Housing Vouchers

A Comparative International Analysis

E. Jay Howenstine

• Publisher: Routledge
• Year: 2017
• eBook ISBN: 9781351514866
• Topic: Politics & International Relations
• Subtopic: Social Policy
• Index: Politics & International Relations

Outside the United States, the idea of a consumer housing subsidy is a highly developed concept. Housing allowances, shelter allowances, rent allowances - or rent rebates as they are called - have been paid out on a larger scale for longer periods of time on an entitlement basis, with a much greater variety of rationales than in the United States. As the United States moves ahead with its demonstration program, it is timely to examine and evaluate foreign experiences with the consumer housing approach.E. Jay Howenstine addresses common questions that have puzzled many policymakers: How do consumer housing subsidies work? For tenants? Homeowners? Builders? And government officials? Gathered here is the definitive experience of the countries that have employed them. From Australia to the United Kingdom, here is the reality gleaned from a dozen countries and brought to bear on the United States. Both the virtues and the limitations of the approach are presented in detail for everyone interested in housing.This study is divided into three major parts. First, Howenstine reviews the historical background and analyzes housing allowance strategies that foreign governments have adopted. A second part examines in detail the major principles and elements with which governments have fashioned their systems. The third part examines the impact of housing allowance systems and weighs them in the light of the original objectives. Conclusions are also drawn about foreign experiences: Should financial assistance to low-income families be in the form of consumer housing subsidies or producer housing subsidies, or some synthesis of the two systems? Should the housing allowance be maintained as a separate housing policy, or should it be integrated into a general income maintenance policy? This book addresses an increasingly prominent portion of the housing market.

Building a Program

3

Defining Individual Housing Need: Dimensions of a Reasonable Housing Allowance System

Introduction

In most European countries national social policy regards housing as a basic social service, comparable, for example, to education and health. Accordingly, if the family is unable to afford the cost of decent accommodations, the state is deemed to have an obligation to provide housing at a subsidized price. This principle has four main dimensions, all of which involve issues of moral judgment.

First, how much can a family afford to pay? That is, what percent of its income can a family be fairly expected to pay for its housing? Second, at what level of income can a family be reasonably expected to pay the full costs of its housing? Third, what does decent housing cost? That is, what are the essential ingredients in minimum standard housing? Fourth, how much of the gap between the actual rent (for presumably minimum standard housing) and the rent that the family can be expected to pay should be subsidized by the government?

While there is a large area of consensus among governments on these issues, there are also wide differences that are important from a policy viewpoint. This chapter reviews these differences and their rationales.

Shelter-to-income Ratio (SIR)

The percentage of family income that can be expected to be paid for rent is a highly subjective matter. What might be reasonable in one country or one region at a particular time may be quite different in another country or region, and may in fact change substantially in the same country over a period of time. While no attempt will be made to analyze the social, psychological, economic, and political determinants, several major factors impinging on the concept of reasonableness may be noted in a preliminary overview. These observations relate only to highly industrialized countries.

The first factor is the level of economic development: the higher the level of economic development, the higher tends to be the shelter-to-income ratio (SIR); the lower the level of economic development, the lower the SIR. A second closely related factor, and in fact a result of the first factor, is the level of income: the higher the level of income, the higher tends to be the SIR; the lower the level of income, the lower the SIR.¹ These two generalizations have general validity between countries and between families at various income levels within a country. The explanation would seem fairly simple. People in societies with a comparatively low level of economic development and income are forced, as a matter of survival, to spend the bulk of their income on food and clothing. Shelter tends to be low standard, overcrowded, and low cost. As the economic prosperity of the society rises and the minimum essentials of food and clothing are better tended to, there is more leeway in the budget for improvement of shelter. Simultaneously, expectations rise, and the productive capacity of the building industry is growing. As a result, the SIR tends to rise with the increase in the level of economic development and income.

A third factor is the openness and general expansiveness of the society. In societies favored with geographical expanse and abundant natural resources, such as Australia, Canada, and the United States, historically there tends to be a greater accent on individualism, mobility, savings, private property, and capital formation. On the other hand, societies with limited geographical space, such as Western European countries, face land constraints that tend to place greater emphasis on community solidarity, social stability, and social action.

A fourth consideration is the relative importance of the free market. In societies where the market has reigned supreme, shelter tends to be regarded mainly as an individual responsibility. If the family cannot afford decent housing or if the cost of shelter is excessive, that is tough luck; the family—by and large—must care for itself. And in individualistic, open societies with abundant natural resources, historically there has, in fact, been much opportunity for persons to improve their lot through self-help and mutual aid—and incidentally to raise their SIRs. On the other hand, in more closed societies, trade unions and socially oriented groups have organized politically to limit the scope of the free market and to institute comprehensive social policies to protect the working class against abandonment in the free market. If a family cannot afford the cost of decent housing, then it has tended to be viewed as the duty of the state to adopt a social housing program that provides decent housing. Or, if the family actually lives in decent housing but pays an exorbitant rent, then the state tends to be viewed as having a duty to protect the family’s standard of living, first by rent controls, and second by providing a housing subsidy that will make for a more reasonable SIR. Viewing the total institutional situation, therefore, it is not surprising to find that in making ethical judgments about what constitutes a reasonable SIR, Western European countries in fact have a lower average SIR and tend to promulgate a lower SIR than is the case in the generally more open societies of Australia, Canada, and the United States.

During the twentieth century there have been considerable changes in the percentage of family income paid for housing in various countries. Before World War II the proportion of family expenditure devoted to rent in Western European countries ranged widely, from 7.7 percent in Austria to 18.9 percent in Switzerland (Table 2). Some adjustments in these data are necessary to express them in terms of SIRs. Family consumption expenditures constitute between 80 and 90 percent of the family income. In statistically measuring family income,² taxes, savings, social security payments, and gifts are an addition to consumption expenditures. Thus, if these prewar percentages had been expressed in terms of family income rather than in terms of family expenditures, they would have been lower than indicated in Table 2. If one were to generalize about European pre-World War II experience, it would be fair to say that rents were, on the average, around one-tenth of income.³

In non-European industrialized countries, the tradition seems to be different. In Australia, the 1945 Commonwealth and State Housing Agreement established one-fifth as the reasonable proportion of family income that should be paid for rent.⁴ Twenty percent also appears to have long been considered an appropriate standard in Canada.⁵ In the Canadian public housing program, a sliding scale from 16.7 to 25 percent has been used since 1947. With respect to loans for home ownership in Canada, approved lenders under the National Housing Act increased the proportion of income spent on principal, interest, and taxes from 23 to 27 percent in 1957, and from 27 to 30 percent in 1972.⁶ In New Zealand, 25 percent appears to be a general guideline.⁷ The “rule of thumb” for housing in the family budget in the United States has been 20 to 25 percent since the nineteenth century.⁸ Consequently, the average SIR in the non-European industrialized world appears to have been practically double the European level.

TABLE 2
Proportion of Family Expenditures Devoted to Rent and Average Shelter-to-Income Ratios in Industrialized Countries (Percentages)

World War II profoundly affected rent burdens. Western European countries, most of which were directly involved in the war, adopted strict rent controls. By the early postwar period, the percentage of family expenditure devoted to rent declined by one-third to one-half, and in two cases—France and Italy—by 1947 declined to 1.3 and 0.5 percent, respectively (Table 2). In such instances shelter almost acquired the status of a free good!

Notwithstanding government efforts to modify and eventually eliminate rent controls, rent regulations continued in some form in most European countries until the present time. In effect, rent controls became an instrument of social housing policy, supplementing national housing subsidies which had not yet reached the level needed to provide social housing for all those who could not otherwise afford decent homes.

Nevertheless, rents in most European countries did rebound in the postwar period. In fact, interestingly enough, during the 1970s, in most European countries, the average rate of rent increase was even faster than that in the United States, although it lagged behind the average rates of increase in building costs, in per capita incomes, and in the consumer price index.⁹ What is not revealed in these trends, however, is the financial hardship imposed on the minority of renters, particularly low-income and moderate-income households, who were recent entrants in the housing market and who, as a result, were unable to obtain old, low-rent accommodations.

With this broad perspective on SIRs in the industrialized world, it is now appropriate to ask: What is “fair” as applied to the percentage of family income that should be spent on housing? A review of legislative prescriptions reveals a wide variation among governments in their policies concerning this issue (Table 3).

Most governments promulgate a range rather than a single percentage that is reasonable and applicable for households to spend on housing. Two major elements bear on relative household need, the first of which is the level of household income. At very low levels of income, some governments, e.g., France, the United Kingdom, and the Province of Vienna (Austria), place the percentage of income at zero. The belief is that all income is needed for the basic necessities of life, exclusive of shelter. As household income rises above very low levels, in most countries reasonableness is expressed as a progressively higher percentage reaching a maximum limit. In the Netherlands there is a long-standing consensus that the tenant should pay not more than one-sixth to one-sev...

Table of contents

• Cover Page
• Title Page
• Copyright Page
• Contents
• List of Tables
• Preface
• Summary
• The Problem and Its Setting
• Building a Program
• Assessment and Conclusions
• Bibliography on Foreign Experience
• Index