Rent Assistance and Housing Demand

1 Tlie authoxs thank paitidpants at a seminar in Konstanz fox theii comments. Reraain-ing eirors are ours. The Cential Bureau of Statistics ptovided the data. Abstract We examine the effect of a rent subsidy program, Rent Assistance, on the demand for rental housing in The Netherlands. Low-income households with a rent that exceeds a norm rent, but is smaller than a maximum rent are eligible for this subsidy, that is equal to a fraction of the difference between the rent and the norm rent. The RA program lowers the marginal price of housing services, but in order to get this price reduction households have to pay an implicit entry fee. To estimate the effect of the program we develop a structural model of housing demand. This model takes account of the partial take-up of the subsidy. We estimate a reduced form that is compatible with the structural model and we test the restrictions that the structural model imposes on the reduced form. We find that if we allow for application costs the structural restrictions are not rejected by the data. We use the model to decompose the observed difference in housing demand into income-, price and preference heterogeneity effects, to examine the effect of application costs and to study the total effect of RA on housing demand.