Principal investigator: Bruno Benevit
Original title: The housing quality, income, and human capital effects of subsidized homes in urban India
Author Tanu Kumar
Location of the Intervention: India
Sample Size: 3.170 individuals
Sector: Public policies
Primary Variable of Interest: Education, employment and income
Type of Intervention: Housing allowance
Methodology: RCT
Summary
Housing subsidy programs represent an important tool for improving the living conditions of citizens in situations of social vulnerability. However, depending on the design of this policy, undesirable effects may arise, especially when beneficiaries are displaced to regions far from employment opportunities or their territorial and social ties. To understand these impacts, this study analyzed the effects of a housing subsidy policy with allocation through a lottery, implemented in India, which allowed beneficiaries to rent these subsidized properties. The results demonstrated that, after 3 to 5 years, the winners showed improvements in housing, income, education, and employment, especially among young people. The results are comparable to those of income transfer programs, indicating that negotiable housing subsidies can generate similar socioeconomic effects.
- Policy Problem
Housing subsidy policies aim to make homeownership more accessible through financial incentives such as discounts on sale prices, low-interest financing, and direct sales of government properties. These initiatives aim to improve the living conditions of low-income families by offering property security and relief from monthly expenses. By lowering barriers to entry into the housing market, subsidies can have positive effects on housing quality, families' purchasing power, and access to credit for other investments (Kumar, 2021).
Housing policies vary according to the format and rules for using the resources provided. Cash transfers offer greater flexibility to beneficiaries, who can allocate the funds to various expenses, while housing subsidies ensure direct investment in a specific asset. The possibility of renting or reselling the property expands income sources and can intensify wealth accumulation. Eligibility criteria, grace periods, and formalization requirements also shape the impact, influencing who participates and the scope of benefits obtained.
The mandatory relocation to new housing units can mitigate or even negate the expected advantages if beneficiaries are sent to regions with fewer job opportunities and services. Breaking community ties and distancing oneself from economic centers can reduce income and limit educational opportunities. To mitigate these disadvantages, a program in Mumbai implemented a lottery system for housing allocation without requiring a change of neighborhood. Winners can choose to live in the property, rent it out, or resell it after a regulated period, preserving freedom of choice and reducing risks associated with relocation.
- Policy Implementation Context
The program in focus was conducted by Maharashtra Housing and Area Development Authority (MHADA), the state agency responsible for facilitating the subsidized sale of housing units in Mumbai. With each call for bids, MHADA offers government-built apartments at prices well below market value; the funds raised cover construction and advertising costs. To facilitate financing, beneficiaries have access to long-term mortgages—generally 15 years—with a state-owned bank, with interest rates ranging from 10% to 15% per year. MHADA operates across various income brackets, but focuses its efforts on these ranges through ongoing urban planning initiatives.
The beneficiaries are divided into two profiles: Economically Weaker Section (EWS) and Low-Income Group (LIG). The EWS group includes families whose annual income does not exceed approximately USD 3.200, while the LIG covers those with earnings up to approximately USD 7.500 per year. In general, each housing unit serves families of four people, offering apartments ranging from 269 to 403 square feet, depending on the range. Initial payments are around USD 230, and the final purchase price is a fraction of the market value. Half of those selected choose to rent the property, receiving an average of USD 50 per month, while the remainder move into the subsidized unit.
The selection of beneficiaries occurs through a computerized random lottery, implemented in 2010 to ensure transparency in the process. Each draw, held in 2012 and 2014, followed internal quotas by caste and occupational group, in order to maintain balance in the distribution by socioeconomic profile. Candidates register indicating their desired property and provide their PAN (equivalent to a CPF - Brazilian taxpayer identification number) for income verification. After the draw, the beneficiaries can purchase the property or rent it, while resale is only permitted after ten years of ownership.
- Evaluation Details
The pool of potential respondents included all lottery winners from 2012 and 2014 and a random sample of non-winners. MHADA provided 1,862 addresses used in the initial registration. This set was mapped using a geolocation tool and subjected to a completeness filter: 42 incomplete records were discarded, 611 were located outside the Mumbai metropolitan area, and 146 could not be mapped. At the end of this process, 531 households remained in the control group and 532 in the treatment group, maintaining the representativeness of the registration strata (caste, occupation, and income bracket).
From these valid addresses, 500 households were randomly selected in each experimental condition. Between September 2017 and May 2018, a local organization conducted data collection. Those not selected were initially contacted using the addresses and phone numbers provided during registration; in case of a change of address, neighbors provided updated information. Winners were approached directly at their new apartments or the residences they indicated. In all situations, the aim was to interview the person responsible for the registration—a procedure that was successful in 78% of cases.
In total, 834 interviews were obtained: 413 households in the control group (82,6% response rate) and 421 in the treatment group (84,2%). The difference in these rates was not statistically significant. The final sample showed balance in observable characteristics, such as proportion by caste, occupation, and income group. Although the mapping eliminated records of informal settlements and areas outside the urban perimeter, the set maintains representativeness of the original participants for subsequent analyses.
- Method
The analysis considered an ordinary least squares (OLS) model based on data collected from the RCT, adopting an intention-to-treat (ITT) design applied to both households and individuals. Each unit was classified as treated if it had been selected in the subsidy lottery, and as a control otherwise. Thus, the regressions consider the treatment indicator variable as the main regressor, along with... dummies The models employed centralized strata to control for variations by caste, occupation, and income bracket, and interactions between treatment and these strata to capture heterogeneity.
The set of outcome variables comprised measures of housing quality, monthly income in ranges, asset ownership, sources of emergency resources, educational and occupational indicators in the household, as well as attitudinal aspects and neighborhood characteristics. These estimates replicate the OLS approach with the treatment indicator and stratum interactions, following the same FDR control procedure used in the income and housing analyses.
To analyze potential heterogeneous effects stemming from the individuals' age range, the study included additional specifications where the impact of the subsidy interacts with indicators of having reached certain ages (e.g., 16 or 21 years) between lottery and survey. These regressions, structured like those for years of schooling and employment, maintain the same set of stratum controls and error structure, allowing for the identification of effect differences according to age cohorts.
- Main results
Housing subsidies improved housing quality: the proportion of households with private bathrooms rose from 60% to 85%, and access to private taps increased from 75% to 88%. The number of families with permanent housing grew by 15 percentage points (pp). In terms of income, beneficiaries were 20 pp more likely to earn more than 20.000 rupees per month (approximately USD 312), and 14 pp more likely to earn more than 10.000 rupees (USD 156). Despite this, there was no significant change in the ownership of non-residential assets, such as appliances or vehicles.
In education, individuals in beneficiary households had, on average, 0,61 more years of schooling. Among young people who turned 16 after the draw, the probability of completing high school increased by 15 percentage points. Among those who turned 21 in that interval, the chance of completing higher education also increased by 15 percentage points. Furthermore, parents in these households were about 8,6 percentage points less likely to enroll their children in public schools, indicating a preference for private institutions after receiving the benefit.
In the labor market, individuals from randomly selected families were 4,4 percentage points more likely to be employed, with full-time employment showing a significant increase of 7,7 percentage points. Among young people who turned 21 after the selection, the employment rate increased by 19,5 percentage points, and full-time employment rose by 21,9 percentage points. These effects were more pronounced among groups that also showed educational gains, suggesting a relationship between education and labor market participation. No detectable effects were found among adults who were already over 22 years old at the time of the selection.
- Lessons in Public Policy
In this article, the authors investigated the socioeconomic effects of a housing program in Mumbai that offered subsidies through a lottery system, allowing winners to choose between living in, renting, or selling the property. The results indicated that the benefit generated improvements in housing conditions and increased indicators of income, education, and professional integration. Additionally, changes were observed in future expectations and individual attitudes among the beneficiaries, even when they resided in neighborhoods with less infrastructure and fewer educational and employment opportunities.
The evidence from this study contributes to understanding the impacts generated by flexible housing subsidies, especially those that do not require compulsory relocation. The authors highlight that the analyzed model allows families to adjust the use of the benefit according to their needs and context, avoiding the negative effects observed in programs that impose a change of residence. The results reinforce the relevance of including choice and liquidity mechanisms in public policies aimed at urban housing, expanding their potential for economic and social transformation for beneficiaries.
References
KUMAR, Tanu. The housing quality, income, and human capital effects of subsidized homes in urban India. Journal of Development Economics, v. 153, p. 102738, nov. 2021.
