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Home Help Preferences: A. The Public Sector
Home Help Preferences: A. The Public Sector
Home Help Preferences: A. The Public Sector
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Support Measures to Promote Rental Housing for Low-Income Groups (HABITAT, 1993,
132 p.)
IV. SUPPORT FOR FORMAL-SECTOR RENTAL HOUSING
A. The public sector
B. Subsidies, targeting and non-economic rents
C. Sub-letting of public housing
D. Encouraging formal sector private investment in rental housing
E. The roles of employers, community organizations, NGOs and cooperatives
As was noted in section B of the Introduction, many governments have built housing
for low-income groups. In the early years, much of this housing was built to rent. In
Western Europe, vast numbers of housing units were built in this way and in some
cities, this housing accommodated large numbers of tenants. During the 1960s and
1970s, many third-world governments followed this example and built housing for
rent. This policy was clearly most popular with communist governments, as in China,
but capitalist governments such as those in Ghana, Mexico, the Republic of Korea,
Singapore and Venezuela all had major public rental-housing programmes at this time
(UNCHS, 1989: 5). In recent years, however, government attitudes have changed
widely and few governments now build housing for rent. In most countries, they have
sold the property to the occupants, often with a generous financial incentive (Daunton,
1989).
Increasingly, the public sector has withdrawn from building or even financing housing
at all. The World Bank (1993: 62) is strongly supporting this position; seeking
The Bank is even more strongly set against subsidized pub lie-housing programmes.
While some governments continue to build public-housing units, the general ethos has
changed. The shift in policy has come about partly for ideological reasons; a principal
factor in the United Kingdom which is one of the models for the new paradigm. An
economic rationale also lies behind this decision; notably fears that public housing
investment is squeezing out the private sector. But, probably the main factor behind
the change is the inefficiency with which public housing programmes have operated.
As the World Bank (1993: 90) puts it:
“unlike the private sector, where market forces bring about an efficient provision of
new housing, publicly supported housing has no explicit mechanism for ensuring
efficiency. In the private market the profit motive provides a strong incentive for
efficiency; the public sector lacks this discipline. As a result, the public sector may
build in locations where no one wants to live or produce units costing more than
people are willing to pay.”
Unstated by the Bank, but of undoubted importance, has been the desire by
governments around the globe to cut spending at a time of economic recession. In this
context, there is little likelihood of the State building or financing housing on a large
scale in most less-developed countries.
Policy towards public housing in the survey countries has broadly followed a similar
trend. In India, the Federal Government built housing for rent during the 1950s and
1960s but its record was less than impressive. The experience of the individual states
was sometimes even worse.
“Rent recovery was poor, eviction difficult and the cost of maintenance high... the
structural condition of the houses deteriorated. Apart from this the targeting was poor,
the houses changed hands and ended up with income groups higher than the target
groups” (Wadhva, 1993: 4).
In 1978, the Federal Government resolved to convert public housing tenants into
owner-occupiers and the property was offered for sale to the occupants. Today, the
only rental housing provided by the State is for its own employees. State governments
have gradually followed the same policy (p. 26). In Delhi, however, the size of
government workforce is so large that rental housing units still account for a not
insignificant part of the housing stock. In 1981, government rental housing
accommodated 6.3 per cent of all households in the city and 13 per cent of all tenant
households (NIUA, 1989b: 176). But the policy of the Indian Government is clear:
In Nigeria, public intervention in housing came with the British policy of providing
accommodation for expatriate staff and for strategic indigenous groups such as the
police and railway staff. After independence, the Government continued to provide
key staff with accommodation and also embraced the concept of building public
housing for poorer groups in society. While ambitious public housing targets were set,
particularly during the 1970s, many fewer units were built; between 1972 and 1983
only 45,000 units were constructed compared to the target of 261,000 (Ozo, 1993:
13). Public housing in Nigeria was usually intended for owner-occupation, although
renting was encouraged more under the Third National Development Plan, 1975-80.
Even then, however, most of the units were sold. As a consequence there is no public
rental housing in the city of Benin. This may be a good thing in the light of comments
on public management of rental housing in the rest of the country. As Oruwari (1987:
180) puts it:
In Egypt, public housing construction began on a large scale with the July Revolution
of 1952. Between 1952 and 1960, some 32,000 units were produced, 117,000 in the
1960s and 190,000 in the subsequent decade (Soliman, 1988: 68). When matched
against the huge demand for housing in Egypt even these impressive figures barely
scratched the surface. Perhaps this was why so few subsidized units reached the poor
(El Kadi, 1988: 24), most being allocated to State employees whatever their income
(Feiler, 1990: 127). Until the mid-1970s, most public housing units were let; since
then, most have been sold. Increasingly, the State has withdrawn from the production
of subsidized housing, and in Cairo, the public sector no longer contributes
significantly to increasing the urban housing stock (El Kadi, 1988: 24).
B. Subsidies, targeting and non-economic rents
In the past, most governments used to subsidize public housing whether it was
intended for rent or sale. If public housing was to reach the poor, subsidies were
thought to be essential. The problem was that since there was so little housing relative
to need, such subsidized housing was in great demand. As a result, little ended up in
the hands of the poor. It was either allocated to families with some kind of influence
or was rented out to more affluent families by low-income allottees. Studies from
around the globe provide abundant evidence of the misdirection of public housing
subsidies.
Chile provides an interesting case of this kind of policy in action. A loan from the
World Bank in 1984 represented “one of the first instances of Bank lending in housing
where the Bank financed an explicit subsidy program, albeit with the understanding
that it was to be replaced by a non-subsidized system by the time the project ended”
(Persaud, 1992: 3).
In practice, it is clear that the Chileans continued to offer subsidies but did manage to
target them at lower income groups. While the subsidy system probably misses the
poorest 10 per cent of households, by world standards, theirs is not a bad
achievement. The principal problem has been that the Government has been rather
ineffective in recovering the non-subsidized loans made to home owners.
“Even with a 75% explicit subsidy.... the average arrears of 90 days or more is greater
than 70% for every group. This situation (including various additional payment
incentive schemes) defeats the main attractive elements of the system and makes it
rather meaningless to speak of explicit and hidden subsidies” (Persaud, 1992: 6).
Another problem, at least in the context of this report, is that Chile's housing subsidies
are directed entirely at owner-occupiers. There is no form of subsidy available to
tenants.
Insofar as governments offer subsidies to the poor, then they should offer them to
tenants as well as to owners. The failure to do so means that poor families are
effectively forced into owner-occupation, whether or not it suits their particular
household situation.
Where subsidies are offered to tenants in public housing there will always be concern
that the intended beneficiaries do not pass on the subsidies to other occupiers. In
practice, most programmes around the world have suffered from sub-letting.
As governments have built housing increasingly for sale and have sold off
accommodation to their former tenants, sub-letting has become a less significant
concern. However, the issue of whether owners in receipt of subsidies should be
allowed to rent out their units remains a major area of controversy. In general,
governments frown on this activity although it is clear that the practice is or has been
widespread in Chile, Colombia, Jamaica, Kenya, Mexico, Sierra Leone and Venezuela
(Handelman, 1979; Klak, 1992: 338; Laun, 1977: 310; Persaud, 1992: 6; Stren and
White, 1989: 56; Temple and Temple, 1980: 247).
In recent years, few governments have provided much incentive to private companies
to invest in rental housing. They have certainly provided little or nothing in the way of
funding. The only policy to encourage private investment that has been at all widely
adopted is to ease rent controls. In practice, even this policy has not spread very far.
“regulations governing mortgage lending are usually biased toward completed owner-
occupied housing, making it unattractive or impossible for financial institutions to
lend for rental housing or condominium housing, or for house improvements or
unfinished core houses on serviced sites.”
In Saudi Arabia, the Government has been more successful in its rental-housing
incentives. The difference is that the incentives were intended for the construction of
housing for expatriate professional personnel. Subsidized loans led to companies
building some 24,800 units between 1975 and 1985 (Tuncalp, 1987: 353-4). It is
clearly much easier to attract investment for profitable high-income rental units
accommodating tenants who are bound to leave the property when they return home.
In the Republic of Korea, however, the Government has also managed to attract
private investment into the provision of rental housing for low-income groups. The
offer of subsidized loans and exemption from the capital gains tax was supported by
discounting the sale of serviced land by 10 per cent. Between 1982 and 1986, land to
accommodate 34,000 units was made available (Byong Key, 1987).
In Nigeria, there is little finance for any kind of housing although owner-occupiers are
eligible for cheap credit when buying property from the Government. A social rate of
interest of 6 per cent is available in such circumstances compared with the 22 per cent
charged when the individuals build houses themselves. Mortgages are available to buy
rental housing but the cost of borrowing is higher; the rate of interest varying from 22
to 29 per cent according to the size of the mortgage (Ozo, 1993: 41). The policy
therefore discourages rental housing, especially building such housing on a large
scale.
A review of housing policy in 1985 accepted that more construction was necessary
both for rent and for ownership. The review recommended some revision to the rent-
control legislation, the lifting of the 0.5 hectare limit on any one individual's leasing
of government land, incentives in the capital market and encouragement for non-profit
organizations to produce hostels for special and disadvantaged groups. Unfortunately,
very little has been done to implement any of these recommendations.
1. Employers
Employers have not generally provided housing for their employees. The main
exceptions have been mining companies which have accommodated large numbers of
their workers in areas lacking towns and the government itself which has often built
homes for special interest groups, such as the military.
In India, the Government has also encouraged private employers to build homes for
their workers. The Subsidized Housing for Industrial Workers Scheme was launched
in 1950 and offers employers loans covering 50 per cent of the construction cost and a
subsidy of 25 per cent. Between 1973 and 1988, employers managed to provide some
2 million homes, much of which has gone to lower-paid staff. In the private sector,
companies with less than 500 employees have been responsible for the majority of
this housing, contributing some 62 per cent of the total (Wadhva, 1993: 61). Despite
the apparently large numbers of units constructed, the Scheme has not been popular
with employers because few firms have been anxious to use their investment surplus
for housing. They have been further discouraged by the effects of the tax laws. Some
employers have also faced difficulties reclaiming the property when workers have
retired; the latter have simply refused to leave. As a result, employers became less and
less keen to utilize the subsidies offered, and in 1979, the Government allowed
companies to sell off their housing units (NIUA, 1989: 174-175).
“these allowances, although paid to all workers irrespective of tenure, provide a major
source of demand for rental housing and thus acts as a stimulus to investment in rental
housing.”
In Egypt, housing has been provided by most major employers and has been
encouraged by the requirement to devote 10 per cent of annual profits to workers”
housing (Serageldin, 1993).
2. Cooperatives
Cooperatives play a significant; role in improving the quality of housing in many
third-world countries. Two major reviews, of their contribution in the housing field,
however, report very little in the way of involvement with rental accommodation
(United Nations, 1979; UNCHS, 1988). Their principal activity has been in the area of
sites-and-services.
Cooperatives have not always received the full support of the government. In Turkey,
for example, where the cooperative movement has a long history, the Central
Government has recently discouraged action.
“The policies of the present government aim primarily to promote individualism and
private enterprise in housing, as opposed to collective methods” (Keles, 1990: 166).
In India, cooperatives of workers have been eligible; for subsidies under the
Subsidized Housing for Industrial Workers' Scheme, although few have taken up the
offer. Some tenant co-partnership housing societies have been created in India, buying
land and buildings and allocating them to share-holding members who pay rent to the
society. Such societies mainly cater for lower- and middle-income groups. Such
societies are nominally tenant associations but in practice their methods offer many of
the advantages of ownership (Wadhva, 1993: 63). Generally, however, cooperative
action in India has not been successful among the poor and, according to Bhattacharya
(1990: 88), has “completely failed to stimulate housing activities in the lower-income
groups.” Perhaps the most successful activity of tenant cooperatives in India has been
as a way of maintaining rental housing. Bombay and Delhi both have useful
experience in this regard (see section VII.I).
In Egypt, many trades unions have established housing cooperatives and the
Government has supported these organizations through subsidized loans (Serageldin,
1993: 31). However, the vast expansion in these cooperative housing societies from
154 in 1960 to 1720 in 1989 represents more a way of avoiding the legal obligation of
employers to build rental housing than a real boom in cooperative activity.
3. Non-governmental organizations
“NGOs are seen as crucial in the development of enabling policies. They have a
proven ability to work together with the poor, they have shown that they can operate
as effective intermediaries between governments and popular organizations, and they
have demonstrated their ability to manage the highly participatory projects to which
governments have found their agencies unsuited” (UNCHS, 1988: 11). Unfortunately,
there are few examples of their having engaged in activities to develop rental housing.
In India, the role of NGOs is insignificant although some trusts have established
hostels for the needy, for example, the Muslim Waqf Boards and the All India
Women's Conference for Working Women. Most such trusts are non-profit-making
and they charge low rents. They used to benefit from the acquisition of cheap land but
this is no longer possible. As a result, many are now finding the operation of hostels
unviable. The YWCA has recently converted its hostels to commercial uses.
In Nigeria, there has been little activity by NGOs in the housing field. In Benin City,
the YWCA is the only NGO to have built rental housing; it operates a hostel for
unmarried students.