Introduction

After the Second World War, bricks-and-mortar subsidies and rent control were introduced to ensure rented housing remained affordable in the Netherlands. The social rented sector was the main instrument for national government to stimulate housing production and safeguard affordable housing. In recent decades, a gradual shift has taken place from subsidised rents to personal subsidies for households: housing allowances. The shift from subsidised rents towards market-based rental is still ongoing and the housing allowance scheme has developed into the core instrument in Dutch housing policy (about 56% of the national housing budget). This shift did not take place without comment and has given rise to many lively debates.

The central theme in this chapter is: how does the housing allowance scheme operate in the Netherlands, balancing between the goals of affordability and housing quality and the need to control public budgets? The following questions are examined:

• • How have housing allowances developed within Dutch housing policy?

• • How has the Dutch housing allowance scheme developed since 1975?

• • What are the dilemmas in designing the housing allowance scheme?

• • What are the future challenges?

The next section deals with the role of housing allowances in Dutch housing policy and sketches how housing allowances captured a prominent place in this policy. The following section discusses the development of housing allowances and the affordability of housing in the period from 1975 to 2002. The chapter then describes a number of problems and the political answers in the Netherlands. The subsequent section outlines developments and current dilemmas and the chapter ends with a number of conclusions and recommendations.

Housing allowances and housing policy

The duty to provide housing is enshrined in the Dutch Constitution. The policy to make housing affordable constitutes an important dimension of this duty. In this section we provide a historical overview of this policy and show that, over time, housing allowances have played a steadily more important role in Dutch housing policy.

After the Second World War, social rented housing was heavily subsidised and financed with government loans. An important reason for this was that the rents had been frozen since 1940 as part of the government's wage policy. As a result of this stringent rent policy, the construction of new houses was not an attractive financial proposition and subsidies were needed to stimulate housing production.

Introduction

This book has examined the context, role, design and impacts of income-related housing allowances in a variety of countries. Chapters Two to Ten looked at nine advanced welfare states, while Chapter Eleven explored the experience of the Czech Republic and made comparisons with several other transition economies. This final chapter draws upon the preceding chapters to reflect upon the role of housing allowances in the advanced welfare states. The first section describes the broad welfare regime and housing market context of the ten main countries covered in the book. The second section compares important features of income-related assistance with housing expenditures across these countries. The third section examines key reform pressures and debates about housing allowances and the fourth section focuses on ‘housing vouchers’ as a possible future for income-related assistance with housing expenditures. The final section presents some conclusions.

Contextualising housing allowances

Although housing allowances have become an important policy instrument in many of the advanced welfare states, they are embedded within different national contexts. Table 12.1 summarises some key features of the social protection systems in each country covered by this book. Nine of the 10 countries were included in Esping-Andersen's typology of welfare regimes (the exception being the Czech Republic). Australia, New Zealand, Canada, the US and Great Britain were described by him as liberal welfare regimes, characterised by a low level of benefits, reliance on means testing and a relative emphasis on private social provision. France and Germany were classified as conservative welfare states, characterised by heavy reliance on status-maintaining social insurance schemes with relatively generous, earnings-related benefit levels and an emphasis on the ‘male breadwinner family model’. Meanwhile, Sweden and (more controversially) the Netherlands were described as social democratic welfare states, with a commitment to generous and universal benefits, high quality services and an emphasis on the dual-earner family (Esping-Andersen, 1990). While this typology has been subject to criticism, it nonetheless provides a useful summary description of institutional arrangements in respect of income protection in the advanced welfare states.

Broadly in line with this typology, with the exception of Canada, social insurance benefit generosity is lower in the liberal welfare states than in the conservative and especially the social democratic welfare states included in this book (Table 12.1).

Introduction

In the US, housing allowances take the form of housing vouchers. Whereas housing allowances are typically unrestricted cash transfers earmarked for housing, housing vouchers are earmarked for housing but have restrictions. Put simply, a voucher is essentially a promissory note from the government – with strings attached. It allows a low-income household to lease a physically decent private market unit that is rented for an amount considered reasonable for modest, existing, standard rental units in the housing market area, typically the county or metropolitan area.

Unlike housing allowances in most other countries included in this volume, housing vouchers in the US, along with all other forms of housing assistance, are not entitlements. As a result, roughly one quarter of eligible households receive any form of housing assistance (Fischer and Sard, 2005; US Department of Housing and Urban Development, 2005), and about 9% receive vouchers (US Department of Housing and Urban Development, 2005; Fischer, 2006). Nonetheless, the housing voucher programme now serves more households – roughly 2 million – than any other means-tested form of housing assistance (Fischer, 2006).

Housing policy context

Although housing assistance programmes in the US date back at least 75 years, a housing allowance-like programme was introduced only about three decades ago. Prior to the 1970s, housing policy for low-income households consisted of an array of construction and finance subsidies. These included federal subsidies to build and rehabilitate housing, reduce interest rates on loans to developers of housing for low- and moderate-income households, provide mortgage insurance for lowincome homeowners and rental apartment developments, and provide tax shelters to investors in low- and moderate-income housing projects (Weicher, 1980). By the early 1970s, virtually all of these housing programmes had run into serious problems. These included abandonment of federally subsidised homes, defaults in apartment subsidy programmes, scandals involving bribery of public officials in a low-income homeownership programme (Section 235), and significant social decay in some public housing developments, the most infamous of which was Pruitt-Igoe in St Louis. President Richard Nixon called for a moratorium on all housing programmes and established a taskforce to recommend a course of action for the future.

Introduction

For most of the past 60 years, France has had two housing allowance regimes, one for market-priced housing and one linked to the country's intricate system of housing capital subsidies. Neither allowance regime has paid 100% of housing costs. How has this system evolved? What are its market impacts and distributional consequences? This chapter presents a review of the main features of the French system of income-related housing allowances; it identifies the context of that system in the country's welfare state and then looks at the design of the system and how it is intended to operate. The third main section looks at the key impacts of housing allowances in France. The chapter then discusses evidence for the failings of the system and the concluding section summarises the main points discussed.

France's population is estimated to have been 62.2 million in mid-2004, some 5.5 million higher than 20 years earlier (INSEE, 2005). Its population density is less than that of many of its European neighbours and about a quarter of the population lives in rural areas (a similar number to those in the three main metropolitan regions centring on Paris, Lyon and Marseille/Aix-en-Provence). The mean age of the country's population is currently estimated at between 39 and 40, about four years older than at the end of the Second World War and seven years older than at the start of the last century (INSEE, 2005). Around one person in 10 living in France was not born in the country, with about half of these having been naturalised as French citizens. About a quarter of France's 24 million households are couples without children, about a third are couples with children and slightly fewer than one in three are comprised of a single person. There are around 2 million lone-parent families.

Figure 7.1a shows how average disposable incomes have changed over the past 30 years in real terms. From 1970 to 1990 there was rapid and then slightly more modest growth with real falls until 1997, followed by renewed growth (to the 2002 mean of €27,300 and median of €24,000). Unsurprisingly, disposable incomes are higher for non-pensioner households than for pensioners (€30,000 compared to €21,500 at the mean), with households headed by a person aged 40–49 the most well-off (mean €34,000).

Introduction

Most of the advanced welfare states are committed to ensuring that housing is affordable to ordinary citizens. Shelter is not only a necessity, but for most households it is also the largest single item in their budget. For low-income households in particular, the ratio of housing expenditure to income can be high. In fact, most of the advanced welfare states provide, in one form or another, assistance with housing expenditure. Although the aims and instruments employed vary from one country to another, a common concern is to ensure that ordinary people can afford to occupy decent housing at a price within their means.

The policy instruments that governments employ to ensure this basic goal vary between countries and over time (Doling, 1997). Governments can seek to provide assistance on the supply side, that is, to builders, landlords and financiers. Typically, supply-side assistance is geared towards lowering the price or rent that households have to pay for their housing. This may be achieved through the provision of direct subsidies to builders or landlords, such as low interest loans or capital grants, which are often referred to as ‘bricks-and-mortar’ subsidies (Oxley, 1987). It may also be achieved by indirect subsidies such as tax relief to private landlords. Whether by these direct or indirect means, supply-side subsidies to providers make it possible for them to charge less than the market price or the economic cost of the dwelling. It may also take the form of price regulation, such as rent controls, that limit the amount that landlords or other suppliers of accommodation may charge to consumers (Robinson, 1979).

Governments may also provide assistance to the demand side, that is, directly to the consumers (home buyers and renters), thereby helping to ensure that they can afford to pay the price or rent charged for their dwelling. Demand-side assistance can take a number of forms, including both direct subsidies such as low interest loans for home buyers, and indirect assistance such as mortgage interest tax relief. However, perhaps the most common form of demand-side assistance is housing allowances. These are income-related subsidies tied to housing that are paid to consumers (or directly to landlords on their behalf).

Introduction

Housing allowances in Canada are offered by only four provinces. The absence of a national allowance should not be too surprising in a country where there is really no such thing as national policy for low-income housing. Instead there is a set of housing policies, one for each province. This has been especially true since the federal government all but vacated this area in the 1990s. It first terminated all programmes for building new social housing, as low- and mixed-income housing is called in Canada. Then it transferred the management of most existing subsidy commitments to the provinces. Even in the 1960s to the early 1980s when the federal government took an activist role, low-income housing in any province was only built if a province accepted the federal offer of funds and joined as a partner. This is in line with the fact that housing is constitutionally the responsibility of the provinces – a quite different situation from that of the US states relative to their federal government – and Quebec, especially, has been sensitive to this.

The Canadian provinces have differed in their take-up of federal offers. In part this is because they have widely varying housing markets. For example, some like Ontario, Alberta and British Columbia (BC) have high-rent and high-cost cities and others such as Newfoundland, Quebec and Manitoba have not. They also have varying views of their own needs and the role of governments, with, for example, Alberta generally favouring a highly restricted role, Quebec an interventionist one and other provinces, such as Ontario, a more mixed role. But all the provinces, with the notable exception of oil-rich Alberta, have less revenue-raising capacity than the federal government, despite their constitutional responsibilities. The provinces also have attached less importance than the federal government to new construction, quite naturally in view of the latter's responsibility for the macro-economy and the role of house building in maintaining full employment.

It is not too surprising in this context that some provinces have introduced housing allowances, which are cheap programmes involving no new building, although they have received no federal support. Ironically, these programmes are targeted squarely at solving a lack of housing affordability, the problem which the federal government's housing agency, Canada Mortgage and Housing Corporation (CMHC), has identified as the overwhelmingly most important housing problem.

Introduction

The social policy dimension of housing is characterised by society's (shifting) idea of the acceptable minimum level of adequate housing in terms of quality and quantity. Housing policy aims to enable everyone to realise these basic housing standards independent of their personal income and other prevailing circumstances (for example the local rent level, number of children). Housing allowances – Wohngeld in German – come into play whenever income is insufficient to enable the household to obtain accommodation that meets a minimum housing standard. As a tied income transfer, it is an incentive towards a higher individual housing consumption.

Wohngeld is not, of course, the only policy instrument for encouraging households to obtain housing that meets a minimum standard. Social housing can have the same effect by setting social rents below market rents and reserving the dwellings for the most needy groups. Even general rent ceilings may have a comparable effect, though they have harmful consequences for other housing policy goals.

While most housing economists and policy makers are opposed to general rent ceilings – if not in every case, then at least in an equilibrium market situation – housing allowances have not attracted as much criticism over the decades. Quite different from the often mismanaged and costly social housing programmes, housing allowances are widely seen in Germany as a relatively market-conforming instrument of social policy (eg Albers, 1982, p 204; Stern, 2001, p 81) with the ability to act as a substitute for an important part of the social housing programmes.

Housing allowances in context

In Germany, both tenants and homeowners are eligible to claim Wohngeld if they fulfil the qualifications. The role of Wohngeld in German housing policy has been very important. In 2004, 3.5 out of 39.1 million households received €5.2 billion of Wohngeld transfers (see Figure 8.1). This expenditure on Wohngeld corresponds to 0.24% of the German GDP and to around 27% of total housing subsidies excluding tax relief. In total, 9.0% of all households received a housing allowance in 2004. However, due to radical change in target group definition, the cost and caseload of Wohngeld fell dramatically in 2005 (see Figure 8.1).

In this part of the book, we analyze in detail the workings of the main institutions of the policy-making process in Argentina. We show here that these institutions do not facilitate the development of consistent policies over time, the development of policy-making capabilities, the accumulation of policy-making knowledge and expertise, or the coordination of policy. In particular, we show in Chapters 3 through 6 that Argentina's key political actors tend to have short political horizons, wrong incentives, or both, and that Argentina lacks institutional arrangements, such as a professional bureaucracy or an independent judiciary that, in the presence of short political horizons of the key players, would provide the missing institutional glue to facilitate intertemporal coordination and the enforcement of agreements. Chapter 7, then, shows that these institutional features indeed translate in uncoordinated, incoherent, at times rigid, and systematically unstable policy making, features that necessarily lead to low-quality policies and a lack of incentives to invest in capabilities, with the consequent implications for general well-being.

Chapter 3 analyzes the Argentine Congress. In this chapter, we show that the structure of the Congress and the behavior of its legislators reflect equilibrium behavior given the incentives faced by the legislators and their political masters – the provincial party bosses. In particular, we show that given the latter's political incentives, Argentine legislators although professional politicians are only amateur legislators.

Federalism in general and fiscal federalism in particular are crucial axes of Argentina's history, of Argentina's present, and of Argentina's possible futures. This chapter provides a brief description of some basic characteristics of federalism in Argentina, with focus on many deficiencies of federal fiscal arrangements. Then it applies the analytical framework developed in Part I to explain those inefficiencies as the dynamic outcome of a game among the national government and provincial governments. This gaming around federal fiscal issues (the distribution of taxes, transfers, and spending responsibilities) permeates national and subnational policy making in crucial policy areas such as the social sectors.

The 2001 article from Business Week reproduced here provides some vivid examples of the importance of fiscal federalism and intergovernmental politics in Argentina:

We have established in previous chapters several characteristics of the Argentine policy-making environment. Congress is not an important policy arena; presidents tend to have excessive leeway to change policy, except when they face fierce opposition of provincial governors; and nobody has much incentive to invest in long-term policy-making capabilites. Argentina also lacks institutional arrangements, such as a professional bureaucracy or an independent judiciary, that would facilitate enforcement of agreements. These characteristics correspond to what, in the language of Part I of the book, we would describe as a policy-making environment not conducive to cooperation. And, as we established in Proposition 1, a noncooperative policy-making environment can lead to policy volatility, rigid rules, inability to instrument some efficient policy changes, and underinvestment in capacities, all leading to low-quality policies. In this chapter we provide evidence on the characteristics of public policies that fits these predictions.

Previous chapters have already provided some evidence on that regard with respect to policies pertaining to the federal fiscal domain and to civil service policy. This chapter starts with a generic characterization of policies in Argentina, drawing on some international data sets, and then provides vignettes of the process of policy making in some specific policy areas such as international trade negotiations, social policies, pension reform, and regulation of privatized utilities.

A strong and capable bureaucracy is likely to lead to better public policies. On the one hand, there is the obvious direct effect of the quality of the bureaucracy on the quality of policy implementation. On the other, our analytical framework emphasizes that political agreements leading to effective public policies are more likely to obtain in environments in which it is more feasible to delegate policy implementation to a quality bureaucracy. (The quality of the bureaucracy is an important component of the quality of the environment for political transactions.)

A high-quality bureaucracy does not descend from heaven, but it is itself the product of conscious political decisions over time. The building of a bureaucracy, “civil service policy,” is a policy in itself. In the language of our framework, it is a policy with special investment-like transaction characteristics, and such policies place large demands on the implementation capacity of political systems.

Thus, a poor bureaucracy worsens the policy-making environment, and a poor policy-making environment is unlikely to create a quality bureaucracy. We argue in this chapter that Argentina has suffered from this vicious circle. Political actors do not have a quality bureaucracy onto which to delegate policy implementation, and the weaknesses of the bureaucracy are themselves the result of the poor quality of the overall policy-making environment in Argentina.

In this chapter, we expose some problems of the Argentine bureaucracy, and we argue that those problems are due to the lack of any relevant principal interested in providing long-term incentives to bureaucratic actors.

This book began with the observation that Argentina's policies have shifted dramatically over time, and with the claim that its inability to produce consistent public policies is the reason behind its economic misfortunes. We argued that the deficiencies of Argentine public policies are the outcome of a policy-making process in which key actors have little incentive to cooperate with one another over time, leading to myopical political and policy choices. Argentina has, thus, been unable to steer a consistent path in crucial areas such as economic, social, or international strategies.

Argentina has a national policy-making environment dominated by executives who tend to have too much leeway to pursue whatever policies they fancy, provided they can buy the support of quasi-feudal provincial governors with fiscal largesse. Such a depiction is somewhat surprising for a country that has a basic constitutional structure with separation of powers quite similar to that of the United States. In spite of a common basic constitutional structure, the workings of political institutions in Argentina couldn't be more different than in the United States. The Argentine Congress is neither the arena where key policies are negotiated nor a very attractive place to develop a political career. The Argentine Supreme Court is not a respected institution with the power to act as a real check on executive power. In Argentina, there is no policy delegation to well-staffed independent professional agencies supervised by Congress through the power of the purse.

This chapter uses the theory of repeated games to study the determinants of policy-making behavior. It provides a game-theoretical connection between elements of the policy-making game and the nature and characteristics of resulting policies. The abstract elements identified in the theory are mapped to observable aspects of political behavior ([4] in Figure 1.1). After identifying basic characteristics of political transactions, developing our basic model, and discussing its implications, we present some extensions that allow for richer characteristics of the underlying policy issues as well as for richer characterizations of the rules of the political game. At the end of the chapter, we discuss the potential empirical application of the framework for different policy issues and in different political environments.

CHARACTERISTICS OF POLITICAL TRANSACTIONS

A number of fundamental features, several of which are amenable to analysis from a transaction cost perspective, characterize the political transactions surrounding public policies. In this chapter, we provide a model that captures six of those features. They are as follows:

1. Intertemporal political exchanges. Politics and policy making take place over time. Decisions are made at different points in time, often by different configurations of actors, and decisions made at any point in time have future consequences.

2. The shifting bargaining power of political actors. Political popularity, coalition formation, and the normal workings of democracy lead to substantial randomness in the power of any political actor over time.

3. […]

A BRIEF SKETCH OF THE FRAMEWORK

We view public policies as the outcome of intertemporal transactions among political actors. Our dependent variable, Y ([1] in Figure 1.1), represents the features of public policies: their stability, adaptability, coordination, and other qualities. The appendix to this chapter discusses these dependent features in more detail.

We explain policies and their features as the outcome of a policy-making game ([2] in Figure 1.1), emphasizing the intertemporal nature of the transactions underlying policy choices and implementation. Formally, let G: X × Z → Y denote the policy-making game, played under the rules of the game X over the issues with characteristics Z, in which the characteristics of policies Y are determined.

The transactions that political actors are willing and able to undertake will depend on the political characteristics of the policy issues under consideration ([3] in Figure 1.1). More specifically, we follow the literature on transaction cost politics in emphasizing some transaction characteristics of policy issues, such as the intertemporal patterns of payoffs for different actors. The vector Z summarizes those transaction characteristics. As in transaction cost economics, different political issues can be characterized by a number of properties. These properties are important in determining the ease of implementing a particular agreement. They include the number and cohesiveness of the political actors involved, the degree of irreversibility of the assets involved in the policy, the intertemporal pattern of payoffs to the actors, the duration of the policy exchanges involved, the ease with which performance can be measured, the observability of shocks, the urgency with which the policy needs to be implemented, and the degree to which the policy benefits broad or narrow interests.