Rent assistance and housing demand

We examine the effect of a rent subsidy program, Rent Assistance, on the demand for rental housing in The Netherlands. The RA program lowers the marginal price of housing services if households consume more than a minimal amount. To estimate the effect of the program we develop a structural model of housing demand that takes account of the partial take-up of the subsidy. We estimate a reduced form that is compatible with the structural model and we test the restrictions that the structural model imposes on the reduced form. These restrictions are not rejected if we allow for application costs. We use the model to decompose the observed difference in housing demand into income, price and preference heterogeneity effects, to examine the effect of application costs and to study the total effect of RA on housing demand. (C) 1997 Elsevier Science S.A.