Welfare Housing

The Rationale for Public Housing

In recent decades a greatly improved understanding of the functioning of real-world housing systems has significantly undermined the rationale for government supply of housing. The basic justification for direct provision of housing is the belief that market-oriented housing systems fail to efficiently supply housing. However, there are some scholars who suggest that this belief is not well founded.

For example, in the market-oriented United States, the quality of the housing stock has increased closely in line with the rising American standard of living and the concomitant increase in the demand for good-quality housing, as predicted by economic theory. America's high standard of living is reflected in perhaps the world's highest housing standard.

It needs to be stressed here that dramatic qualitative improvements have occurred in all segments of the U.S. housing market, even the lowest. Specifically, the share of substandard housing fell from about 50 percent of the total housing stock in 1940 to six percent by 1980 and has continued to improve. Major improvements have occurred in all regions and urban areas. Improvements were particularly large during the 1960s, a period of rapid economic growth and rising incomes for the poor. Between 1960 and 1970, the number of occupied substandard dwellings fell by 43 percent in the United States as a whole, and by over 54 percent in central cities within metropolitan areas. Major declines were recorded for the 50 largest American cities without exception.

A related argument supporting government housing is that public, not-for-profit producers will be more efficient at constructing and managing housing than private, profit-motivated developers. However, the vast housing literature reveals that in neither the planned housing sectors of eastern nor of Western Europe has the promotion of public housing producers resulted in supplying housing at low economic cost.

For example, the World Bank in about 1990 undertook a major cross-country study of housing construction costs. This study revealed that some of the highest construction costs were to be found in the tightly planned housing sectors of the European welfare states. For example, construction cost per square meter for Finland was $1,734; for Sweden, $1,527; for Norway, $1,426; for Germany, $1,305; for Austria, $1,215; for the Netherlands, $997; and for France, $990. In contrast, the corresponding figure for the market-oriented United States was $500.

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