The bedroom tax

Housing subsidies for low income households are a central pillar of many welfare systems, but an expensive one. This paper investigates the consequences of an unusual policy aimed at reducing the cost of these subsidies by rationing tenants' use of space. Specifically, we study a policy introduced by the UK Government in 2013, which substantially cut housing benefits for tenants deemed to have a ‘spare’ bedroom – based on specific criteria related to household composition. Our study is the first to evaluate the impacts of the policy on its target group using a strategy that compares the observed changes in behaviour of the treated households to those of a control group. The treatment and control groups are defined by the detail of the policy rules. We find that – as expected – the treated group loses housing benefits and overall income. Although the policy was not successful in encouraging residential moves (despite efforts to make mobility within the social sector easier), it did incentivise people who moved to downsize – suggesting some success in terms of one of the policy goals, namely reducing under-occupancy. The policy did not incentivise people to work more and we find no statistically significant effects on households' food consumption or saving behaviour. The implication of our findings is that this type of policy has limited power to change housing consumption or employment in the short run. While it might reduce the costs of housing subsidies to the taxpayer, it does so by imposing a direct financial cost to social tenants unable or unwilling to downsize.