Central government housing grants in England benefit better off property owners
In ‘Capitalization of Central Government Grants into Local House Prices – Panel Data Evidence from England’ the impact of central government grants on local house prices in England using a panel data set of local authorities (LAs) from 2001 to 2008 is explored. Electoral targeting of grants to LAs by the incumbent national government provides an exogenous source of variation in grants that are exploited to identify their causal effect on house prices.
Main findings: grants benefit better off property owners
The researchers Teemu Lyytikäinen, Christian A. L. Hilber en Wouter Vermeulen have found that House prices respond more strongly in locations in which new construction is constrained by physical barriers. The results indicate substantial or even full capitalization. It can be said that:
- during the sample period grants were largely used in a way that is valued by the marginal homebuyer and;
- increases in grants to a LA may mainly benefit the typically better off property owners (homeowners and absentee landlords) in that LA.
Reallocation schemes for redistributing revenues from higher to
lower income areas
Most countries have a system for allocating public funds from
the central (or federal)
government to regional and/or local jurisdictions and for
redistributing revenues from higher to lower income areas.
Reallocation of financial resources among jurisdictions is not just
ubiquitous but also hugely quantitatively important. For example,
in the UK local authorities receive roughly 60 percent of their
funding from central government grants (the remaining funding comes
from the council tax, fees and charges), making LAs highly
dependent on central government decisions. Other more centralized
European countries have similar reallocation schemes.
Support targeted directly towards disadvantaged people
The findings imply that support targeted directly towards disadvantaged people independent of their place of residence could, at least in principle, yield better distributional outcomes at potentially significantly lower costs. Such a reform that “helps people and not places” could contribute towards lessening the fiscal pressures that have been mounting during the ongoing economic and public finance crisis.
Contact info
CPB Netherlands Bureau for Economic Policy Analysis
Van Stolkweg 14
P.O. Box 80510
2508 GM The Hague, the Netherlands
Telephone +31 70 338 33 80
Telefax +31 70 338 33 50
Publication date
February 2011
Document type
Discussion paper - research
ISBN
978-90-5833-493-0
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Reference material
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Report | Capitalization central government grants local house prices
10 Mar 2011, pdf, 738KB