Housing Standards 2002/03: Financial Affordability and Attitudes towards Housing

3. Critical analysis of state expenditures for housing

3.2 Efficiency and effectiveness of state housing expenditures in the Czech Republic

Figure 2 shows households living in regulated rental housing as a percentage of the total number of households in individual categories according to the total household income, or more precisely, total household income per consumption unit. Our data source was the FBS 2001 weighted data; we excluded all households that declared a higher rent than the maximum regulated rent in the given size of place of residence. The number of consumption units depends on the composition of the household and the age of the children: a consumption unit equals 1.0 for a head of household; 0.5 for children between 0 and 13 years of age, and 0.7 for all other household members.

As is clear from Figure 2, rent regulation is almost equally distributed among "wealthy" and "poor" households: almost 10% of the wealthiest Czech households (according to income per consumption unit ranked in the 10^th decile of the income distribution) live in the regulated rent sector and this percentage is not significantly lower than the percentage of the poorest households (10.6% according to household income per consumer unit in the 1^st decile of the income distribution).

The following figure (Figure 3) shows the distribution of the total hidden subsidy from rent regulation, defined as the difference between the equilibrium market value and the current regulated rent price, again according to the total household income, or more precisely, the total income per consumption unit. In preparing the figure we used the lowest value of the interval of estimation (see Table 2, i.e., approximately CZK 5 billion).

The hidden subsidies far from the only support that benefits households with the highest income, and therefore it is hard to justify with respect to its effectiveness. According to expectations and experience from the EU countries, and based on the calculations and estimates of the Ministry of Finance of the Czech Republic, the distribution of fiscal benefits following from the possibility of deducting the interest paid on construction savings credit or mortgage credit also clearly benefits especially the highest-income tax payers (Figure 4).

By definition, the housing allowance is an income-tested benefit and is calculated according to the net household income (or more precisely according to the household living minimum). That explains the varied distribution of the housing allowance among households with different income levels (Figure 5).

The low take-up, i.e., the fact that the number of actual applicants is much lower than the number of entitled applicants, is a great problem of this benefit. This problem was addressed in a study by Mareš (2001): "Generally, we speak about 'non-take up of social security benefits' as an indicator of one form of the crisis of effectiveness of the welfare state - the crisis being that the welfare policy does not achieve its goals." (Mareš 2001: 3). According to data contained in the study, less than 40% of all entitled households applied for the housing allowance in 1996; similarly, approximately 60% of respondents in a 1999 representative IVVM survey who were entitled to the housing allowance have not or do not apply for the allowance, do not collect it, or do not even begin the application process. Among reasons for this, Mareš states relatively generic problems concerning all social benefits: values preventing people from becoming dependent on social benefits, a rational calculation of the contribution in view of the costs related to the application process, a lack of information, an attempt to avoid stigmatisation, and a lack of skills (Mareš 2001: 12). In our opinion, there is another important and specific factor related to the housing allowance, and that is that the setting of the benefit is completely inappropriate, and therefore its effectiveness is very low.

Based on simulations using the 2001 Family Budget Survey data, Figure 6 shows what the sum allocated for the housing allowance among households according to their total net income or the total income per consumption unit would be if all the entitled households exercised their right to the housing allowance pursuant to the legally defined conditions.

The distribution of the total benefit amount among households with various housing cost-to-income ratio (the 1^st decile corresponds to a low ratio, 10^th decile to a high ratio) is shown in Figure 7 (in this comparison, it is not important whether the income and costs are recalculated per consumer household unit or not). It becomes clear that the targeting of the housing allowance on households with a higher housing cost burden measure is insufficient because, for example, 5% of the total amount of the housing allowance would be potentially distributed among households with the lowest housing cost-to-income ratio (1^st decile). It is necessary to draw attention to the fact that focusing on households with a high ratio is the main objective of the housing allowance in developed EU countries; the targeting according to the household income is a by-product. Let us also note that the current housing allowance is no help at all to households living in the market rental sector because those usually generate an income higher than the 1.6 factor of the living minimum (otherwise they could not be living in this sector); their housing costs and therefore the resulting ratio can, however, be much higher than is the case among many low-income households.

Figure 8 is the first attempt in the Czech Republic to capture the distribution of the state social support for housing in the Lorenzo curve. In view of the fact that a large portion of the benefits is not contingent upon ascertaining the applicant's income, and therefore income cannot be ascertained even from other alternative sources, the figure contains only the following types of distributions: a distribution of the housing allowance, a distribution of the fiscal support following from the possibility of deducting interest paid on a construction savings credit or mortgage credit from the tax assessment basis, and the distribution of the hidden subsidy following from rent regulation.