ABSTRACT
Public housing projects and housing policy may be seen as a response to market failure. Market failures (monopoly, technological externalities, uncertainty and inequity) are traditional reasons in welfare economics for government intervention (Willis, 1980). Externalities in housing might encompass public health concerns and urban blight because of prisoner’s dilemma problems (giving rise to neighbourhood renewal schemes). Equity is commonly thought of in terms of income distribution (housing benefits, public housing for low income groups). However, the results of housing policy do not closely accord with such welfare maximising objectives. Many aspects of housing policy tend to be inefficient and inequitable. For example, owner occupiers receive large
tax benefits in terms of interest relief on housing loans, most of which is captured by upper income groups (Robinson, 1981; Sawhill, 1990). Private rented accommodation is dilapidated and in short supply due to the excessive taxation and rent controls (Willis, Malpezzi and Tipple, 1990). High quality public housing is supplied to people who cannot afford to pay rents which cover the costs of such housing, and hence such housing must be subsidised, though the utility households derive from such housing is less than the subsidy and hence is inefficient (Watson and Holman, 1977:107-9; Malpezzi and Mayo, 1985).
