Finland's new Government, led by TYY's former Secretary General Petteri Orpo, started its work on 20 June 2023. The key objective of Orpo's Government Programme is to reverse the trend of Finland's indebtedness. This is to be achieved within the Government's term of office by the means of adjustment measures amounting to 6 billion euros. In terms of the everyday life of students, the Programme's most significant entries relate to general housing allowance. In addition, the Government Programme contains an entry on a comprehensive reform of the student financial aid system.
Before 2017 – the housing supplement
In order to understand the reform plans, you must be familiar with the current situation. In August 2017, students were transferred to the general housing allowance system. Before that they had been receiving the student housing supplement, which was tied to the months of student financial aid that you had. The student housing supplement amounted to 80 percent of housing costs of less than €252, which meant that the maximum amount you could receive was €201.60. The housing supplement was personal, and as it was tied to the months of student financial aid, it was usually not paid out in the summer. The income limits for the housing supplement were the same as for student financial aid.
General housing allowance in 2023
Compared to the student housing supplement, the general housing allowance system is much more complicated. Practically all students previously received the housing supplement in full, while the amount of general housing allowance is more strongly dependent on one's housing costs. In addition, general housing allowance is calculated for households rather than individual students, which can be significant for people who live together. For example, the income of your romantic partner affects the amount of your housing allowance if you live together with them. The allowance is calculated per individual only if the people sharing an apartment have separate rental agreements and are not in a relationship. General housing allowance amounts to a maximum of 80 percent of acceptable housing costs. However, a further deduction is made on this amount based on your income.
In 2023, the maximum amount of general housing allowance for a household of one person in Turku is €357.60, which can be obtained with housing costs €447 or more. The maximum allowance for a household of two is €521.60, which can be obtained with housing costs of €652. The income limit for one person is on average €1,078 per month. In a two-adult household, the income limit is, on average, €1,489 per month. Income does not include student loans. When your average monthly income is above the income limit, every exceeding euro reduces your general housing allowance by 0.336 euros. A yearly average can be used to calculate the income, so the income from a summer job evens out. In a one-person household, housing allowance is no longer granted for housing costs of €447 or more when your monthly income reaches €2,097. In a household of two, the corresponding income is €2,996 per month, for housing costs €652 or more. In addition, each child living in a household increases the monthly income limit by €246 and increases the maximum acceptable housing costs by 134–205 euros, depending on the number of persons in the household. That is to say, having a child in the household can increase the amount of the allowance by 107–164 euros.
Since the allowance can cover up to 80% of housing costs, the recipient of the allowance only has to pay 20% of their rent "out of their own pocket" if the rent is below the approved maximum. This means that if you were choosing between a 300-euro shared apartment and a 447-euro studio, the difference for your own wallet would only be €29.40.
Comparison of general housing allowance and the student housing supplement in 2017
In the first half of 2017, before students were transferred to general housing allowance, they received a housing supplement of €201 per month, and the amount of each individual student's study grant was €86.48 higher. Right after the change, general housing allowance amounted to a maximum of €312 for a one-person household in Turku and €456 euros for a household of two persons. Thus, a student living in a one-person household benefited slightly from the change, but a two-person household did not. As the study grant decreased but the housing allowance increased, it made sense for lone students to try and find an apartment whose costs allow for the allowance to be paid in full. As a result, the demand for one-room flats exploded and the popularity of shared apartments collapsed. Kela's expenditure on housing benefits increased significantly.
With general housing allowance, income limits are stricter and the incomes of everyone living in the household affect the amount of the allowance. Thus, general housing allowance causes inequality for households where the inhabitants' incomes are different. If one person is working and the other is studying, it's possible that neither of them receives general housing allowance. Even if both are studying, their income limit is lower than it would be if they were living in separate dwellings.
If you live alone, you can earn €1,078 per month, while both partners in a relationship can only earn €744 per month before the allowance starts decreasing. A lone student can receive €357 of allowance per month and a couple €521, which comes down to about €260 per person per month. In the public housing market, larger dwellings are relatively cheaper than smaller ones, but at TYS, for example, the price per square metre is the same in studios and larger apartments. For these reasons, financial incentives to move in together are weaker for couples, even if it might otherwise make sense.
Impact of Orpo's Government Programme
In Petteri Orpo's Government Programme, plans are laid out to cut the base amount of general housing allowance by 12.5 percent and tighten income limits. The tightening of income limits is to be implemented by eliminating the earned income deduction of €300 per month. So far this deduction has also been multiplied to €600 in two-person households. Eliminating the earned income deduction would mean that in Turku, the monthly income limit would decrease from €1,078 to €778 in one-person households, and from €1,489 to €889 in two-person households. At the moment, every euro of monthly income above the limit decreases general housing allowance by 0.336 euros, but if an entry in the Government Programme is implemented, every exceeding euro will decrease the allowance by 0.35 euros. In addition, the amount of costs that you have to pay yourself will be increased from 20% to 30%, which may encourage students to search for cheaper forms of housing. As a new addition, assets would also be taken into account in the income limits. 20% of assets exceeding €10,000 would be considered as annual income, and if your assets exceed €50,000 you would no longer be eligible for the allowance. These assets do not include “non-productive assets,” but it is unclear how loans would be accounted for.
In euros, this all means that the amount of general housing allowance for one-person households will be reduced by at least €44.70 for those receiving the allowance in full and by €65 for two-person households respectively. Just how much the allowance decreases depends on your income, but for a person living alone, the maximum reduction is about €160, and for a two-person household just under €300.
The Government also intends to develop a new form of support for students that favours cohabitation and is financially attractive. However, no concrete details of this are outlined in the Government Programme. The idea could possibly be that a student would be allowed to choose between general housing allowance and the student housing supplement, but this is only speculation. In many cases, the housing supplement would be a better and more enticing option.
Afterword
The Government Programme's measures concerning general housing allowance for students clash with the way that student financial aid has been constructed. Students' livelihood usually consists of student financial aid and general housing allowance, so these two benefits should always be thought of together. Student financial aid is a very encouraging form of support compared to general housing allowance or any other form of social support. Most students receive their study grant for 9 months per year, which means that the income limit is €1,560 euros per month. Every euro earned above the income limit decreases the monthly amount of the financial aid by 0.151 euros on average. You'll need about €2,900 of monthly income before you completely stop receiving your study grant. The difference is staggering compared to general housing allowance, where the income limit for a one-person household is €1,078 euros per month, and every exceeding euro reduces the allowance by 0.336 euros per month. Clearly, Orpo's Government Programme would further exacerbate the welfare trap present in general housing allowance.
All this goes to show how fragmentary and inconsistent our social security system is. Obviously it needs improvements. People should not be disincentivized from doing work, but social security should be targeted at those who really need it rather than people who earn thousands of euros a month.
Arvi Tolvanen
Vice Chair of the Executive Board, TYY
tyy-vpj@utu.fi
