VATT: Generous housing allowances not a factor in rent hikes

Differences in general housing allowances are not reflected in the rents of the allowance recipients – at least not to the extent that is widely believed in Finland, states the Government Institute for Economic Research (VATT).

VATT on Wednesday published the results of a study on the effects of housing benefits on rents that contradict both public assumptions and previous studies.

“The assumption that housing allowances trickle largely down to rents has been repeated in the public debate, but our findings show that such concerns have been exaggerated,” Essi Eerola, the research director of VATT, tells in a press release.

Helsingin Sanomat reported last year that the number of housing benefit recipients has risen over the past roughly one-and-a-half decades by 20 per cent to 820,000. The Social Security Institution of Finland (Kela), in turn, revealed that spending on housing allowances rose to an all-time high of 1.7 billion euros in 2015.

The Finnish government has acknowledged the concerns that the up-tick in housing allowance spending is benefiting primarily lessors rather than the recipients. In April, it cited such concerns as the main reason for re-instating a square metre-based cut-off point for rents for calculating housing benefits.

The cut-off point had been abolished in 2015.

VATT examined the effects of housing allowances on rents by taking advantage of certain characteristics of the housing allowance system that was in place in 2015. Housing allowances were at the time calculated progressively based on the floor area of the house, with the cut-off point for rents being higher for a 30-square metre flat than for a 31-square metre one.

Eerola and Teemu Lyytikäinen, a senior researcher at VATT, argue that their study provides clear evidence that differences in the cut-off point have no impact on the relative rents of allowance recipients.

They also warn against drawing too far-reaching conclusions based on the findings.

The findings, for example, provide no indication of whether or not the housing allowance system in itself has contributed to the increase in rents, according to Eerola and Lyytikäinen.

The study focused particularly on housing allowance recipients living in privately-owned small flats in large cities. With the square metre-based cut-off point being binding for over 80 per cent of such allowance recipients, the differences in the cut-off point had a notable impact on the allowances.

The research data were obtained from the database of the Social Security Institution of Finland (Kela). The data cover all housing benefit recipients between 2008 and 2013.

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