Housing Allowance and the Rent of Low-income Households

This paper analyses the effect of a housing allowance programme on the rent paid by assisted low-income households. The data consist of 12,000 rental households in the free-market and municipal sectors. The effect is estimated using the programme reform of 2002 as an instrument. The reform increased the allowance of the assisted households depending on housing characteristics, but it had little effect on the eligibility. Results suggest that in the private sector, one additional euro of allowance increases the rent of claimants by 60-70 cents. The effect is zero in the municipal sector, as rents are tied to the housing costs.