The Pambansang Pabahay Para Sa Pilipino Program, also known as the 4PH Program, is the national housing program of the Philippines . It was launched in September 2022 with the goal of having zero informal settlers by 2028. It is no brainer for any Government to determine priorities in addressing the most urgent economic needs of the population. The first, as the BBM Administration has rightly set, is food security. The second should be housing—following the age-old triumvirate of “food, shelter and clothing” as the most fundamental of human necessities. With only three years more to go, how is the BBM Administration faring in addressing this second most vital human need, especially of the poorest of the poor.
What are the major housing policies that the BBM Administration has adopted? When it started in July 2022, the present Administration aimed to produce an ambitious one million housing units annually for the next six years, a very ambitious target. The intention is to wipe out the estimated 6 million backlog by reducing the housing deficit annually. The present Administration expects to continue the general thrust of extending tax breaks and subsidized interest rates to private sector developers of affordable housing. The Philippine Development Plan of 2023 to 2028 echoes the indispensable role of the private sector in closing the housing gap while pursuing the sustainable agenda of the national government. It highlights the role of the private sector in driving innovations and other sustainability-related initiatives. The Department of Human Settlements and Urban Development (DHSUD) launched its 4PH Program with the specific goal of building 1 million housing units every year for the next 6 years and targeting minimum wage earners and informal settlers. DHSUD acknowledged the many obstacles in implementing the 4PH to make housing more affordable and funding available. The key to its strategy is to focus on developing vertical housing structures in partnership with LGUs and private developers.
By far, there have been over 100 MOUs signed with LGUs and a handful of projects have been launched. Unfortunately, the interest of the private sector in undertaking projects in partnership with LGUs has been lackluster. The adjusted price ceilings were offset by an increased floor space, higher construction costs and price of land. The dominant focus on vertical housing has also discouraged other modes of housing development. Because of legal and implementation issues, the housing escrow fund as alternative means of balanced financing has remained unutilized. Meanwhile, developers who were once required by the first balanced housing law to produce onsite and offsite socialized housing units (RA 7279) now have more modes of compliance under RA 10884. In addition to exclusively putting up socialized housing projects, developers of open market subdivision and condominium projects can satisfy the balanced housing requirements through modes such as joint-venture projects on socialized housing projects with LGUs, NGOs, private developers’ subsidiaries, new project participation in the community mortgage program and others. Under the balanced housing law, developers of subdivision and condominium projects are required to develop an area for socialized housing equivalent to 15 % of the total area or total cost of the main subdivision project, and 5 % of the project cost of the condominium, respectively. Unfortunately, the government’s appropriation for key shelter programs and DHSUD has been grossly insufficient for the overall housing shortage.
Housing can fit into the Strategic Investment Priority Plan (SIPP) together with other industries with wide multiplier effect on the national economy. Economic and low-cost housing will now be subject to a vetting process in order to qualify for registration and/or fiscal incentives. The law requires segments in mass housing to meet at least one of the 10 parameters in the CREATE Law to qualify for inclusion in the SIPP. Notable in the implementing rules and regulations (IRR) of the CREATE Act is that the economic and low cost housing segments of mass housing projects will be subject to the following:
- Need to be qualified for inclusion in the Strategic Investment Priorities (SIPP).
- Need to seek approval from either the Fiscal Incentives Review Board (FIRB) for projects exceeding Php 15 billion or from the Investment Promotion Agencies (IPAs) for projects less than PhP 15 billion in order to receive fiscal incentives;
- Additionally, income tax holidays for domestically-registered enterprises (such as the housing developers) can range from 4 to 7 years, followed thereafter by enhanced tax deductions (ETD) of 5 years, depending on the tier in which the industry or sector is classified ad project’s location—whether within, proximate to, or outside the National Capital Region.
Economic and low-cost housing projects can be appropriately classified under what is called Tier 1 activity and avail of 4 to 6 years of income tax holidays and enhanced tax deductions of 5 years depending on the project location and, ultimately, BOI and FIRB’s approval. Among the criteria used to qualify for Tier 1 are as follows:
.High potential for job creation
.Sectors with market failures resulting in under-provision of basic goods and services.
.Value creation through innovation, upgrading, or moving up the value chain.
.Essential support to sectors critical to industrial development.
.Emerging activities owing to potential comparative advantage.
Mass housing projects can meet all of TIER 1 requirements mentioned above, except for providing comparative advantage which is more applicable to export-oriented operations. As discussed earlier, building affordable housing spurs economic activities, generates jobs, creates value chain along with other related industries.
Furthermore, providing affordable housing should also contribute to sustainable development, making a significant impact on the protection of the physical environment. Since these would entail additional costs, private developers will need the appropriate support to incentivize their adoption of “processes and innovations” that will lead towards the attainment of sustainable development goals. These shall include, but not limited to, the adoption of adequate environmental protection systems and sustainability strategies. Incentives are needed to defray the additional outlays and expenses incurred to adopt sustainability practices and facilities in affordable housing projects. Private developers readily respond to incentives and adopt to the growing market preference for sustainable housing.
To summarize the prospects for Philippine housing in the next twenty or so years, the following were the main findings:
- Increased demand for affordable housing. As the Philippine economy transitions to upper middle-income status, poverty levels are expected to decline below 10 %. Demand will be especially high at the socialized, economic, and low-cost housing segments when the household incomes many begin to increase—when those who once could not afford will now be able to purchase quality, and sustainable housing units. Affordability can come in the form of the capacity to borrow from lending institutions or long-term leases or lease-to-own schemes.
- Higher demand for housing and home improvements due to increased employment and household incomes, especially from remittances from overseas workers and/or earnings from the BPO-IT sector. The latter source of income is expected to surpass the former in total earnings as BPO-IT workers transition to higher-value services.
- Need for sustainable and affordable housing due to rapid urbanization. The rate of urbanization will accelerate as more areas become developed and more of the population move to the cites. Over 60 % of the population will be living in the urban areas by 2040. The Build, Build, Build program of the Government, in close cooperation with the private sector, will increasingly transform rural areas into urbanized territories, especially in CALABARZON, Central Luzon, Western Visayas, Central Visayas and Northern Mindanao. Sustainable and affordable housing developments in the future will have to consider this rapid shift to urban living, or at least “rurban” living.
- Limited funding for affordable housing and reliance on incentives and subsidies. Housing finance support from the government will continue to be limited in the next four to five years as the debt-to-GDP ratio remains to be high at close to 60 %. The government will continue to rely on the HDMF and the private sector in the financing of housing through tax incentives and interest subsidies. Funding from SHFC and NHA will likely focus on resettlements and/or calamity assistance. Eligibility to avail of incentives under the SIPP will remain critical in providing affordable housing to the economic and low-cost housing segments.
- Allocation of affordable housing on the basis of price ceiling adjustments. Allocation of resources of developers to sustainable and affordable housing will depend on how price ceilings will be adjusted in relation to such factors as construction and land costs, as well as other opportunities available provided by government appropriations in higher-income segments and other construction projects.
It is obvious that the Philippine economy attaining high-income status in the next twenty years will mean very little if a large segment of the population will still be unable to afford owning or renting decent, comfortable and sustainable housing. After food security, housing—especially for the lowest income households—should receive the highest priority, if not in the annual budgeting process (where education and health are given prominence), at least in the efforts to combine public and private sources of funding in the provision of socialized, economic and low-cost housing.
For comments, my email address is bernardo.villegas@uap.asia