1. Welfare implications of subsidization in the Dutch housing market Frans Schilder 24-06-2010

2. Motive Abundance of subsidies and little study into its effect (i.e. in Dutch context) Compare recent findings using procedure as Rosen (1979) and Poterba (1992) Add impact of home equity in line with Conijn & Schilder (2010)

3. Context: housing market

4. Context: subsidies Owner-occupier - Mortgage interest deductibility - Tax exemption of capital gains / home equity Renter - Housing allowance (low income only) - Regulated rents (implicit subsidy: all renters)

5. Context: subsidies (2)

6. Welfare implications Distorted housing consumption from subsidies Koning et al. (2006): 1 bln (owners only) Romijn & Besseling (2008): 2.75 bln (renters only) Donders et al. (2010): 3.7 – 7.4 bln (all – depending on scenario)

7. Welfare implications (2)

8. Research issues National or regional markets? Estimating demand curve in regulated market Home equity Sample selectivity

9. Data WoON 2006 Cross-section of Dutch households Questionnaire n = 64.005 Data on household characteristics, stated preferences, current consumption etc.

10. Model Heckman two-stage: 1.T j = γ’z j + u j M j = λ i (α u ) = φ(γ’z j / σ u )/Φ(γ’z j / σ u ) 2.Q j = β 1 X j – β 2 M j + ε j if L j * = 1 Q j = β 3 X j + β 4 M j + ε j if L j * = 0

11. Model (2) First stage probit Relative price Household characteristics - household income - age head of household - tenancy spell Degree of urbanisation Regional housing market dummies

12. Relative price Defined as: User cost of owning / User cost of renting Problematic results:

13. Model (3) Second stage OLS User cost per housing service Household characteristics - Household income - Home equity - Household composition - Tenancy spell - Inverse Mills’ ratio Degree of urbanisation

14. Results First stage – probit

15. Results (2) Second stage OLS - conditional

16. Results (3) Second stage OLS – marginal effects

17. Results (4) Shift in demand - linear prediction OLS

18. Results (5) Average welfare loss per household (Harberger-style, estimated at household level)

19. Results (6) Overall welfare loss

20. Conclusions Significant welfare losses in the housing market Caused by disrupted consumption following incentives from housing subsidies Effects larger in rental sector than in owner- occupied sector