Paying for results

After a 15 year experiment, England is phasing out the New Homes Bonus that has been part of the formula for distributing funds to local governments since 2011. In revamping the broader funding scheme, the current government explained its decision:

The government does not believe that the New Homes Bonus is an effective incentive. It often rewards authorities for housebuilding that would have occurred in the absence of any incentive, and its efficacy is further blunted by the interactions with the remainder of the Settlement…Given its limited impact on housebuilding, removing the New Homes Bonus from the Settlement does not run counter to the government’s ambition to build 1.5 million homes in this Parliament, to tackle the housing crisis and kickstart economic growth.

This was a pretty big incentive. My LLM estimates that it gave local councils an average of £3,900 per net new home over the life of the program. But despite the relative generosity, none of the evaluations I was able to find suggested it was significantly changing the local calculus. And it certainly didn’t create a sea change toward new housing, which is extremely difficult to build in England.

Perhaps a more rigorous evaluation would find statistically significant effects and allow a proper cost-benefit analysis? But it’s not an encouraging piece of news and nudges my priors downward for what we should expect from US state and federal schemes to incentivize growth.

Thanks to Lyman Stone for putting this one on my radar.