Illustrating an Approach for Setting Housing Subsidies for Low-Income Families

Abstract

Setting an optimal subsidy amount that balance different stakeholders' interests is the holy grail of auction theory. This comes about because of the divergent interest in which different stakeholders think tax dollars should be spent. In this abstract idea preprint, a mathematical formalism is proposed to facilitate the setting of an equitable subsidy amount for subsidized public housing in an emerging economy. Specifically, the objective of the housing subsidy is to lend a helping hand to low-income families to own a home suitable for their family size. Assuming that the host society agrees that only a maximum of 20% of the total monthly family income should be spent on servicing the housing loan, then multiplying it across the ten year period of repayment should arrive at the total housing loan for the family. This allows the subsidy amount to be determined for each family by subtracting the home price with the total housing loan. Necessarily, this approach determines a family specific subsidy amount depending on their total monthly family income as well as size of family. The latter is important for assessing whether a two-room or three-room public housing apartment is needed for the family. Overall, the approach illustrated here assumes the need for subsidies to help lowincome families to build a family and a useful life ready to contribute to society. Such a measure renews the social compact, and help maintain social cohesion in a society.

Keywords: housing subsidies, subsidy amount, total housing loan, total monthly family income, public housing, micro-economics, macro-economics, auction theory