The inefficiency of tied subsidies: Evidence from UK public housing

Hans Koster and Edward Pinchbeck

No 18996, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Subsidising housing rents, as opposed to providing untied cash subsidies, distorts consumption choices and may be inefficient. Our study focuses on the UK Right-to-Buy, a policy which has allowed nearly 3 million tenants to purchase subsidised public-housing units at discounted rates since 1980. By utilising tenants' acceptance of purchase grants to bound the benefit obtained from public-housing units, we estimate the policy has generated at least 41 billion pounds in efficiency savings. This equates to approximately 8 to 10% of the value of the public-housing stock and is likely similar in magnitude to the external benefits that arise from increased home-ownership under the policy. Our findings underscore the significance of evaluating the benefits of public housing, and the potential for substantial efficiency losses from tied subsidies.

Keywords: public; housing (search for similar items in EconPapers)
JEL-codes: D04 I38 R21 R28 R31 R38 (search for similar items in EconPapers)
Date: 2024-04
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