Housing allowance, housing consumption and lock-in effects:
Evidence from a natural experiment
This paper addresses the impact on housing consumption of a decrease in the housing allowance paid to single-parent recipients living in rental apartments. We take advantage of a limit on recipient dwelling size, imposed in Swedish housing allowance reform in 1996–1997, that arguably comes close to constituting a natural experiment. Data for this study were extracted from the Swedish National Insurance Agency’s database on housing allowance recipients, which comprises data previously unavailable for research. The present results suggest that tying housing allowances to housing conditions indeed affects housing consumption. The objective of housing allowances is to induce households to move into better housing, thereby increasing their housing consumption. However, the constraint on dwelling size instead seemed to create a lock-in effect, i.e., the size limit increased the likelihood of a household experiencing overcrowding instead of inducing households to move into better, larger housing.
Keywords: Housing allowance; Housing consumption; Lock-in effect; Overcrowded housing