The distributional impact of housing subsidies in Flanders

Abstract

In this study the distributional effect of housing subsidies in Flanders – the northern region of Belgium – is analyzed. In addition, the mechanisms that lead to this distribution are clarified. The distributive impact is measured by means of the user cost concept and income quintiles. In order to calculate the level of subsidies the actual user cost is compared with a benchmark cost. Regarding tax expenditure, the benchmark is the generally accepted tax system. With respect to owner-occupiers, the subsidies discussed are mortgage tax relief, the reduced VAT rate for renovation, the reduced transfer tax rate and the imputed rent tax reduction. With regard to the rental sector, social housing and housing allowance are the subsidy schemes at stake. The results show that the tax advantages are mainly received by the 40% highest incomes. The reductions on property tax and transaction costs are to a lesser extent directed at higher incomes, since they include a condition of modest housing. The subsidies in the rental sector for the most part go to the two bottom income quintiles. Overall, the average owner-occupier receives four times more subsidy than the average tenant.