Housing allowance and rents: Evidence from a stepwise subsidy scheme

Abstract

This paper studies the effect of housing allowance on rents using discontinuities in the Finnish housing allowance system as a quasi-experimental setting. The stepwise dependence of housing allowance on the floor area of the dwelling and the year of construction of the building allows us to isolate the impact of the generosity of housing allowance from other determinants of rents. The discontinuities in the amount of housing allowances at the studied cut-offs are economically and statistically significant. However, our results show that there are no discontinuities in rents of the recipient households at these cut-offs. Instead, differences in the amount of the housing allowance are translated roughly one-to-one into differences in the rent net of housing allowance.