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The inefficiency of tied subsidies: Evidence from UK public housing
CEPR
2024.04.17
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.