Economic incentives, housing allowance, and housing consumption: An unintended consequence of a shift in housing policy

Abstract

This study investigated whether an imposed dwelling size constraint in the Swedish housing allowance system induced recipients to move into smaller apartments and overcrowded conditions, i.e., an unintended consequence of a housing policy shift. To address this matter, this paper exploits a quasi-experimental dimension of the imposed dwelling size limit by applying the difference-in-difference estimator. Data for this study were extracted from the Swedish National Insurance Board’s database on housing allowance recipients, which comprises data previously unavailable for research. The estimation results suggest that this policy shift induced single-parent households living in rental housing to decrease their consumption of interior space, yielding a statistically significant increase in moves into overcrowded conditions, an effect that is even greater for single parents with one child than for those with two or more children. This effect runs directly counter to two long-term stated goals of the Swedish housing allowance system: (1) to induce households to move into better housing, thereby increasing their housing consumption, and (2) to prevent families with children from living in overcrowded conditions.