Government by Grant: The Case of Housing Renovation

Public policies increasingly consist of attempts by governments to modify market processes. A major market based policy instrument is the payment of cash incentives to private individuals and organisations. This paper evaluates the success of one such policy, housing grants which are intended to stimulate renovation activity. A statistical model of renovation by private households is specified and tested. The explanatory variables in the model include grants, local property taxes and measures of the characteristics of dwellings, households and local neighbourhoods. The empirical evidence shows that grants largely substitute for private renovation activity. Much grant funding simply pays for renovation work that would have been undertaken anyway, and is effectively a general income transfer to grant recipients. Conclusions are drawn on the design of housing grants and market-based policies in general.