Do owners or social tenants gain more from government support? Photograph: Dan Kitwood/Getty Images

Housing minister Grant Shapps makes frequent use of the word “subsidised” to describe social housing. Indeed, this month council housing was said to be “fantastically subsidised”. But is he right – and, if so, who actually gets these government housing subsidies?

This is an issue we address each year in the Chartered Institute of Housing’s UK Housing Review, which brings together the latest evidence on government support for the country’s housing needs.

Let’s start with the sector that’s really cushioned by the government – that’s owner-occupiers, especially those who have paid off their mortgages. Of course, significant benefits to mortgage payers were wiped out when tax relief was cut by Margaret Thatcher’s government and eventually ended 12 years ago. But all owners still enjoy capital gains tax relief, currently worth almost £6bn.

Those with no or only small mortgages also benefit from not being taxed on the value of their home (as used to happen through the old schedule A tax). This tax relief is now valued at over £11bn. Pooling these benefits and adding back in the stamp duty and inheritance tax of approximately £5bn that owners do pay, the net subsidy received is still a surprising £12bn per year.

Of course it’s true that no government is likely to restore schedule A tax, but even disregarding it the outcome is that owners pay no net tax at all (council tax doesn’t count as tenants pay it too). As Professor Steve Wilcox points out, the existence of these tax advantages means that house prices are far higher than they might otherwise be, benefitting existing owners at the expense of those struggling to enter the market.

Owners in difficulty also receive support with mortgage payments. All governments have provided subsidy to shared ownership, as a first step on the ladder, and about 170,000 homes have been built on this basis alone. The biggest subsidy of all (for the individual households who have benefitted) has been the right-to-buy, offering 2m buyers a typical discount of £26,000. The UK Housing Review gives the total value of these subsidies as £1.6bn for the year 2009/10 – and in the recent past they have been even higher.

Private landlords don’t enjoy the same tax advantages as owner-occupiers. However, the recent growth in the market for landlords who own only one or two properties is fuelled by homeowners who can afford the deposit to buy another house simply to rent out. Landlords also find it much easier to get interest-only mortgages.

Let’s turn to subsidy for renting. All tenants are eligible for housing benefit. The average benefit payment for private tenants, at £114 per week in England, compares with £82 for housing association tenants and £73 for council tenants.

Obviously, this is largely a function of higher rents – those who claim that social housing is “subsidised” because it charges lower than market rents often fail to point out the extra costs that would fall on the welfare budget if rents were raised to private market levels.

The “economic subsidy” of social rents is worth some £7bn annually. But this will fall gradually as the government’s new affordable rents start to take effect, pushing up the cost of housing benefit support.

It could be argued that the economic subsidy for social housing is as artificial as the implicit tax reliefs for homeowners, given that no government is likely to raise social rents to full market levels. Council housing charges low rents in part because of historic subsidy for the loans to build it, but in fact much of this has now been paid off; the average council debt is only about £17,000 per home and few new homes are being developed.

In fact, council housing has been making a profit since 2008, which has been paid to the Treasury. When council housing becomes fully self-financing on 1 April, all subsidy to existing homes will cease. Councils will actually take on extra debt at that point, to reflect the future surpluses they would have paid to the Treasury. This cost will be met from rents.

Grant Shapps deserves credit for pushing ahead with council housing finance reform and ending the notoriously complex subsidy system, so that from April council tenants will have a much clearer idea of how their landlord is spending their rent.

We could all acknowledge his success by no longer referring to council housing as “subsidised”. And to ensure that subsidies to different housing sectors are fair and justified, it would be timely for the government to do its own review.

While there may be disagreement about what counts as subsidy and what doesn’t, surely no one can dispute that the present range of incentives is simply the haphazard result of different initiatives by different governments? In an environment where we badly need to look at how government stimulates more housing supply, a more rational approach to housing subsidies is needed.

Original post and comments: Guardian Housing Network