Public Policy: Using Market-Based Approaches - Department for ...

Public Policy: Using Market-Based Approaches
POTENTIAL PROBLEMS
Political constraints
Sometimes the implementation of a market mechanism may be affected by
political constraints that prevent the full potential benefits of the policy being
realised. In the case of CBL, this was encountered in the form of internal
resistance on the part of some housing officials. These officials feared that a loss
of personal influence would adversely affect housing management performance
measures, such as void turnaround times. Their concerns were generally related
to the fact that advertising could potentially increase the time taken for the
letting process.
Economic constraints
In Part III above, we identified the following potential problems with introducing
user choice suggested by economic theory.
CAPACITY CONSTRAINTS
The introduction of consumer choice may lead to capacity constraints for the
most desirable properties, or even a worsening of existing constraints. This
requires landlords to exercise a form of rationing, reducing the effective choice
offered to users. Where these capacity constraints are binding, it may be
tempting for landlords to use any discretionary powers they have to ‘cream
skim’ the housing register for the most desirable tenants. Cream skimming could
arise in a CBL scheme if landlords were able to reject tenants until the desired
tenant is offered the property. It is prevented in practice by specifying strict
criteria as the only grounds for rejections.
Capacity constraints can also affect outcomes through the demand-side of the
market. In areas with a relatively small flow of vacancies, the proportion of
applicants ever accessing a property is low and choice within the social housing
sector is correspondingly low. Users who are repeatedly unsuccessful in their
bidding because of capacity constraints may become despondent and consider
the CBL allocation process to be less fair than an administrative system. This
outcome could lead to reductions in customer satisfaction and even limit the
efficiency of the allocation process if users cease to participate effectively as a
result of their disappointment.
It should also be noted that the opposite can occur through CBL: by increasing
transparency, existing capacity constraints become visible and households may
be better placed to exercise choice in a way that redistributes interest between
high and low demand properties and areas. Furthermore, CBL provides
information about household preferences as revealed by bidding choices. This
information can be used to guide strategic plans and so address capacity
constraints in the longer run by ensuring more of the most popular types of
property are provided.
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