Housing Allowance and the Recipient's Homeownership: Evidence from a Panel Data Study in Sweden

Abstract

This paper investigates whether housing allowance affects recipients' tenure choice in Sweden. To answer this question, a two-stage conditional maximum likelihood probit (2SCMLP) model is applied in a panel data setting to simultaneously control for individual heterogeneity, state dependence and endogeneity. The empirical study is based on administrative data of housing allowance recipients living in three major metropolitan areas of Sweden between the years 1994 and 2002. The results indicate that the housing allowance positively affects recipients' homeownership propensity in Sweden. Therefore the worry of a ‘rental trap’ is dismissed within the Swedish housing allowance system. Instead, we conclude that the Swedish housing allowance system is doing a fairly good job in supporting low-income households to obtain and maintain their homeownership. Furthermore, no evidence was found to indicate that the reform of the Swedish housing allowance system in 1996–97 essentially changed this fact.