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Do UAE Housing Allowances Distort the Market?

Do UAE Housing Allowances Distort the Market?

Housing allowances are an unusual feature of UAE living. Back in our home countries we just get a salary and can spend what we like on our housing, here in the UAE we get an allowance from our employers. The way housing allowances are given also varies from company to company and this article will explore how that affects the market.

You can see a related article I wrote on housing allowances here

Standard Housing Allowance: Most housing allowances are pretty vanilla. The company gives you a certain amount to which you can add if you like. If you use less then you can keep the difference. This fulfils the companies’ obligations to provide housing, it allows the employee to have maximum flexibility as to where they live, and it has the sneaky side benefit for companies of reducing end of service benefit (end of service is calculated on salary not benefits).

Use it or Lose it: Some companies give you a housing allowance which if you don’t use they keep the difference. A few of the ADNOC related entities have recently changed their policies to this effect. Many such as Glenelg and the Petroleum Institute used to pay their employees their allowance in cash and allow them to live where they wanted. Now they are offering the allowance as a cheque from the company to the owner and if the client spends less they won’t receive the difference. This clearly means that staff who had been saving money living in smaller accommodation will now take the full allowance (no reason not to) – this will mean more expensive units being taken than would otherwise be the case.

Use it or lose it housing allowances motivate people to lease more expensive units than they would otherwise require and distorts the market. I don’t have the number for how many government companies this is happening for but it might be a large enough number to give the housing market a bump (at the expense of people’s savings).

No Top Up: Some companies (though it is quite rare these days) give you an allowance you can’t add into even if you want to. Quite a socialist approach. Some also have company accommodation that you must take with not option of living outside.

Spend My Own Money: We as real estate agents often take out clients with a certain housing allowance who are disappointed with the options this allowance gives them but settle for accommodation they don’t like because they “don’t want to spend my own money”. This kind of behaviour skews the market to the downside as many people (wrongly) see their housing as “free”. People with lower housing allowances despite high salaries often opt for cheaper options.

Two Housing Allowances: Most companies do not allow both a husband and a wife to claim housing allowances, they must use only one. Some might see this as fair enough but if you consider that you might be doing exactly the same job as your colleague but they are getting an allowance and you are not you are, in reality getting paid less. Your company is spending less on you, you are getting fewer benefits. In most of the western world, this would likely be seen as discrimination against married couples. Working couples skew the market to the downside as if they were single they would have more allowance to spend.

Larger Family Housing Allowances: Many companies (schools are a good example) give larger housing allowances to larger families. Single people get one allowance, married another, married with children another. Again as in the example above even though you might be doing the same job as a colleague they are getting higher benefits because they are married/have kids. You might ask if that is fair. Companies might also be tempted to hire single people to keep costs down. Working people with larger families skew the market on the high side as they get more housing allowance than single people.

Housing allowances can be seen in two very different ways. A socialist way where they exist to make sure workers here have a certain level of accommodation, or in a capitalist way where the allowance is part of your salary and remuneration for your job. Different companies treat their staff differently in this regard. If you work in housing and remuneration would like to discuss your own system please reach out to me.

Abu Dhabi Real estate agents

Ben Crompton

Managing Partner

ben.crompton@cpestateagents.com

Call – +971 50 6145199

 

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