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Low income housing: achievement, costs, challenges

Toby C. Monsod UP School of Economics 3 February 2010

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A functioning housing market: HH can translate their notional demand for quality housing into effective demand at market prices, and where the supply of housing is responsive to that demand. Housing is a private good but subject to significant market failures, especially at the bottom end, which is an economic rationale for both intervention and social provision. Also: equity, minimum housing standards Range of options: regulations, taxes/subsidies, direct provision. But government failure could be worse than market failures.
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State policy thru the years
1st quarter 1900s: punitive, “clean up” Manila (slum clearance, sanitation and building codes) ’30s – ‘50s : public housing investments in behalf of labor (e.g. Vitas, Diliman) ‘60s – ‘70s: housing as strategic economic activity; subsidized and non-subsidized sector; public housing corporations (e.g. Tenement Act, Sapang Palay/Carmona, Quezon City housing projects)
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1975/1986 onwards: National shelter program
Goal: increase access to decent, affordable and secure shelter Who: bottom 30%, 40% or 50%; living in urban, or both urban and rural areas What: house, lot, or both Featuring: interacting network of housing agencies (HUDCC, NHA, HLURB, HGC, NHMFC, SHFC) + Pagibig, SSS and GSIS

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Achievements: 2 million HH assisted from 1987-2007
= 29% of backlog; 49% of target ~ 20% (403, 215 HH): direct production, e.g. resettlement, slum upgrading, sites and services and other projects ~ 26% (543, 976 HH): tenurial assistance or community-based mortgage finance ~ 54% (1,106,492 HH): individual mortgage finance
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Table 1: Estimated Backlog, Targets and Households served 1987 to 2007(In ‘000s)
1 9 8 7 - 91 9 9 3 - 91 9 9 9 - 02 0 0 1 - 02 0 0 5 - 0 T O T A L 2 8 0 4 7 E st i m at e d N e3 ,d 7 6 3 ,7 2 4 3 , 3 6 2 3 , 6 0 0 1 ,8 2 5 1 5 ,8 8 7 e3 B ac k l o g ( y e ar1 ,01)8 2 2 ,2 2 5 1 , 1 3 9 2 , 0 6 9 5 8 5 7 ,2 0 0 P h y si c al t ar g e t2 7 1 ,2 0 0 4 7 8 1 , 2 0 0 6 6 4 4 ,1 6 9 6 H H Ser v ed 278 669 % T ar g e t 4 4 . 3 5 5 .8 % E st i m at e d B ac3k. l5o g 3 0 .1 2 229 4 7 .9 2 0 .1 483 4 0 .3 2 3 .3 395 5 9 .5 6 7 .5 2054 4 9 .3 2 8 .5

Backlog: units with double occupancy (urban & rural); units for tenure, infra or structural upgrading; units for replacement due to danger area/infra area/for eviction or demolition; homeless.

Estimated Need: Backlog + projected new HH from population growth
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Costs: Fiscal and quasi-fiscal costs, leakages, stunted markets
Housing finance: Record not good. Collapsed in 1985, again in 1996  Llanto, et. al [1997]: from 1995-97, 25 B in subsidies of which 90% were off-budget  WB [1997]: recap of NHMFC + provisioning for Funds = P 55 B Housing Production: Record not good. high attrition rates in resettlement sites (as experienced in the 1950s), large inventory of unoccupied housing units Crowding out of private sector on both finance and real side
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Good news: recent attempts at reform
Development of Poor Urban Communities Sector Project (DBP and HUDCC), to pilot:  Market-based shelter financing (MFI on lending DBP loans at market rates) + up front capital subsidies  Rights-based tenurial instruments  LGU as borrower or guarantor Railway Resettlement Projects (NHA)  Innovation: in city/in-town policy; Local Inter-Agency Committee  NHA as catalyst rather than direct provider
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However, blind spot remains
While the focus has been on maximizing the output of new houses and selling these at below-market prices, the fundamental causes of unaffordability on the supply side have remained largely unaddressed. Particularly dysfunctions in land markets.

“The housing dilemma is primarily a land problem” [Roxas 1969]
“If (land) prices were as low in comparable developing countries… as much as 50% more shelter could have been built and fewer than 28 % of households would probably live under irregular tenure arrangements.” [Strassman and Blunt 1993]
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Evidence from international experience: the establishment and strengthening of land and property market institutions is a prerequisite
“The establishment and strengthening of land and property market institutions—including secure property rights, flexible land use regulations, and ease of land conversion, — is not easy. But without the commitment to such institutions, and without investment in connective infrastructure, targeted interventions to integrate slums are unlikely to work.” [WDR 2009, Chapter 7,emphasis added] More generally: spatially blind institutions and spatially connective infrastructure are prerequisites for successful interventions
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Prioritizing and sequencing of policies is critical
Sequence: “… spatially blind measures to create conditions suitable for economic concentration, followed by connective policies to deal with congestion” (WDR) Other spatially blind institutions:  Basic social services to all  Regulations for housing finance.

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On “spatially connective infrastructure”

In-country evidence on spatially connective infrastructure: Infrastructure, particularly transport, exerts both an indirect and direct effect on poverty reduction (Balisacan, et. al [2008])

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Transport, exerts both an indirect and direct effect on poverty reduction (Balisacan, et. al. [2008])
Explanatory variable Mean income growth Initial conditions Log (Per capita income 1988) Mortality rate Inequality Inequality squared Ethnic fragmentation Dynasty Time-varying policy variables Change in literacy Change in electricity Change in road density Change in CARP Change in ag. TOT  Adj. R-squared Mean income growth       – –   –   –   + + + + + 0.628
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Rate of poverty reduction   –       –      


On “spatially connective infrastructure”…
However, status:  Level of investment: below par  “Missing link”: provincial roads  Bias for international connections versus domestic transport networks and corridors ⇒ enclaves As a stimulus, building domestic connective network is likely to generate more productive jobs and reduce poverty than direct government production of public housing
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Proposition 1
The integration of informal settlements a key component of urban and development policy. Low-income housing a key component of social policy. However, without the pre-requisite fluid land markets and domestic connective infrastructure, direct state interventions to address low income housing problems – for post-ondoy or otherwise – are likely to be ineffective and wasteful as they have in the past More precisely, to be successful, state strategy relating to low income housing needs to be embedded in a coherent and explicit urbanization framework. The prerequisites for inclusive urbanization are the same for successful low-income housing policy.
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Proposition 2: once costs are contained on the supply side…
Housing social assistance, when warranted, needs to be i. on-budget (transparent), ii. de-linked from market-based transactions, and iii. Evaluated vis education, health, and other components of social policy.

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Design for subsidy policy: household-based, tenure neutral, allowing for self-selection.
Type 1: Moderate to low-income HH who are at fringe of formal housing finance market. Options:  lump-sum down-payment support  mortgage buy-downs  mortgage default insurance Type 2: HH for whom income, employment, collateral or other constraints make access to formal finance and housing infeasible. Options:  upfront capital grant or rental subsidies  serviced lot with core house as upfront subsidy, with assistance tied to savings mechanisms

But if costs are not contained on supply side, demand side subsidies will simply be paying for inefficiencies.
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1. Move discussion of urban-rural linkages and
management of urbanization strategy to provincial and sub-region level. Managing a portfolio of ‘places’, including chartered cities.  Metro arrangements?

1. Re-focus central agencies/NG away from direct housing

assistance/production targets to – Explicit urban policy (framing MTPDP) Resolving bottlenecks in land markets (administration bottlenecks, articulate land/land use policy, inventory of public land) and credit markets Connecting the domestic economy; addressing “missing links” in domestic infra and building density Ensuring policy predictability and guarantees, tenure neutral policies
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3. City/municipalities to focus on:  local planning, embedded in larger “area” planning  local land use regulations and removing admin bottlenecks in land administration (which will enable private sector)  Property taxes  Basic health and education services to all  Local transportation and connective infrastructure And, when a certain level of urbanization is reached, targeted social assistance (not direct or subsidized housing finance!), e.g.  Servicing of land for settlements  Local rental housing policies, subsidies?
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“Post-ondoy” rehab issues provides opportunity to reframe low-income housing debate
From the “cart before the horse” ⇒ embed housing in explicit urbanization policy. From a focus on “in-situ vs relocation?”, “in-city vs. off-city?” “single house or MRB?” ⇒ discussion of transport, land market interventions, the efficiency and inclusiveness of processes that will reconfigure the greater MM area.
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