Bernardo-M.-Villegas-125

Human Side Of Economics

THE LOCAL government of Manila turned over 83 out of 168 units of Tondominium 2 in Vitas, Tondo Manila, early this year. — PHILIPPINE STAR/ RUSSELL A. PALMA

(Part 1)

As the Philippines transitions from a low-middle income country to an upper-middle income country in the next decade or so, it will be increasingly urbanized, with more of the population migrating from the rural areas to the cities. The next and subsequent administrations must ensure that with higher per capita incomes, the country will at the same time provide the lower-income groups with decent and affordable housing. The Philippines cannot become a First World country without addressing the problem of mass housing. We should avoid like the plague the model of some Latin American countries with already high per capita incomes of over $10,000 but with millions of people still living in dehumanizing conditions in squatter areas.

What is the state mass housing today in the Philippines? This article will summarize the study carried out by the Center for Research and Communication (CRC) on mass housing in the Philippines, done in partnership with the Subdivision and Housing Developers Association, Inc. (SHDA), the Organization of Socialized and Economic Housing Developers of the Philippines, Inc. (OSHDP), and the National Real Estate Association, Inc. (NREA). Conducted during the height of the pandemic in 2021 and dated January 2022, the study is entitled “Inclusion of Mass Housing in the Strategic Investment Priorities Plan (SIPP) and for Fiscal Support,” outlining the needed cooperation between the public and private sectors to address the huge backlogs in housing in the Philippines today.

Through the years, it was clear in the minds of those who crafted a Philippine mass housing policy that unlike in Singapore in which the Government was the main provider of mass housing, it has to be the private sector — with some help from the State — that will address the serious shortage of housing for the lower-income households. The study reviewed the housing policy followed in the Philippines over the last three decades.

From the late 1980s until the East Asian Financial crisis of 1997, the government’s direct cross-subsidy scheme extended to private developers under the National Shelter Program (NSP), offering buyers long-term fixed interest rates. With the start of the new millennium, the government assisted programs for certain sectors through fiscal incentives extended to socialized, economic, and low-cost private housing developers, including mandatory contributions to the balanced housing requirement.

Since the 1970s, the government-assisted public housing projects have been coursed through the National Housing Authority (NHA). Unfortunately, low budget allocation from the National Government and the multiplication of tasks assigned to it (e.g., relocation of informal settlers affected by government infrastructure projects, provision of housing for households affected by national calamities or along disaster prone areas) has weakened seriously the impact of the NHA on the housing crisis. In contrast, one successful program introduced in the late 1980s was the Community Mortgage Program (CMP). It allowed legally organized associations and their qualified members to acquire land and/or build community housing with concessional long-term loans. The success was short-lived, however, because of perceived association management issues and conflicts among the various stakeholders.

With the passage of the Tax Reform for Acceleration and Inclusion (TRAIN) Law of 2017, housing policy support has included extending fiscal incentives in the form of income tax holidays and VAT exemptions to socialized subdivision and condominium housing with price ranges from P480,000 to P750,000 and VAT exemption for economic and low-cost housing with price ranges between P750,001 to P1.75 million and to transactions exceeding P3.2 million, respectively.

Given other priority public expenditures of the Government, such as those on education, health, and rural development, addressing the housing backlog in mass housing has been largely left to private developers. Unfortunately, the private sector was not up to the task.

In 2019, OSHDP presented the obstacles facing a marketing-oriented approach to solving the housing shortage. First, there is the limited ability to pay of the low-income and urban poor groups involved. There were the physical and administrative difficulties encountered by the urban poor in accessing credit for housing, coupled with the absence of long-term, low-interest rate financing. On the supply side, the problems were even more numerous: limited access to land and dysfunctional land markets; unclear and highly bureaucratic land administration, management, and conversion processes; inadequate housing subsidies; and limited financing available for low-income and pro-poor housing production.

To make matters worse, the additional strict criteria that the CREATE (Corporate Recovery and Tax Incentives for Enterprises) Act, passed during the Duterte administration, for certain segment of mass housing to be eligible for incentives, have made it more difficult for private developers to make socialized housing available to the poor.

Meanwhile, the balanced housing requirement imposed on developers of open- and upper-market subdivision projects under the Urban Development and Housing Act of 1992 (RA 7279) to put up socialized housing precisely to allocate private sector resources to fill in the housing backlog was expanded under RA 10884 which now covers vertical housing. There were other measures of putting up socialized housing requirement through modes such as joint venture projects with local government units (LGUs), nongovernment organizations (NGOs), private developers’ subsidiaries, and other priority development projects under the Building Adequate, Livable, Affordable, and Inclusive (BALAI) Filipino Communities program.

The bureaucratic maze that made it very difficult to implement mass housing programs in the past has been partly eased by RA 11202 passed in early 2019 which established the Department of Human Settlements and Urban Development (DHSUD) which is mandated to oversee the national housing program. There used to be a myriad of housing programs and agencies. Now DHSUD merges the Housing and Urban Development Coordinating Council (HUDCC) and the Housing and Land Use Regulatory Board (HLURB). The Office of the DHSUD Secretary now supervises the NHA, the Social Housing Finance Corp. (SHFC), the Home Development Mutual Fund (HDMF), and the National Home Mortgage Finance Corp. (NHMFC).

(To be continued.)

 

Bernardo M. Villegas has a Ph.D. in Economics from Harvard, is professor emeritus at the University of Asia and the Pacific, and a visiting professor at the IESE Business School in Barcelona, Spain. He was a member of the 1986 Constitutional Commission.

bernardo.villegas@uap.asia