Hidden Income: An Analysis of Tenant Benefits in Subsidized Housing in Austria

ABSTRACT We investigate the highly regulated Austrian rental market and estimate the rent deductions in council flats , cooperatives and dwellings under rent regulation vis‐à‐vis the free market . We find that eligible tenants benefit from significantly cheaper rents. However, as cheap housing is poorly targeted, there are positive income effects even for high‐income households while ineligible tenants in the free market are not systematically better off than the ones whose rents are subsidized or regulated. Our results therefore support the common finding that matching between dwellings and households is inefficient when waiting lists rather than prices are used to allocate flats. As households across the income scale benefit from cheap housing (while others do not), income inequality decreases only slightly.