General housing allowance – Overall reform of 2015, development of benefit expenditure, and employment of benefit recipients

A comprehensive housing allowance reform was carried out in 2015 to simplify the grant criteria, increase the maximum rents, and reduce the deductible. The earned-income deduction was also introduced to improve incentives to work. Due to the earned-income deduction, it is possible to receive general housing allowance with higher earned income than before.

The audit examined the preparation of the overall reform of general housing allowance and the earned-income deduction, and the assessments made on their impacts on central government finances. The audit also assessed the incentive effects of the earned-income deduction and the compatibility of the housing allowance with the study grant and social assistance. The incentive effects were assessed by means of exemplary calculations based on the SISU microsimulation model. The change in the allocation of general housing allowance that followed the introduction of the earned-income deduction was assessed based on the general housing allowance data registered by Kela. In addition, the financing process of general housing allowance was audited from the perspectives of financial audit and compliance audit.

The audit was conducted as the general housing allowance expenditure increased almost continuously throughout the 2010s, and the increase was partly due to the overall reform that entered into force in 2015. In 2021, the general housing allowance expenditure amounted to approximately EUR 1.6 billion.

The overall reform of the general housing allowance increased central government expenditure considerably more than estimated in the government proposal. In the government proposal, it was estimated that the annual increase in the general housing allowance expenditure would be EUR 68 million, but the estimate did not take into account the impacts of the earned-income deduction on expenditure.  The impacts on expenditure or the objectives of the earned-income deduction were not addressed at all in the government proposal, even though the deduction was a significant part of the overall reform. After the reform, estimates of the annual expenditure impacts have varied between EUR 150 million and EUR 259 million.

After the introduction of the earned-income deduction, employed people are more often eligible for the general housing allowance. Following the reform, in 2015–2019, the share of general housing allowance recipients receiving earned income increased from 24% to 39% based on Kela’s register data. The figures do not include student households, which were transferred to the scope of the general housing allowance in 2017. The introduction of the earned-income deduction increased the amount of housing allowance for households receiving earned income and brought households that were previously not eligible for the housing allowance to the scope of the allowance. In the longer term, the increase in the share of housing allowance recipients receiving earned income is explained by an increase in part-time employment and an improvement in employment.

The overall reform improved the level of the general housing allowance, but social assistance is still used to a significant degree to cover housing expenditure. In the preparation of the social security reform, the Government should strive to develop solutions that reduce the need to use social assistance as housing-related support, because social assistance is intended as last-resort and temporary assistance.