Housing allowance and the perverse theory of housing outcomes

Abstract

ABSTRACT This paper challenges economic theory applied within empirical literature on housing allowances for rent. The arguments challenged are (i) subsidy is a price drop, which increases demand, (ii) allowance is income, where housing is a normal good, which raises demand, (iii) higher subsidy increases willingness to pay more for housing, and (iv) allowance incentivises optimal consumption to their highest achievable value. In practice, tenants remain unaware of price discounts for the distribution of rents, rendering revealed preference/demand theory inconsistent. Not incomes, allowances (in New Zealand) unfold as a(regressive) negative income and wealth tax unique to each recipients resources.