Designing housing benefits: An application with french data

Housing policy is a vital part of French social policy. The Government earmarks an annual amount of almost €41 billion (1.9% of GDP) for housing, €18 billion of which is spent on individual housing benefits. The purpose of these benefits is to directly subsidise spending on housing by the poorest households and they are now pivotal to the housing policy. In recent years however, these benefits have been subjected to a certain amount of criticism. On one hand, they contribute to higher rents with owners appropriating a significant proportion of the amounts paid out (between 70% and 100%). On the other, their poor coordination with other social benefits, in particular, the social inclusion benefit (Revenu de solidarité active - RSA) and the earned income tax credit (Prime pour l'emploi - PPE), strongly reduces back-to-work incentives for low-income households. Returning to the employment market means not only losing part of housing benefits but also less RSA and PPE. As an example, an additional €100 of wages causes a loss of €73 in benefits, giving ultimate disposable income of a mere €27. Although housing benefits are, at least in theory, contingent on renting accommodation, as they currently stand, they function in a similarmanner to the RSA and PPE. Thismeans that they are more like a support measure for the poorest households. We advocate combining these three benefits into a single one for low-income households. While respecting the budgetary constraints of the current system, and by striving to mitigate wide-reaching redistributive effects, we set out the scale for this new benefit and simulate its redistributive effects using the French tax and benefit microsimulation model, TAXIPP. All persons aged over 18 would be entitled to this new benefit, except for students and over-64 year olds. Housing benefits would not be axed for these groups but reallocated to fund student housing and the minimum old-age pension. The basic amount of this benefit would provide a minimum of €624 per month to a single person with no earned income. Additional amounts per zone, equivalent to current additional amounts, would be added to this basic amount. There would also be additional amounts to factor in the household's composition. With this scale, the proportion of income that could be combinedwith the newbenefit would be 68%. In otherwords, for an additional €100 of earned income, the amount of the benefit would be cut by around €32, meaning that total net income would increase by €68. The redistributive effects of this reform are relatively moderate with a net gain for households in the first four income deciles and a loss of less than 1% of disposable income for the other income deciles. The combination of three social benefits being put forward here represents the first step towards better integration of our tax and benefit systemand would lead, for a limited cost, to the renewed effectiveness of assistance to those on low income and while making work pay more.