In most countries, policy discussions for the housing sector usually simply assume that housing subsidies are necessary for some portions of the housing market, with the precise reasons for subsidizing housing left vaguely defined. This vagueness inevitably weakens the effective design of the subsidy programs, because it is unclear what the ultimate goals of the program are. To help avoid this outcome, this chapter looks at several rationales for governments to subsidize housing and how they can be used to frame a housing subsidy policy. Once it is decided that certain housing problems require government intervention, there are many policy and programmatic choices to be made. For example, can some problems be solved by improvements in the regulatory environment or the creation of new institutions? Which require a subsidy and, if subsidies are considered, what combination of subsidy approaches are the most effective for different market segments? Decisions have to be made on whether to subsidize the demand or the supply side of the housing sector, whether to focus subsidies in particular locations or to specific types of households nationwide, how to optimize and complement actions of national and local government, and which group of the population should be subsidized to reach the desired outcomes. This chapter looks briefly at some of those critical choices for housing subsidy policies in general. The subsequent chapters focus on subsidies related more specifically to the financing of housing.

Experience in many countries has shown that the design and evaluation of housing subsidy programs benefits from the use of clear economic and public accounting criteria. This chapter also discusses such criteria– efficiency, administrative simplicity, equity, transparency, effects on housing markets, impacts on housing and labor market mobility, the presence of adjustment and exit strategies — and how the use of these criteria might improve the outcomes of subsidy policies. The long-term process of housing subsidy policy development and implementation is, however, far from linear. It is influenced by conflicting political priorities and requires a concerted effort to align actions by many different parts of government, both housing and non-housing entities. Such process requires as much thought as the design of policy and programmatic actions themselves. The chapter begins, therefore, with a brief discussion of the process of subsidy policy development.