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Supply-Side Subsidies

Supply-side subsidies provide assistance to producers or suppliers. Supply-side housing subsidies go to the suppliers of housing, such as home builders or landlords. They are sometimes called object subsidies and contrasted with subject subsidies. As such they are viewed as assistance that goes to buildings instead of to individuals. Subsidies to individuals are called subject subsidies or demand-side subsidies. Supply-side subsidies have been used throughout the world to encourage home building and housing investment and in particular to encourage the provision of housing to low-income households. There is an ongoing debate about the relative merits of supply-side subsidies and demand-side subsidies or subject subsidies. This debate is germane to the policies that governments adopt in an attempt to achieve their housing objectives. This discussion is not confined to any one country. The different forms of housing subsidies are used in most countries.

Form of the Subsidy

The assistance provided by supply-side subsidies may take any of several forms. Often, it is a cash grant or a tax concession from central or local governments. If the subsidy takes the form of a tax incentive, then it will amount to a tax expenditure rather than appear in public accounts as a direct government expenditure. It might also come in the form of a concession attached to a loan. This could mean that the loan is at a lower interest rate or for a longer time period than would be available in the open market. The loan might come directly from government or a government agency, or it might be provided by a bank or other commercial financial institution as a result of a government initiative.

The subsidy can also be provided through land being made available to a housing provider at submarket prices or even at zero cost. The land provided has sometimes been previously in public ownership. Thus, land owned by a government department might, for example, be given at low cost to an affordable-housing provider. In many countries, however, the land provided has in recent decades also come from private owners. In this case, the subsidy may be defined as a cross-subsidy as the direct costs are met by a market provider rather than government. However, the market provider is not typically acting in a philanthropic fashion. Rather, the provision of low-cost land is a condition of a market sector developer being granted permission to build dwellings on a given plot of land. In the United States, this activity is referred to as inclusionary zoning and in western Europe as affordable housing through planning. The details of the processes differ between countries, but the aim is similar. It is to reduce the cost of affordable housing without government spending money. Rather, government uses land use planning regulations to bring about a cross-subsidy from a private party to the provider of low-cost housing intended for low-income households. In this case, the subsidy is a cost to the private developer rather than government.

Purposes

The purposes of supply-side housing subsidies have varied over time and between countries. In the aftermath of World War II, the housing shortage in Europe was a prime concern for governments. Supply-side subsidies were used to increase housing production in an attempt to create more dwellings to meet severe housing needs. Home building became a highly subsidized activity. By the 1970s, several European governments had shifted the policy emphasis from increasing the quantity of housing to improving the quality of housing. Supply-side subsidies were then used increasingly to tackle specific issues of physical quality such as ensuring minimum standards of safety, sanitation, and heating. As concerns with improving the quality of neighborhoods and dwellings strengthened in the subsequent decades, supply-side subsidies broadened to support neighborhood regeneration. More recently, concerns have focused on improving the standards of a residual of poor-quality dwellings and addressing environmental issues, especially energy usage. Thus, subsidies have been available, for example, to improve heating systems and to make houses better insulated. In some countries, supply-side subsidies have been used in attempts to support mixed-income and mixed-tenure neighborhoods. This is a response both to older large mono-tenure social housing estates and to market-led agglomerations of high-income homeownership estates. In short, supply-side housing subsidies have a wide range of objectives including increasing housing quantity and quality and reducing consumer costs, as well contributing to broad social and environmental goals.

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