Allocating housing assistance equitably: a comparison of in-kind versus cash subsidies in New Zealand.

• Author: Waldegrave, Stephen

Abstract

The 1992 housing reforms replaced a mixed system of state housing at income-related rents and a cash subsidy for those with high housing costs (the Accommodation Benefit) with a uniformly applied cash subsidy, the Accommodation Supplement. The housing reforms in the year 2000 reversed this change, reintroducing income-related rents. The key issues this paper addresses are whether the 1992 reforms increased or decreased equity by introducing the Accommodation Supplement, and the implications for equity of the reintroduction of income-related rents in 2000. In the analysis, two types of equity are considered--horizontal and vertical. Horizontal equity requires that those with the same housing need receive the same housing assistance, while vertical equity means that those with more need should receive more assistance. The equity of each housing assistance policy hinges on whether the two groups of housing assistance recipients exhibit the same level of housing need. This paper concludes that state house tenants had higher housing needs in 1992 and that, as a result, the 1992 reforms failed to enhance horizontal equity and instead decreased vertical equity.

INTRODUCTION

In 2000 the newly elected Labour government introduced legislation reinstating income-related rents for New Zealand state house tenants. The change represented a partial overturning of earlier National government reforms that abolished income-related rents and introduced a cash subsidy (the Accommodation Supplement) as the primary form of housing assistance.

This reversal in 2000 of the 1992 housing reforms was criticised by the National opposition on the basis that it would inequitably discriminate between state and non-state tenant recipients of housing assistance by providing the former with more assistance than the latter. Similarly, the National government had argued in 1992 that cash assistance was necessary to address this horizontal inequity, and accordingly replaced income-related rents in 1992 with the Accommodation Supplement. The National government clearly outlined the horizontal equity aims of the reforms:

The objective of the Government's housing reform is clear. That is to provide greater equity in the distribution of state housing assistance. The aim is to ensure that families in similar circumstances with similar needs receive the same level of support. (Shipley 1993) As Campbell (1999) notes, this rhetoric "cast opponents of the new policy as advocates of `special privileges' for state tenants, rather than supporting a `fair go' for all."

This paper investigates whether New Zealand's abolition of income-related rents and the introduction of the Accommodation Supplement in 1992 did, in fact, enhance horizontal equity as its advocates claimed. Horizontal equity, or equal treatment of equals, is defined here as providing equal assistance to "those in equal need" (Musgrave 1976, Musgrave 1990). Vertical equity is similarly interpreted to mean the provision of more assistance to those in more need (Young 1994). If state and non-state recipients of housing assistance were substantively different populations in the sense that their needs differed, then providing both populations with the same assistance does not a priori satisfy horizontal equity. Furthermore, if one group were in more housing need than the other, then reducing the assistance to that group would reduce vertical equity.

TWO HOUSING ASSISTANCE SYSTEMS: TWO APPROACHES TO ACHIEVING EQUITY?

Prior to the 1992 reforms, housing assistance was delivered through a mixed system comprising housing with income-related rents and a cash subsidy for certain beneficiaries. Recipients in "serious housing need" (see Appendix 1 for definition) were able to rent a Housing Corporation of New Zealand (HCNZ) state house at a rent determined by their income (income-related rent). Those with high housing costs, who were not deemed to be in serious housing need, were eligible for cash assistance in the form of an Accommodation Benefit.

The system was based on the idea that it was possible to target the most vulnerable members of society and allocate substantial assistance to them, thereby achieving vertical equity. (2) Horizontal equity would not be affected by this as long as the targeting ensured that those given such special treatment were in more housing need than others who did not qualify.

As mentioned above, the National government's 1992 housing reforms were largely based on the notion that the state housing policy was actually horizontally inequitable because it targeted a certain group and gave them preferential treatment over so many others that were seen to be in similar situations of housing need. As the Social Policy Agency put it:

The system was seen as inequitable because the different conditions applying to the three forms of assistance resulted in significantly more support being given to those receiving subsidised rents than to those receiving cash grants, while other low-income groups received no assistance at all. (Social Policy Agency 1994) The National government housing assistance policy considered state house tenants to be in no more housing need than those previously eligible for the Accommodation Benefit, despite the fact that they had been previously selected because of their serious housing needs via the points system. (3) State tenants lost eligibility for a greater amount of assistance, the money for housing was spread more thinly over both the public and private sectors, and a fiscal saving resulted. (4)

The government introduced the Accommodation Supplement, under which state house tenants and former Accommodation Benefit recipients received a similar cash subsidy, since subsidies were determined by the same eligibility criteria. (5)

EQUITY HINGING ON HOUSING NEED

Table 1 provides a way to assess how in-kind or cash subsidies affect horizontal and vertical equity. For example, the National government's argument that the higher subsidies to HCNZ tenants were horizontally inequitable falls in cell C. Table 1 shows that establishing whether state house tenants were in more need than other housing assistance recipients (i.e. Accommodation Benefit recipients) is critical to establishing which approach was more equitable.

The next step is therefore to find a way to measure whether state house tenants and other assistance recipients were in the same level of housing need or not. It is possible to measure housing need directly or indirectly. "Direct measurement" methods assess whether recipients are in need of housing assistance by looking at their current housing situation; for example, housing conditions, such as whether the roof leaks, are a direct measure of housing need. Indirect measures, on the other hand, identify recipient circumstances, such as family circumstances, average housing costs and incomes, which suggest prima facie that a recipient will be in need of assistance to meet their own housing needs.

Since housing need is about both housing outcomes and the ability to meet housing needs, it seems necessary to employ both direct and indirect measures. This is also consistent with international approaches. Out of four countries--Canada, Australia, the United Kingdom and the United States--not one has attempted to measure housing need using a purely indirect approach. All have used direct indicators, sometimes by themselves and sometimes in combination with indirect ones.

MEASURING HOUSING NEED USING INDIRECT INDICATORS

Indirect indicators of housing need provide some idea of whether state house tenants and Accommodation Benefit recipients were in the same level of housing need prior to 1992. (6) However, a number of things should be kept in mind when interpreting the data on housing need. The first is that the Accommodation Benefit was allocated on the basis of core economic units while HCNZ houses were allocated to households. (7) To make a definitive comparison it would be necessary to standardise units of analysis to control for the different unit sizes. However, because the available information is historical summary data rather than primary figures, it has not been possible to do this.

Family Circumstances

In spite of the above reservations, the data indicate that the family circumstances of HCNZ tenants and Accommodation Benefit recipients tended to differ. Accommodation Benefit recipients were much more likely than HCNZ tenants to be single, male, and have no children (Ministry of Housing 1991:11, 1993a:10, Housing Corporation of New Zealand 1988:80). This is probably at least partially attributable to the fact that...