Distributive Aspects of Public Expenditure on Housing in Spain

ABSTRACT

The housing market in Spain has been subject to substantial upheavals over the past two decades. House prices have risen sharply, making it extremely difficult for large sectors of the population to have access to housing. This study has been carried out from the standpoint of the objective of equity that all housing policy should pursue in order to favour access to housing for all citizens. An analysis will be made on whether intervention in Spain's housing market, through the different budget items earmarked to that end, leads to an improvement in the distribution of income. The results obtained in this study imply that the overall implications of direct public expenditure on housing are positive, that they help to reduce inequality, not to a great extent, but, nonetheless, significantly and with a strong progressive element in terms of vertical equity.

KEY WORDS:

• Housing policy
• public expenditure
• redistribution
• Spain

Acknowledgements

The author would like to thank the Valencia Institute of Economic Research for their suggestions on improving and updating this paper.

Notes

^a Up to 2001, figures for liquidated budgets.

*∈ '000,000s.

*As percentage

1. A study made by Balmaseda et al. (2002) estimates an overvaluation of real estate assets between 1999 and 2002 of approximately 28 per cent; almost a third of the overall rise in prices registered for this period. See also García-Montalvo (2000) and García-Montalvo and Mas (2000).

2. In this regard, see Atkinson and King (1980), Rosen (1985), Hills (1991), Schreiber and Clemmer (1982), Hughes (1980), Olsen (1983), Mills (1990), Hendershott and Shilling (1982), López García (2003) and OECD (2003).

3. The setting of an independent income level for tax deduction due to purchasing a home implies a shrinking of the effective reduction of taxes for many income levels, which is more noticeable the higher the income levels. See Sánchez Martínez (2002) and Onrubia and Sanz (1998).

4. The real-estate boom at the end of the 1980s, characterized by high house prices and a drop in the construction of protected housing, led, at the beginning of the 1990s, to the introduction of important normative measures, such as the 1992–1995 Housing Plan, the reform of the Mortgage Market (RD 2/1991), Law 19/1992 on the Regime of Real Estate Companies and Funds, Law 29/1994 on Financial Leases, and Law 8/1990, reforming the Land Valuation and Urbanistic Regime, among other important measures. Sánchez Martínez (2002) presents a detailed overview of the evolution of these regulations in Spain.

5. Officially protected housing is divided into two types, the special system and the general system, having a limitation on the maximum size, public financing and limited selling prices. Housing subject to price appraisal is eligible for subsidies granted to finance the purchase of already existing houses, and the rehabilitation of houses is also eligible for public aid.

6. For a full debate on the problems of measuring income and on its limitations as a measurement of economic status, see, among others, Bandrés Moliné (1990), Ruíz-Castillo (1995) and Gimeno (1995).

7. Over the last decades, the National Institute of Statistics has carried out major surveys (1973–1974, 1980–1981 and 1990–1991) to study the level and structure of the income and expenditure of Spanish households, the main aim of which is to estimate the weighting of the Consumer Price Index. The 1990–1991 Family Budget Survey provides cross-sectional data on the individual income and expenditure of 21,155 households. This survey is no longer carried out, have been substituted by the quarterly Constant Survey on Family Budgets, using a sample of 8,000 households, having been modified and enlarged in 1997.

8. Not only is there discrepancy among the figures of the FBS, but there are also important differences in the figures produced in the National Accounts, highlighted in the work of Alcaide and Alcaide (1983), Bandrés Moliné (1990) and Estruch Manjón (1996), and to which we refer.

9. Slesnick (1994) questions whether income can adequately reflect changes in society's welfare, while consumption data come closer to the concept of welfare. He therefore concludes that income approximates the welfare of domestic economies very badly, finding that the inequality in income is substantially higher than the inequality in consumption. He also observes substantial differences between the trends of income-based inequality indices and those based on consumption. On another note, Ruíz-Castillo (1995) argues that the use of expenditure or income as an indicator of the economic position of each family will depend on the type of study to be carried out, longitudinal or cross-sectional, respectively.

10. A detailed study on the methodological approaches of the implication of public expenditure appears in Aarón and Mcguire (1970), McLure (1972), Bandrés Moliné (1990), De Wulf (1981), Medel and Molina (1984), Gimeno (1995).

11. The calculation of this parameter is as follows: IFP = IF × N × A × M, being: IF: Amount of the gross declared family income, in number of times the minimum interprofessional wage of the corresponding year, N: Weighting coefficient in terms of the number of members in the family unit, A: Weighting coefficient in terms of the number of members in the family unit that generate the income, M: Weighting coefficient in terms of the location of the protected dwelling.

12. The subsidies are granted depending on the income in number of times the minimum interprofessional wage, set for 1992 in 14 payments of 338.25 euros (Royal Decree 3/1991).

13. For further details on the process of allocation of public expenditure on housing and the exploitation of the 1990–1991 FBS, see Sánchez Martínez (2003).

14. The objectives of this study would be too great if we attempted to describe the properties, advantages and disadvantages of the main indices. For this reason, we refer to authors who have made in-depth studies of measuring inequality, such as Kolm (1976a, 1976b), Rúiz-Castillo (1986), Zubiri (1984), Lambert (1993) and Estruch Manjón (1996), among others.

15. This fact can be explained by remembering that the original Theil index gives a growing weight to the transfers favouring the lower income strata, which means that, on improving their situation substantially, when they are allocated the spending on housing, the percentage reduction in inequality is much greater than that obtained using the Gini index.

16. In our case, the concentration index Cg gives a negative value, which means that the benefits of public spending on housing are concentrated in the lowest income strata.

17. The difference between C _{d + g} and G _{d + g} resides in the fact that the former is calculated using the order introduced by the disposable income and the latter on the order of the disposable income plus expenditure on housing; in other words, on the order of the final income.