DP18996 The inefficiency of tied subsidies: Evidence from UK public housing
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.
