Towards an optimal public housing policy

The prevalent practice of public participation in housing is taken as indicating a 'revealed public preference' for better housing for the poor. Assuming that sufficient external benefit exists to justify public housing, this paper attempts to derive analytically the best public housing strategy. The proposed 'conditional bidding' mechanism consists of the free (but not entirely open) market renting or selling of public housing units to eligible target group households only. Market allocation according to the 'conditional equilibrium price' is shown to be more efficient and more equitable than administratively-based allocation schemes.