Participation in a Decentralized Housing Allowance Program in a Transition Economy

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In the former socialist countries of Eastern Europe and the Commonwealth of Independent States, housing allowances have been a critical element in housing sector reform. Housing allowances are demand-side subsidies, usually in the form of a discount on the bill the resident receives for housing, provided on a means-tested basis to low-income families to help pay these costs; generally they are structured so that poorer households receive larger benefits.¹ Under the socialist system, rents, or more accurately payments for housing and communal services, were rigidly controlled at levels far below full cost recovery. The introduction of housing allowances has been a key component of the program to increase rents toward market or at least full cost levels and to focus the remaining subsidies on low-income families. Housing allowances have been widely adopted. Countries not adopting them (e.g., Armenia, Kyrgyzstan.²) have often sought to protect the poor from bearing the full brunt of rent and communal services' price increases through implementing a unified family benefit program.

The allowance programs implemented in the region differ along two major dimensions: the degree of national versus sub-national control over program design, including benefit determination, and the level of government funding the benefits. Three basic models can be distinguished:

1. A unified program structure set by the national government with centrally funded subsidies for allowance payments, e.g., Ukraine, Slovakia;
2. A broad program structure set at the national level with significant discretion for sub-national governments to adjust parameters and benefit funding shared between levels of government, e.g., Russia; and
3. Local program design and funding of benefits, e.g., Hungary.

The allocation of program design responsibilities to sub-national governments can produce widely different benefit levels and varied program access for similar households in different locations, creating potentially significant equity issues.

This article presents an analysis of the administration of the housing allowance program in a sample of Russian cities, where sub-national governments have formal authority to set major program parameters and to establish certain key administrative definitions. The program was first implemented in 1994 and has been subjected to a number of modifications over the years. This analysis explores how differences in administrative procedures have affected participation rates across cities. Participation rates are defined as the share of all households receiving housing allowances. The more desirable measure, the share of eligible households receiving allowances, cannot be computed because of the lack of information on household incomes at the local level.

In brief, we find that sub-national administrative practices account for large differences in participation rates among cities. The results argue for a stronger role for the national government in controlling program parameters and administrative practices.

The article is organized as follows. The first section gives an overview of the linked topics of the legislative history and the distribution of responsibilities for benefit determination and administration among levels of government. The second section describes the extent of local variation in actual program operations. The third states several hypotheses about the impact of certain administrative procedures on program participation rates. The fourth section describes how the hypotheses were tested and presents the results of the estimated regression model. The article closes with some conclusions and recommendations.

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Acknowledgments

Mr. Sivaev is director of the Center for Municipal Economy at the Institute for Urban Economics, Moscow. Ms. Lykova is head of the Housing-Related Social Problems Team and Ms. Petrova is a Lead Expert in the same Center. Mr. Struyk is a senior fellow at the Urban Institute in Washington, D.C., and was a resident advisor in Russia on housing and communal service reform from 1992 through 1998. The authors wish to thank the administrations of the cities that cooperated with the project by providing us with essential data and explanations. They also thank Sarah Polen for comments on a draft. This work was supported by the U.S. Agency for International Development under Cooperative Agreement No. 118-A-00-01-00135 with the Institute for Urban Economics. The views expressed are those of the authors and not necessarily those of any of the institutions named.

The nonpartisan Urban Institute publishes studies, reports, and books on timely topics worthy of public consideration. The views expressed are those of the authors and should not be attributed to the Urban Institute, its trustees, or its funders.

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