year period an average new social home can support debt covering only about a quarter of its cost. This means almost three quarters of the cost must be found through subsidy of some kind.
The authors conclude from their modelling that: “Upfront and retained direct investment is far more efficient and effective in the medium and long term than subsidising private financing, lease and demand subsidy arrangements.”
Governments argue that operating subsidies such as benefit payments spread the cost over time, compared with upfront grants. But the authors find that while the initial cost is lower, it’s about equal by year ten. From year 20 the operating subsidies are still needed, while the capital grant has ended. This suggests, the authors say, that while a demand-side approach might be appropriate for a single project, for a long-term strategy and programme the capital grant system is much more efficient.
As well as the efficiency and simpler approach of capital subsidy, the benefits in terms of social welfare should be considered, the authors add. More social housing reduces homelessness, supports households in need and creates jobs. Oversight of procurement can help ensure effective and equitable use of the subsidies.
Social housing as infrastructure and the role of mission driven financing
Julie Lawson, Laurence Troy & Ryan van den Nouwelant
Housing Studies
https://bit.ly/3MH33Z8
