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

Rethinking the selfare state 72
the case, for instance, in Ontario, where receipt of the maximum individual Ontario
Works benefit of $520 per month is contingent on residence in suitable rental
accommodation; persons living on the street or in rent-free shelters are not eligible for
full benefits, and instead receive only the far more modest Personal Needs Assistance
grant. While some jurisdictions, such as Sweden and France, do give welfare recipients a
high degree of discretion, no states currently rely on cash grants as the only source of
housing assistance; as mentioned earlier, both Sweden and France have fairly extensive
SRH programs in place which work to maximize welfare benefits.
The argument against “untying” welfare benefits from their housing requirement is
both familiar and obvious. By liberating the lion’s share of benefits as cash, a financial
incentive is created on the part of the recipient to live in cheap but severely substandard
housing, regardless of the consequences for personal or public health. In fact, taken to its
logical conclusion, there is no reason why untying benefits in this fashion would not
result in an “informal housing boom,” given the financial incentive on the part of welfare
recipients to live rent-free on public or private land in order to maximize available cash.
Whether or not this scenario is as alarmist as it may sound is not clear, as no
jurisdiction has seriously contemplated such a policy. However, it is not difficult to see
why political support for the removal of the suitable housing requirement of welfare
benefits is likely to be weak at best. Moreover, in the case of those groups for whom
adequate housing is most easily justified on humanitarian grounds—families with
children—a significant principal-agent problem presents itself as parents have an
incentive to spend insufficiently on adequate housing for their children in order to
liberate further cash. There is reason to expect that a system which removes the housing
requirement of welfare benefits and replaces it with an equal cash grant is likely to be
both politically unpopular and ineffective at resolving housing shortages.
Design challenges
Vouchering has obvious advantages over pure public provision, while cash grants do not
present a viable alternative. Like supply-side subsidies, however, and in view of the
objective of increasing the stock of affordable housing, voucher programs encounter a
major difficulty in the form of supply-side inelasticity. A program which fails to produce
a sustainable increase in the number of units of affordable housing must be said to have
failed to resolve the housing crisis.
The major challenge facing a voucher-based housing policy, then, is to establish how
vouchers can best be used to stimulate new construction of affordable housing to meet the
needs of a growing population, and to ensure that these units remain accessible to lowincome
households. It is possible, however, to separate this challenge into two principal
design problems: ensuring that low-income households gain access to vouchers, thus
creating a stable and adequate demand market for low-income housing; and ensuring that
the proper incentive mechanisms are in place to stimulate the supply-side market to
provide housing which meets the actual needs of low-income households, including the
construction of new units if necessary.