Human Side Of Economics

NHA FIVE-STOREY LOW RISE BUILDINGS, Harmony Hills Terraces Phase 1 in Batasan Hills, Quezon City — DHSUD.GOV.PH

(Part 2)

We can only dream about solving our housing crisis the way Singapore did. Already very much a First World Country in the 2020s, Singapore’s public housing is located in new towns, in communities that are intended to be self-contained, with services near housing blocks and with housing either owned by or rented to residents. Owner-occupied public housing is sold on a 99-year lease and can be sold on the private resale market under certain restrictions. Rental housing consists of smaller units and is mainly meant for lower-income households. Housing grants are provided to lower-income applicants for flat purchases while flats with shorter leases and lease monetization schemes have been implemented for elderly homeowners. Housing estates are managed and maintained by Town Councils, and older housing estates are improved by the Housing and Development Board under the Estate Renewal Strategy. As of 2020, 78.7% of Singapore residents live in public housing.

The State in Singapore was the main engine of growth of public housing. It subsidized, built, and managed that sector. Starting in the 1930s, the country’s first public housing was built by the Singapore Improvement Trust (SIT). Then housing for the resettlement of squatters was built from the late 1950s. During the late 1960s, under the SIT’s successor, the Housing and Development Board, public housing consisting of small units with basic amenities was constructed as quickly and cheaply as possible at high densities, and was used for resettlement schemes. From the late 1960s, housing programs focused more on quality, public housing was built in new towns, and a scheme allowing residents to own their flats was introduced. Throughout the 1970s and 1980s, more public housing options were provided for the middle class and efforts to increase community cohesion within housing estates were made. From the 1990s, the government began portraying public housing as an asset, introducing large-scale upgrading schemes, loosening regulations on the resale of public housing, while additional housing programs for the lower classes and elderly residents were introduced. Rising housing prices led to public housing being seen as an investment from the 2000s, and new technologies and eco-friendly features were incorporated into housing estates. Public housing was indeed a showcase, among others, of what an effective and well governed State can do for its population.

This glowing description of the housing situation in Singapore, found in Wikipedia, is clearly beyond the reach of populous emerging markets like the Philippines, with huge budgetary requirements for rural development, education, health, and other vital services. That is why most students of mass housing solutions agree that the Singapore case is sui generis, an exceptional case that is difficult to replicate in today’s developing nations like the Philippines. It is important, therefore, to look for other approaches to mass housing that will significantly involve the private sector. This has been the direction our housing policy has taken over at least the last three decades.

For almost four decades, the National Government has allocated no more than 3.5% of its budget to public housing. The housing budget of P4.98 billion for 2021 was only 0.11% of the national budget. Over the last 10 years, the highest allocation to housing was in 2013 when it reached a measly 1.62% of the total fiscal budget. That is why, if we are going to make any dent in the humongous mass housing backlog, the Center for Research and Communication (CRC) study strongly recommends that the mass housing industry, sector, or activities must be included in the Strategic Investment Priorities Plan (SIPP) of the government and must be eligible for a TIER 1 income tax holiday incentive of at least four to six years depending on the project’s location.

There is enough evidence that mass housing activities fulfill the conditions for TIER 1: they have a high potential for job creation; they take place in a sector with market failures resulting in under-provision of basic goods and services; generate value creation through innovation, upgrading, or moving up the value chain; provide essential support for sectors that are critical to industrial development; or sectors that are increasingly acquiring comparative advantage in the whole economy.

Neither do the Local Government Units (LGUs) have the institutional capabilities for housing construction or post-development services nor the financial muscle to fund and manage a significant and sustained nationwide housing program, especially the one espoused by the new paradigm shift towards sustainable housing communities. This is in spite of having more funds under the Mandanas-Garcia law and the possibilities for socialized housing under the balanced housing law and the local government code.

The private developers of affordable housing can be the ones to provide or supplement “the missing links and other gaps in the supply or value chain or otherwise moving up the value chain or product ladder” which otherwise the National Government is unable to do. As we shall see later in this series of articles, an analysis of the intensity of inter-industry linkages will show that housing construction activities can supply this missing link. With the pressure to be cost effective and financially viable, private developers work along these linkages to improve their production or industry value chain for cost efficient, affordable, and sustainable housing communities.

Developers are better attuned to the appropriate technology and innovations available to them to respond to market-specific and their project and housing community-specific requirements as demonstrated during a conference in November 2021: adoption of digital platforms to digitize operations and customer access to property information and purchase transactions; development and use of eco-friendly and high performance building technologies for sustainable and yet affordable housing projects; technology-based circular economy model in projects for resource use and reuse for the housing communities; giving low-income households access to renewable energy sources and the internet, etc.

It is inevitable that construction prices will be going up as a result of the global economic crisis precipitated by the Russian invasion of Ukraine. It is already a foregone conclusion that inflation in the coming months will exceed the Bangko Sentral ng Pilipinas target of less than 4%. These inflationary pressures are compounded by the additional cost of complying with the new minimum floor areas for socialized housing, increasing land prices and wages of construction workers where the housing sector is currently facing a labor shortage, competing head on with the government’s Build, Build, Build program and other private sector-led non-housing projects.

Hence, developers of affordable housing projects are experiencing a margin squeeze as they face this inflationary environment. Since there are price ceilings per segment for socialized, economic, and low-cost housing depending on project location, the removal of fiscal incentives will further erode whatever little margins the developers are left with to work around. The impact on affordability and demand can be adverse when such additional tax burdens are passed on to the market.

Despite the presence of a growing market for affordable housing (especially among the families of OFWs — overseas Filipino workers — and those working for the BPO-IT sector — business process outsourcing-information technology), developers have yet to ramp up production. Overall housing production capacity is less than 280,000 units per annum, the highest of which was registered in 2019. In the last two decades, housing production averaged just a little over 210,000 units per annum, of which 41% go to economic and socialized housing. As completely indispensable development partners, the government should be able to encourage private developers not just to commit their production capacities to affordable housing but also to increase it. Listing housing capacities as one of the priority projects under the SIPP not only reinforces this partnership but encourages developers to allocate more for affordable housing.

Because the private sector as a development partner for sustainable community housing of the government is hard pressed to provide affordable housing to the homeless, any fiscal support extended to its mass housing activities will redound to the benefit of both the government itself — of fiscal savings and meeting the Sustainable Development Goals (SDGs) — and of society as a whole in terms of availability of affordable housing and the positive economic impact of the construction activities in terms of growth, livelihood income, employment, and individual and community well-being.

(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.