Dr. Toby C. Monsod

Low income housing:
achievement, costs,
challenges
Toby C. Monsod
UP School of Economics
3 February 2010
for posting 020810 1

Preliminaries
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
1 st 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 - 9 21 9 9 3 - 9 81 9 9 9 - 0 02 0 0 1 - 0 42 0 0 5 - 0 7T O T A L
E st i m a t e d N e3 e, d3
7 6 3 , 7 2 4 3 , 3 6 2 3 , 6 0 0 1 , 8 2 5 1 5 , 8 8 7
B a c k l o g ( y e a r 1 , 0 1) 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 a l t a r g e6 t2
7 1 , 2 0 0 4 7 8 1 , 2 0 0 6 6 4 4 , 1 6 9
H H S e r v e d 2 7 8 6 6 9 2 2 9 4 8 3 3 9 5 2 0 5 4
% T a r g e t 4 4 . 3 5 5 . 8 4 7 . 9 4 0 . 3 5 9 . 5 4 9 . 3
% E st i m a t e d B a2 c3 k. l5 o g 3 0 . 1 2 0 . 1 2 3 . 3 6 7 . 5 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
Rate of poverty
reduction
–
0.649
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–
–

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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Implications
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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