Rethinking the Welfare State: The prospects for ... - e-Library

Rethinking the selfare state 66
associations, local authorities and other non-profit institutions who arrange for the
construction of, and then manage, housing units, with funding from one of two central
authorities (the National Housing Council and the Netherlands Christian Housing
Institute). 65 A similar scheme obtains in Britain, although local authorities have
somewhat more discretion in terms of the type and location of housing units as compared
with other EU nations. 66 Prior to a massive corruption scandal, non-profit housing
associations run in a similar fashion conducted “the dominant part of social housing
programs” in Germany. 67 Until recently, habitations à loyer modéré (HLMs), lowincome
housing financed by government grants and operated by non-profit bodies and
co-operatives, formed a major part of France’s low-income housing strategy.
With the notable exception of Sweden, however, such highly interventionist supplyside
subsidy programs have declined in breadth and popularity since the mid to late
1970s. For instance, the deregulation of the financial sector in the USA and the UK under
the Republican and Conservative governments of the 1980s, coupled with cuts to public
expenditures, led to an increasing reliance on the commercial sector to meet the housing
needs of low-income households in those states. 68 In other nations, by contrast, the state
has remained directly involved in subventing housing, but has changed its principal mode
of intervention. In France, for instance, the Housing Act of 1977 introduced a new system
of “bricks and mortar” subsidies (PLA) to housing developers to stimulate construction in
the low-income rental sector, and rehabilitation grants for the upkeep of both private for-
and non-profit low-income rental units (PAH and PALULOS). 69 Rather than undertaking
to build low-income housing, the French government has favoured a program of lowinterest
grants to developers with stipulations such as quality standards and rent controls.
The Community Rental Housing program in Ontario, which aims “to remove barriers that
increase capital costs for rental buildings and the rents that tenants must pay,” grants
funding to private developers, provided companies invest their own equity as well, at a
minimum of 10 percent of a project’s lending value for the first mortgage. The same
program also waives equity investment requirements for non-profit groups such as
service clubs and religious or charitable organizations who wish to invest in low-income
housing. 70
The supply-side subsidization approach to low-income housing entails many of the
benefits of supply-side subsidy programs generally, as discussed in Chapter 2. The
competition and ownership effects can be expected to create incentives for cost-effective
service provision, while the tied nature of most supply-side subsidies can act as a
counterbalance to the profit motive, requiring providers to meet certain quality and
accessibility standards. Inefficient or inadequate housing providers will be forced to exit
the market. Moreover, supply-side subsidies can also act as a stimulus to the private
financial sector, particularly where subsidies to developers include a private equity
investment requirement. A further advantage of supply-side subsidies is their ability to
target non-profit groups, including those whose services already directly target the needs
of low-income groups. As discussed earlier, partially assisting private sector investors
can enable the inflationary cushioning effects of investment in building and real estate.
The most cogent argument in favour of supply-side housing subsidies, however, is that
they can act as direct stimuli for new construction, thus increasing the available supply of
low-income housing. This is particularly salutary in jurisdictions where the existing
housing stock is in an advanced state of decay, but where rehabilitation investment on the