Sociologický ústav AV ČR, v.v.i.

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2001:03 Rent Subsidies in the Czech Republic: A Comparison of Selected Models

Petr Sunega

The focus of this text is a comparison of two selected models of rent subsidies in the Czech Republic. The conclusions that emerge out of this comparison could form the foundation for the development of the future form of this type of subsidy in this country.
In the first part of the study, the reader will find a theoretic description of systems found in selected countries of the EU, as well as the situation in the Czech Republic. This is followed by a section devoted to the methodology of testing and comparing the given models.
The second part of the text is empirically oriented. A micro-simulation model was created with enough flexibility to make it possible to easily change the entire algorithm of the subsidy calculation. With the help of this model, and the use of data from the File of Family Accounts of the Czech Statistical Office, testing and analysis was carried out on a simplified German example, and on the proposal for the concept of the new rent subsidy devised by the Ministry of Labour and Social Affairs in 1999. Another two reference variants emerged through the modification of the presented models. Testing was conducted by setting three different levels of rent. These levels simulated market rents, orientational local rents, calculated in accordance with the methods of the Ministry for Regional Development, and rents at their level in 1997. The study shows that factors such as regional differentiation of maximum rent, respect for the principle of marginal costs, and support for households with a lower number of members are factors of significance in the case of the Czech Republic, and therefore, they ought to be considered when developing the future form of subsidy.

Summary

This paper deals with the issue of housing subsidies, or rent subsidies, with emphasis placed on the specific situation in this area within the Czech Republic. With the approach of rent deregulation, which will introduce a greater burden of expenditure on housing by households, and more of a differentiation in prices on the apartment market, it is important to create a genuinely operative tool for helping to solve the situation of households that without aid from the state would be incapable of managing even adequate housing. The author believes that the present form of housing subsidy in the Czech Republic will be incapable of meeting this demand in the future.
Albeit of great significance, the subsidy itself is nonetheless only one of an entire range of instruments that are used in the area of social policy. As such it has its advantages. However, it must also function in accord with the other elements of the system of state social security, and with the long-term aims of housing policy.
The aim of this work was, on the basis of the simulated operation of two selected models of housing subsidies (the German one, and the Czech working proposal) set at various rent levels, to uncover factors which appear in the case of the Czech Republic to be significant, and on the basis of this, to formulate recommendations for the future form of subsidy in the Czech Republic.
The study confirms the fact that the group under the greatest threat - a group that even today exhibits the highest degree of the burden of expenditure on housing - is made up of single-member households, especially those of senior citizens. As the number of individuals in a household increases, this degree of the burden shows a relatively notable decrease. For this reason, the model settings considered optimal were the ones in which through the influence of the subsidy the actual degree of the burden of single-member households decreased the most, while the degree of the burden for households with a larger number of members decreased less. At the same time, the spread between the values of the actual degree of the burden of expenditure on rent among both of these groups of households narrowed. In this respect, better results were attained when the minimum sum that according to the model for subsidy calculation a household is forced to set aside out of its income in order to cover rent grew with the level of the rent (thus among the models with the normative degree of the burden growing with expenditure on rent).
The comparison of the model with the growing normative degree of the burden (NDB) and the model in which NDB does not change with growing expenditure on rent (and thus is constant) led to results showing that in the second case, i.e. the model with constant NDB, households with higher incomes are advantaged and, conversely, households whose incomes do not exceed a certain limit are disadvantaged. Yet both models were adjusted so that the values of average normative degrees of the burden of households were on the same level. The model setting with constant NDB is logically of greater help to households with higher expenditure on rent, while households that pay the lowest rents are in these conditions at disadvantage.
The comparisons also demonstrated the significance of setting a maximum rent, that is, the highest values of rent that still make it into the subsidy calculation, taking into account regional differences in the average level of rent. If our aim is to decrease the differences between the level of the average actual degree of burden of a household situated in regions with a lower or higher than average level of rent, and if we wish to avoid forcing households to move to regions in which on average less in paid on housing, the maximum rent should pay attention to these regional differentiations.
It also became evident that those model settings in which NDB grows in connection with the level of expenditures are more effective in relationship to the demands placed on the relevant budgets. Again a comparison was made of both models with different NDB curves in connection with expenditures, while the average NDB in both cases was roughly the same.
These are only some of the more important conclusions that were reached through testing the above-mentioned models and their variants. The reader can find additional results in the text itself. On the basis of the conclusions, recommendations were formulated which should be taken into consideration when the new form of rent (housing) subsidy in the Czech Republic is created. The study itself suggests such a model, emerging out of the tested examples. Nonetheless, its formation is a matter of an entire series of thus far unknown factors, the determination of which should form the subject of a broader discussion and ultimately of political sanction.

Key Words

Housing subsidy, rent subsidy, housing, micro-simulation model, model optimalisation