The Effectiveness of Housing Allowance in Welfare States

251 Pages·2013·2.1 MB·English

Jung, Min Ah (2013) The effectiveness of housing allowance in welfare
states: a comparative study in the United Kingdom, the Netherlands,
Sweden and South Korea. PhD thesis.

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The Effectiveness of Housing Allowance in Welfare States:
A Comparative Study in the United Kingdom,
the Netherlands, Sweden and South Korea

Min Ah Jung

Submitted in fulfilment of the requirements for the Degree of PhD

School of Social and Political Sciences
College of Social Sciences

University of Glasgow

October 2013
Abstract

The financial burden arising from expenditure on housing is associated with the income
and housing problems of low-income households. This research examines the effectiveness
of housing allowance in solving these problems and thus achieving social and housing
policy objectives, i.e. improving income maintenance, enhancing housing affordability and
providing work incentives. It also explains how the various institutional features of
housing allowance systems make changes in achieving different policy objectives. Taking
into account the fact that housing allowance programmes operate alongside other
institutions of the welfare state that vary among countries, this research compares the
effectiveness of housing allowances in the United Kingdom, the Netherlands, Sweden and
South Korea using five indicators−Residual income after rent payment, Poverty rate, Rent
to Income Ratio, Income Replacement Ratio and Effective Marginal Tax Rate.

The findings show that housing allowance is an effective policy instrument across
countries in the following ways. First, it contributes to the improvement in residual income
after housing costs and the decrease in poverty rates among low-income tenants. Second,
the housing allowance reduces the financial burden arising from expenditure on rent. Third,
in contrast to the positive effects of housing allowances in improving income and housing
problems, their provision as part of in-work benefit relates to the increase in work
disincentives indicating the higher possibility of working-poor tenants being trapped in
unemployment and poverty. Fourth, despite variations in the features of the welfare and
housing regime, the design of the benefit arrangement explains many of the differences in
the effectiveness of housing allowance in the four countries. Fifth, subsidising a great share
of housing costs is an important factor related to the improvement in income maintenance
and housing affordability. Sixth, basing the provision of housing allowance on actual rent
is also essential in solving the income and housing problems of low-income tenants.

Findings relating to the institutional feature of housing allowance are the basis for the
recommendation that the Korean housing allowance system should be reformed to reflect a
household‘s actual need.
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Table of Contents

Abstract .................................................................................................................................. 2

Table of Contents ................................................................................................................... 3

List of Tables.......................................................................................................................... 5

List of Figures ........................................................................................................................ 8

Acknowledgement.................................................................................................................. 9

Declaration ........................................................................................................................... 10

Glossary of Abbreviations ................................................................................................... 11

Chapter 1. Introduction ........................................................................................................ 12
1.1 The Interest of Research ............................................................................................. 12
1.2 Terminology of Housing Allowance .......................................................................... 14
1.3 The Aim and Question of Research ........................................................................... 14
1.4 The Structure of Thesis .............................................................................................. 16

Chapter 2. Housing and Welfare: Regime, Housing Allowance and Issues of Income and
Housing in Welfare States .................................................................................................... 17
2.1 Housing, Welfare State and Regime Typology .......................................................... 17
2.2 Housing Allowance as Part of Housing or Welfare System ...................................... 21
2.3 Issues of Income Poverty, Housing Affordability and Work Incentives.................... 26

Chapter 3. Research Method and Framework ...................................................................... 40
3.1 Comparative and Quantitative Approach ................................................................... 41
3.2 Research Indicators .................................................................................................... 47
3.3 Independent Variables: Household Characteristics .................................................... 57
3.4 The Use of Data .......................................................................................................... 59

Chapter 4. The Effectiveness of Housing Allowance for Tenants in the United Kingdom . 62
4.1. The Development of National Support for Housing Costs in the UK ....................... 62
4.2 The Design of Housing Allowance for Tenants in the UK ........................................ 70
4.3 The Analysis of Housing Allowance Effects on Tenants in the UK .......................... 74
4.4 Summary .................................................................................................................... 93

Chapter 5. The Effectiveness of Housing Allowance for Tenants in the Netherlands ........ 96
5.1. The Development of National Support for Housing Costs in the Netherlands ......... 96
5.2 The Design of Housing Allowance for Tenants in the Netherlands ......................... 100
5.3 The Analysis of Housing Allowance Effects on Tenants in the Netherlands .......... 103
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5.4 Summary .................................................................................................................. 125

Chapter 6. The Effectiveness of Housing Allowance for Tenants in Sweden ................... 128
6.1. The Development of National Support for Housing Costs in Sweden .................... 128
6.2 The Design of Housing Allowance for Tenants in Sweden ..................................... 131
6.3 The Analysis of Housing Allowance Effects on Tenants in Sweden ....................... 136
6.4 Summary .................................................................................................................. 155

Chapter 7. The Effectiveness of Housing Allowance for Tenants in South Korea............ 157
7.1. The Development of National Support for Housing Costs in S. Korea .................. 157
7.2 The Design of Housing Allowance for Tenants in S. Korea .................................... 162
7.3 The Analysis of Housing Allowance Effects on Tenants in S. Korea...................... 166
7.4 Summary .................................................................................................................. 185

Chapter 8. Comparing the Effectiveness of Housing Allowance for Tenants ................... 188
8.1 The Design of Housing Allowance for Tenants in the Four Countries .................... 188
8.2 Improvement in Income Maintenance of Low-Income Tenants .............................. 197
8.3 Reduction in Housing Affordability Problem of Low-Income Tenants ................... 203
8.4 Changes in Work Disincentives of Low-Income Tenants ........................................ 206
8.5 Summary .................................................................................................................. 211

Chapter 9. Conclusion ........................................................................................................ 213
9.1 The Review of Research ........................................................................................... 213
9.2 Recommendations for the Korean Housing Allowance System .............................. 221

Appendices ......................................................................................................................... 227

Bibliography ....................................................................................................................... 233

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List of Tables

Table 2.1 Housing Allowance Scheme in Welfare States.................................................... 24
Table 2.2 Measurement of Residual Income after Housing Costs ....................................... 31
Table 3.1 Social Protection and Rent Allowance Shares of GDP (%)................................. 46
Table 3.2 Dwelling Stocks and Population by Tenure Types in the Four Countries (%) .... 47
Table 3.3 Research Indicators .............................................................................................. 48
Table 3.4 Measurement of Residual Income after Housing Cost ........................................ 50
Table 3.5 Comparison of Different Poverty Thresholds for Couple with Two Children .... 51
Table 3.6 Measurement of Poverty Rate .............................................................................. 51
Table 3.7 Measurement of Rent to Income Ratio ................................................................ 53
Table 3.8 Measurement of Income Replacement Ratio ....................................................... 54
Table 3.9 Measurement of Effective Marginal Tax Rate ..................................................... 56
Table 3.10 Income Tax, Social Security Contribution and Average Gross Earning of Single
Adult (2011) ......................................................................................................................... 56
Table 3.11 Independent Variables by Household Characteristics ....................................... 57
Table 4.1 HB Recipients by Tenant Tenure and Means-tested Benefit Entitlement in the
UK ........................................................................................................................................ 68
Table 4.2 Average Weekly HB and Eligible Rents for HB in the UK (£) ........................... 69
Table 4.3 Housing Cost Subsidies by Tenure Types in the UK .......................................... 71
Table 4.4 Deduction for HB in the UK (2012-2013) ........................................................... 72
Table 4.5 Applicable Amounts for HB in the UK (2012-2013) .......................................... 73
Table 4.6 Indictors of Housing Allowance Effectiveness in Section 4.3............................. 74
Table 4.7 Income, Rents, Housing Allowance of Tenant Recipients in the UK (£, 2006-07
price) .................................................................................................................................... 75
Table 4.8 Poverty Rate before and after Housing Cost Expenditures in the UK (%) .......... 76
Table 4.9 Financial Burdens for Housing Cost Expenditures in the UK (%) ...................... 76
Table 4.10 Changes in Residual Income after Rents by Housing Allowance in the UK (£,
2006-07 price) ...................................................................................................................... 77
Table 4.11 Changes in Poverty Rates by Housing Allowance in the UK (%) ..................... 80
Table 4.12 Changes in Rent to Income Ratio by Housing Allowance in the UK (%) ......... 83
Table 4.13 Work Disincentives of Housing Allowance Recipients and Non-Recipients in
the UK (%) ........................................................................................................................... 87
Table 4.14 Changes in Income Replacement Ratio by Housing Allowance in the UK (%) 88
Table 4.15 Changes in Effective Marginal Tax Rate by Housing Allowance in the UK (%)
.............................................................................................................................................. 91
Table 5.1 Standard Rent Table by Household Type and Income in the Netherlands (€, 2007)
............................................................................................................................................ 101
Table 5.2 Standard Rent Formula Coefficients by Household Type in the Netherlands
(2008) ................................................................................................................................. 101
Table 5.3 Indictors of Housing Allowance Effectiveness in Section 5.3........................... 104
Table 5.4 Income, Rents and Housing Allowance of Tenant Recipients in the Netherlands
(€, 2006 price) .................................................................................................................... 105
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Table 5.5 Poverty Rates before and after Housing Cost Expenditures in the Netherlands (%)
............................................................................................................................................ 105
Table 5.6 Financial Burden for Housing Cost Expenditures in the Netherlands (%) ........ 106
Table 5.7 Changes in Residual Income after Rents by Housing Allowance in the
Netherlands (€, 2006 price) ................................................................................................ 107
Table 5.8 Changes in Poverty Rates by Housing Allowance in the Netherlands (%) ....... 110
Table 5.9 Changes in Rent to Income Ratio by Housing Allowance in the Netherlands (%)
............................................................................................................................................ 113
Table 5.10 Work Disincentives of Housing Allowance Recipients and Non-Recipients in
the Netherlands (%)............................................................................................................ 117
Table 5.11 Changes in Income Replacement Ratio by Housing Allowance in the
Netherlands (%) ................................................................................................................. 118
Table 5.12 Changes in Effective Marginal Tax Rate by Housing Allowance in the
Netherlands (%) ................................................................................................................. 122
Table 6.1 Non-Pensioner Households Receiving Housing Allowance in Sweden ............ 130
Table 6.2 Housing Allowance Arrangement for Non-Pensioner Household in Sweden ... 132
Table 6.3 Indictors of Housing Allowance Effectiveness in Section 6.3........................... 136
Table 6.4 Income, Rents and Housing Allowance of Tenant Recipients in Sweden (SEK,
2006 price) ......................................................................................................................... 137
Table 6.5 Poverty Rates before and after Housing Cost Expenditures in Sweden (%) ..... 138
Table 6.6 Financial Burden for Housing Cost Expenditures in Sweden (%)..................... 138
Table 6.7 Changes in Residual Income after Rents by Housing Allowance in Sweden (SEK,
2006 price) ......................................................................................................................... 139
Table 6.8 Changes in Poverty Rates by Housing Allowance in Sweden (%) .................... 142
Table 6.9 Changes in Rent to Income Ratio by Housing Allowance in Sweden (%) ........ 145
Table 6.10 Work Disincentives of Housing Allowance Recipients and Non-Recipients in
Sweden (%) ........................................................................................................................ 149
Table 6.11 Changes in Income Replacement Ratio by Housing Allowance in Sweden (%)
............................................................................................................................................ 150
Table 6.12 Changes in Effective Marginal Tax Rate by Housing Allowance in Sweden (%)
............................................................................................................................................ 153
Table 7.1 Public Rental Housing in S. Korea (2010) ......................................................... 161
Table 7.2 The Minimum Cost of Living and the NBLS Benefit Cap in 2012 (KRW) ...... 163
Table 7.3 Monthly Deduction of Housing Benefit for Owner-Occupiers in 2012 (KRW)163
Table 7.4 The Number of NBLS Recipients from 2001 to 2010 ....................................... 165
Table 7.5 Indictors of Housing Allowance Effectiveness in Section 7.3........................... 166
Table 7.6 Incomes, Rents and Housing Allowance of Tenant Recipients in S. Korea (000
KRW, 2007 price) .............................................................................................................. 167
Table 7.7 Poverty Rates before and after Housing Cost Expenditures in S. Korea (%) .... 168
Table 7.8 Financial Burdens for Housing Cost Expenditures in S. Korea (%) .................. 168
Table 7.9 Changes in Residual Income after Rents by Housing Allowance in S. Korea (000
KRW, 2007 price) .............................................................................................................. 169
Table 7.10 Changes in Poverty Rates by Housing Allowance in S. Korea (%) ................ 172
Table 7.11 Changes in Rent to Income Ratio by Housing Allowance in S. Korea (%) .... 175
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Table 7.12 Work Disincentives of Housing Allowance Recipients and Non-Recipients in S.
Korea (%) ........................................................................................................................... 179
Table 7.13 Changes in Income Replacement Ratio by Housing Allowance in S. Korea (%)
............................................................................................................................................ 180
Table 7.14 The Effective Marginal Tax Rate of HA Recipients in S. Korea (%) ............. 183
Table 8.1 Housing Allowance Recipient Share of Population in the Four Countries (%). 189
Table 8.2 Design of Housing Allowances for Tenants in the Four Countries ................... 195
Table 8.3 Income Distribution and Income Maintenance by Social Security System in the
Four Countries .................................................................................................................... 195
Table 8.4 Current Situation of Housing Allowances for Tenants in the Four Countries ... 197
Table 8.5 Changes in the Residual Income after Rents and Poverty Rates by Housing
Allowance in the Four Countries ....................................................................................... 198
Table 8.6 Changes in Rent to Income Ratio by Housing Allowance in the Four Countries
............................................................................................................................................ 203
Table 8.7 Changes in Work Disincentives by Housing Allowance in the Four Countries 207
Table 8.8 Income Tax and Social Security Contribution of Single Adult in the Four
Countries ............................................................................................................................ 209
Table A.1 Summary of Dataset .......................................................................................... 227
Table A.2 Housing Benefit Expenditures by Tenure in the UK (£ million, Real Terms,
2012/13 Prices) .................................................................................................................. 228
Table A.3 Changes in Poverty Rates by Housing Allowance in the UK (%) .................... 229
Table A.4 Changes in Poverty Rates by Housing Allowance in the Netherlands (%) ...... 230
Table A.5 Changes in Poverty Rates by Housing Allowance in Sweden (%) ................... 231
Table A.6 Changes in Poverty Rates by Housing Allowance in S. Korea (%) ................. 232

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List of Figures

Figure 3.1 Research Framework .......................................................................................... 40
Figure 3.2 Target of Analysis according to Indicators ......................................................... 58
Figure 4.1 Housing Benefit Expenditure, with and without Reforms (in cash terms) ......... 70
Figure 5.1 Housing Allowance Recipients in the Netherlands (2008) .............................. 100
Figure 5.2 Housing Cost Subsidisation Rates by Household Type in the Netherlands (2010)
............................................................................................................................................ 102
Figure 6.1 Pensioners Receiving Housing Supplement as a % of Total Pensioners in
Sweden (2008) ................................................................................................................... 131
Figure 7.1 The NBLS Livelihood Benefit and Housing Benefit before and after 2008 .... 164
Figure 7.2 Households Receiving the NBLS Benefit in S. Korea ..................................... 165

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Acknowledgement

I would like to thank staff and PhD students for their academic support during the long
PhD study period in Urban Studies, and thank the College of Social and Political Sciences
at University of Glasgow.

Above all, special thanks go to Professor Mark Stephens at Heriot-Watt University and
Professor Kenneth Gibb at University of Glasgow. Throughout their support,
encouragement and astute critical feedback for the PhD supervision, they have helped me
make this thesis what it is.

I would like to thank Jie Chen and Guido van Steen for giving me valuable advice for the
choice of national dataset.

Thanks to Lars Ludin for providing office space and help and advice during my research
visit to the Institute for Housing Research, Uppsala University in Sweden.

I would personally like to express my gratitude to my parents, Gwang-Sub Jung and Sa-
Geun Kim who have supported me with their love over the whole period this thesis of my
research. I would also like to thank all other family members, especially my sister, Hyun-
Ah Jung and her husband, Seung-Pyo Park and my lovely nephew Se-young Park for their
love and support. Thanks to my friends, in particular Jeong-In Kim who has supported me
with her kindness.

Finally, but certainly not least, a special thank to my almighty god who leads me and is
always with me.

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