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The effect of subsidy on housing construction in various regions of

Sweden

Lena Borg, Abukar Warsame & Mats WihelmssonBuilding and Real Estate Economics

KTH

ERES2009, StockholmJune 24-26

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• Approximately, households in most of EU countries spend one quarter of their budget in housing expenses and Sweden has the highest figure of housing expenditure (28%) in Europe.

• General subsidy, interest rate subsidies, family allowances, Rent control (rent-setting)

• Two issues that are often debated in the housing subsidy situation are:o Efficiency o Resource allocation of the subsidy system

Introduction:

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Two research questions:

1. From efficiency perspective: Did the housing subsidy increase the production of housing stock? If so how were regions affected?

2. From tenure neutrality perspective: Did the housing subsidy cause distortion between different tenures of properties?

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Theoretical models

0 1 2 1s

t t t tC P Z Q

0 1 2Dt t tQ P X

0 1 2St t tQ P Z

1( )s st t tC Q Q

D St tQ Q

0 1 2 1s

t t t tC X Z Q

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The data

• Unbalanced quarterly panel data

• Cross- sectional data of 7 region

• Time- series data: 1975-2006

Two main groups:

• 3 big regions• 4 medium

and small regions

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Variable Definition Unit Big regions(Average)

Small regions (Average)

Tprod_mf Total production multifamily houses

Number of units

726.3916 527.0273

Tprod_sf Total production single family houses

Number of units

607.5666 599.1309

Cost_mf_r Real construction cost multifamily houses

SEK/m^2 2237.094 2012.89

Cost_sf_r Real construction cost single family houses

SEK/m^2 1775.122 1722.269

W_Cost Weighted construction cost

SEK/m^2 2024.819 1883.629

Inc_cap Income per capita SEK/person 81993.22 76501.03W_landcos

Weighted average Cost of land

SEK/m^2 440.8889 0.4742733

Stockcap Stock per capita Number/person

0.4542719 372.5563

Sub Interest Subsidy Percentage 4.770121 0.1086392Unempl Unemployment Percentage 3.911888 4.771124Tax_mf & sf

Construction taxes for both tenures

Percentage 0.1086392 4,768612

Pop Population Number 1300364 1171694

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IV regression models for big & small/medium regions

Variable | M1_all M2_big M3_small M4_big<2000 M5_small<2000

Ltproduc |

LW_cost | -2.5* -2.34 -1.74 -2.1 -1.46

(stand_error < (1.05) (1.28) (1.31) (1.43) (1.06)

LW_landcost | -.144 .00798 -.133 -1.39* -.625

(stand_error) (.34) (.36) (.42) (.58) (.65)

Linkcap_r | 4.53*** 2.78*** 5.09*** 2.18*** 4.42*** (

stand_error) (.72) (.41) (.62) (.37)

(.47)

Lstockcap | -9.22*** -6.65 -12*** -4.11 -10.5*** (

stand_error) (.64) (3.6) (1.90) (5.0)

(1.73)

Lsub | .777*** .442*** .882*** .795*** 1.32*** (

stand_error) (.06) (.07) (.12) (.09) (.15)

Lpop | 1*** 1.42*** 1.03*** 1.33*** 1.06***

st and_error) (.002) (.27) (.04) (.28) (.04)

cons | -23.6*** -17.7* -31.1*** -13.3 -29*** (s

tand_error) (4.46) (8.84) (7.50) (13.06) (6.65)

Obs | 771 342 429 279 366

R2 | .676 .487 .765 .551 .8

Hansen_J | .52 .49 .67 .52 .33

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SUR regression models for multifamily & single houses Variable | M6_all M7_big M8_small

Ltprod_f |

Lw_ccs | -.081 1.08 -.223standa

d err (.37) (.63) (.608)

Lw_landcost | -1.52** -1.75* -1.32

standard err (.58) (.78) (.802)

Linkcap_r | 3.2*** 1.19** 4.62***

(standard err (.34) (.46) (.492)

Lstockcap | -4.6*** -3.71 -6.92***

(standard err (.69) (2.27) (1.09)

Lsub_mf | .96*** .718*** 1.1***

(standard err (.05) (.072) (.075)

Lpop | 1.02*** 1.2*** 1.04***

(standard err (.03) (.248) (.039)

cons | -31.7*** -29.7*** -39***

(standard err (2.79) (7.04) (4.38)

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Obs | 676 296 380

R2 | .80 .68 .86

Variable | M6_all M7_big M8_small

Ltprod_s |

Lw_ccs | -4.11*** -1.74*** -2.07***

(standard err (.36) (.526) (.583)

Lw_landcost | .163 -.418 .503

(standard err (.57) (.646) (.767)

Linkcap_r | 2.64*** 1.99* 2.26***

(standard err (.32) (.365) (.451)

Lstockcap |-10.8*** -18.1*** -15.2***

(standard err (.67) (1.89) (1.04)

Lsub_sf | .334*** .244*** .3***

(standard err (.027) (.032) (.038)

Lpop | .918*** .972*** .91***

(standard err (.033) (.205) (.037)

cons | -.461 -20.8*** -11.8**

(standard err (2.63) (5.77) (4.19)

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Obs | 676 296 380

R2 | .80 .68 .86

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Conclusions!!!

• Though it is not easy to single out what type of subsidy has impact on the total housing production, our regression result indicate that interest subsidy has a positive impact on the total production of housing units.

• Our study seem to support the assertion that construction subsidies may have increased the stock of depressed regions where the demand was low. .

• The result also suggest that the interest subsidy stimulated more for the production of multifamily houses since the subsidy could drive down the total production cost of multifamily houses.

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F I N E !!!