Do housing allowances increase rents? Evidence from a discrete policy change

Abstract

This paper exploits a natural experiment created by a 2005 policy change to New Zealand's Accommodation Supplement (AS) to examine the extent to which an increase in housing subsidies increased rent. The policy change created a new AS-zone around central Auckland, with higher subsidy maxima for residents within the zone. Using administrative data on AS recipients on either side of the new zone boundary, we estimate that average support was $6.80 per week higher inside than outside the boundary in the second year after the policy change, and about one-third ($2.44) passed through to higher rent. The impacts were concentrated among families with children and, consistent with the policy changes, among higher quantiles of the rent distribution. The results imply the marginal propensity to spend on housing is about 0.35, and the elasticity of housing expenditure with respect to income is about 0.55.