OF SUBSTANCE AND SPIRIT
We lost touch with the Chamber of Real Estate and Builders Association, Inc., (CREBA) during the last three years of the pandemic. We missed the passing of its indefatigable chairman Charlie A.V. Gorayeb last month who was among those who opposed the imposition of creditable withholding tax (CWT) on social housing projects. Mr. Gorayeb and now CREBA president Noel “Toti” M. Cariño collaborated to work with Congress in the enactment of RA 11201, the law that established the Department of Human Settlements and Urban Development (DHSUD). This is a special advocacy that paid back after 23 years of hard labor.
CREBA has been pushing for mass-scale public housing as an official centerpiece program. In doing this, Mr. Cariño in his many media appearances would always hark back to some economic indicators. And they are undeniable. More than 40 percent of the country’s total urban population live in depressed areas. Over five million Filipino households are dirt poor. Of the nine million low-income households, nearly seven million do not own their dwellings, many of them could only afford ₱2,000 or less to pay for their housing needs.
CREBA’s call for mass-scale housing is a social imperative. We confront this problem because we are still an emerging market, and this is one of the problems of the future. Even in the great American cities of New York and San Francisco, quadrupling of housing costs and homelessness are priority government housing issues.
As Derek Fidler and Hicham Sabir, both of Shelter Tech, in their article for the 2018 World Economic Forum Annual Meeting, explained, even as homeownership in the United States has improved by 20 percentage points in two generations, owning a home by today’s young people has become an impossible dream.
“Housing, like student loans and health insurance, has fallen into a free market trap. There’s an inelastic demand – everyone needs housing, an education and to be healthy – and people will pay almost anything to acquire these basic needs.”
Treating housing like an elephant in the room is also unforgiveable. As if many would not know, housing has underlying positive economic benefits. It has huge output multiplier, income multiplier and labor multiplier. In the Philippines, CREBA claims, supporting housing activity promotes at least 23 downstream industries.
This was the context when we engaged with CREBA last Tuesday in connection with their Advocacy Forum on Shelter Finance and Incentive, and stressed to them that unless the issue of having “livable communities” is addressed, the Philippine Development Plan 2023-2028 is almost good for nothing. The previous plan failed to completely deliver on their target to build 1.6 million direct housing assistance. At best, only 66 percent or 1.1 million were turned in. Against the overall housing backlog, this is like a needle in the haystack. Our housing backlog is 6.8 million.
It's a big quandary therefore how the “Pambansang Pabahay Para sa Pilipino” program could direct the DHSUD to clear up the backlog by building one million houses annually.
In the first place, supply has been facing major challenges including low allocation and utilization of funding, lack of suitable land and considerable delays in securing permits and clearances. There isn’t just enough absorptive capacity.
For the clients of the housing industry, affordability is the major issue. With so much poverty, they could hardly afford the banks’ requirement for collaterals and minimum amortization.
Our moderator for the forum, my friend Daisy Dulay, formerly of National Home Mortgage and Finance Corporation (NHMFC), made a rough calculation that If we consider the cost of building a socialized housing unit of about ₱750,000, we need around ₱750 billion. The target is a pipe dream.
The Pag-Ibig Fund presentor, SVP Fermin A. Sta. Maria, Jr., claimed it financed around 38 percent of all home loans in the Philippines. With 15.64 million active members, Pag-Ibig Fund lent ₱117.85 billion in 2022. Even keeping other things constant, it would take around six years for Pag-Ibig Fund alone to deliver one million homes.
The country’s second largest bank in terms of assets, government’s Land Bank as represented by VP Edgardo S Luzano, is involved in the housing industry through its Housing Opportunities Made Easy (HOME) Loan Program and a housing program for our overseas Filipino workers. For the period January-May 2023, it approved ₱80 billion home loans for 26,756 borrowers.
Therefore if we need ₱750 billion to put up one million homes, and Pag-Ibig claims it accounts for 38 percent of all home loans by releasing around ₱130 billion, it means aggregate home finance could only do around ₱342 billion, or less than half of the required amount.
The development plan envisions several legislative initiatives to help in this effort. One is the National Land Use Bill to address suitable land availability constraints against land consolidation. Rental subsidy and enhanced access to public rental housing could also be considered to mitigate the affordability issue.
We also shared the various regulatory initiatives of the BSP in allowing the banks to expand their contribution to the social imperative of providing more housing to our people. Real estate loan ceiling was adjusted from 20 percent to 25 percent. In the computation of the ceiling, loans for own use is excluded because they are considered low risk.
We cautioned CREBA against the so-called mandatory allocation of funding from pension funds in the light of the brouhaha surrounding the Maharlika Investment Fund. The legislative atmosphere today is quite toxic. Mandating the use of residual agri-agra funds from the banks may not sit well with civil society’s current thinking. With housing as a social imperative with economic multiplier effects, it might work to start small and demonstrate that with some nudging from the authorities, it could be productive. It could be scaled up with private funds.
All up, if the idea is profitable, and it could be as it is viable, over the long run, the need for public funds may be rationalized.