Public policies and the housing affordability gap

Between 1950 and 2023, the housing cost burden - approximated by the proportion of total household consumption expenditure spent on housing, water, electricity and fuel - has risen almost steadily in many countries around the world. First, this trend can be explained by substantial improvements in the quantity and quality of housing. In fact, in some countries (e.g., Germany), per capita floor space has more than doubled since 1950. In developed countries, the availability of toilets, hot water and electricity rose from less than 50% of dwellings to almost 100% over the same period. Second, the increase in the housing cost burden is due to the higher rate of increase in housing costs compared to total consumer expenditures. Low-income households are particularly affected by this trend. Compared to high-income households, they spend a larger share of their consumption on housing. Such a deterioration in housing affordability can negatively affect health and education by reducing the residual income that could have been spent on them. This, in turn, can lead to lower incomes for these households, preventing them from closing the income gap with higher-income households. Third, the growing housing cost burden may be the result of the retreat of the state from social policy, including the removal of the strong rent control that was installed in many countries (including all European states) during World War II and effectively froze housing rents. This study examines the impact of housing policies on housing inequality, focusing on affordability gaps across income groups. Using longitudinal data from 28 countries between 1981 and 2023, I analyze the impact of housing policies such as rent control, housing subsidies and social housing on housing cost burdens. My results show that tenant protection policies reduce the proportion of housing costs for both low- and high-income households, without affecting the gap between them.