Housing policy imperatives – Part 2

Last week’s column set out my principal queries as to our nation’s housing policy – see http://www.vision2020.info.tt/pdf/Policies and Procedures/Strategic_Corporate Plans/Housing Plan.pdf – and the intervening events have only put those into better focus.

Key points –
Cheaper Govt Houses’ in the Sunday Guardian of 27th June featured an interview with Dr. Roodal Moonilal, Minister of Housing and the Environment.  The Minister touched on some of the key issues and confirmed that

…Some people simply cannot afford the market value of the homes. As a result, Government is looking to provide a further subsidy to assist with the purchasing of homes. I intend to take a proposal to Cabinet to consider the price reduction of the housing units…

– see http://guardian.co.tt/news/politics/2010/06/27/cheaper-govt-houses-pg-6 .

There was no mention of rented housing in that article, so it seems that the new Minister has adopted the existing policy of preferring to sell the new homes built by the Housing Development Corporation (HDC).  In addition, he is proposing to increase the housing subsidy.  An important  correction is that HDC houses are not sold at ‘market value‘ as the Minister implied.  Market value is the amount the new home could sell for on the open market and the HDC offers the new homes to applicants at a lower price.

What is Housing Subsidy?

This is an important aspect of the housing policy discussion and these are the basic points –

  • Public funding – To create new homes, the HDC has to spend public money for land acquisition, professional fees and cost of construction – these are ‘first costs’ for new homes, but there are other significant costs of getting a needy family to move in.
  • Housing subsidy – For example, if the market value of a new HDC home is $900,000 and those homes are sold to applicants for $425,000, the housing subsidy in that case is $475,000.  Please note that I am not relating the sale price to the cost of production of the new home – that is a mistaken approach, because it ignores the opportunity cost of the investment decision to sell at that reduced price.  Effectively, this ignores the market to the detriment of the taxpayer.  Even in the case of rented housing, the same basis would apply, with the difference between the market rent and the actual rent being the weekly housing subsidy.
  • The allocation of Housing SubsidyFidelis Heights at Bates Trace in St. Augustine is a new HDC development of townhouses near to UWI – in my view, the homes there are middle-income units which should not have been built by the HDC.  In that case the housing subsidy per unit is in excess of $850,000.  In view of the desperate national housing shortage and the scarcity of resources, it was a grievious mis-allocation of both public capital and housing subsidy to have embarked on this scheme.  In the examples cited by the new Minister, the housing subsidy is far lower.  The people who purchased units at Fidelis Heights got them at between $780,000 to $900,000.  I am also aware that those homes were allocated without reference to housing need – i.e. some of them went to single people, without children.  To put it plainly, there is no case for allocating $850,000 in housing subsidy to a single person, when there are entire families in greater need, who are not catered for by the system.  There is a very poor quality of discussion on the issue of housing subsidy.  That is because of the system of cost-based pricing, as mentioned above, which error is compounded by the sparse references in the official statistics.  I have only been able to unearth a single official attempt to quantify housing subsidy in the ‘2010 Draft Estimates of Development Programmehttp://www.finance.gov.tt/documents/publications/pub07D7E4.pdf ‘Provision of Housing Subsidies at Greenfield sites’ is stated, at line H 003 to be $3,058,863.  I am not saying that there is a poor understanding of the role of housing subsidy.  That would be untrue, since the people who are manipulating the system all understand the real value of housing subsidy very well.
  • Rent control – ‘Rent subsidies for tertiary students’, also in Sunday’s Guardian – see http://guardian.co.tt/news/politics/2010/06/27/rent-subsidies-tertiary-students – featured a discussion on the housing situation affecting 14,000 UWI students.

    [Minister of Science, Technology and Tertiary Education (MSTTE) Fazal] Karim said while the university has established mechanisms to register landlords “there exist no mechanisms to monitor prices, ensure quality accommodation, minimise security anxiety or seek the interests of the landlords and students.” In the near future, Karim said, the MSTTE and the Health Ministry will establish a committee that will make recommendations to establish mechanisms for the provision of subsidies “on rents to all students residing in the region and who are registered at tertiary institutions in the area.”

It seems from his statements that the MSTTE is proposing a rental subsidy to all tertiary students, whatever their means.  In a situation of scarce resources, that type of policy can have inequitable consequences, since some of these students are not needy at all.

The Minister of Legal Affairs, Prakash Ramadhar, attending as MP for the area, said –

…what adds to the problem is the lapsing by the Rent Assessment Board. “We nationally had to debate the issue if this country would go into a free market in terms of rent or rent restriction.”

Ramadhar said he would like to see free market forces determine rents.

Legal Affairs Minister Prakash Ramadhar, left, Fazal Karim, Science, Technology and Tertiary Education Minister, right, listen attentively to the landlords during yesterday’s discussion. Photo: Jennifer Watson. Courtesy Trinidad Guardian
Legal Affairs Minister Prakash Ramadhar, left, Fazal Karim, Science, Technology and Tertiary Education Minister, right, listen attentively to the landlords during yesterday’s discussion. Photo: Jennifer Watson

So here we have the paradox deepening, with the Minister responsible for the rent control system seeming to say that he is against those controls.

The outlook for the state’s intervention into the housing arena is confusing, to say the least.  Confusion is the ideal atmosphere to breed under-performance and corruption.

Our needy citizens deserve better.  This entire debate should be to create reasonable, redistributive and  sustainable housing policies for our nation.

The allocation of scarce housing subsidy must be reported and improved, so that the most needy receive the most subsidy.

Next week, we expand to include questions as to how many of the HDC houses are occupied by the legitimate tenants?  Are steps being taken to deal with those who have broken the terms of their tenancy?  Also, some discussion on the use of re-purchase schemes as another way to create extra units of housing.

SIDEBAR: The numbers’ game

Last week’s column asked Dr. Moonilal to specify how many new homes were empty at this time and it was very disappointing to read that “…approximately 10,000 homes, including defective units, are unoccupied…”.  The new administration has to strive to do better than the one they just replaced and it is just not acceptable that the HDC cannot (or will not?) report on an elementary matter like this.

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5 thoughts on “Housing policy imperatives – Part 2

  1. A very serious need for proper information and vigorous national debate has been launched by this article. The matter has wide implications for the economy, the thrust of national development and health of the democracy in terms of the physical situation of the citizen in relation to the State. I leave aside obvious matters like stress, security and the expansion of the Commons.

    Also this question of the rental portion of the housing policy, with divergent views within the Administration, goes to the matter of the overall economic posture of the PP. A very influential segment of this coalition Administration comes from the “independent” business community. They’re twice invested now, privately and politically. Should there be a regulatory watchdog posture or assertive involvement? It is, of course, a cop out to say simply “it should be both”. The question is, which should be emphasized. If the political maturity and individual responsibility of the citizen matters, then markets should lead the way. The State should do everything in its power to encourage DIY and develop the culture of independence from State resources. It should also step up and overhaul its information dissemination – key performance numbers should be a regular quality feature of the transactions of the MoH.

  2. “There is a very poor quality of discussion on the issue of housing subsidy.”
    Knowledge base leads to effect and results, no?
    And if we go back a few steps, are we then left with the question of who is creating housing policy, from what knowledge base? what qualification? and could this be a central factor of what to change for a working and future housing policy?

    We are on the same line of thinking, I see as you go on to state : “I am not saying that there is a poor understanding of the role of housing subsidy.”
    But my point is to insist something or things are very poor in this process. I think a series like this owes the reader, though they may be few, stakeholders and the national interest to outline and state plain what they may be, in the interest of change and ending the merry go round

    To the point of poor: the Tertiary Minister speaking of rent controls just for uwi tertiary students; everything is done in isolation and silos, what of rent controls, quality and monitoring for the rest of the nation??!!

    “free market forces determine rents”
    for me to read that in the context of trinidad and tobago I am left feeling people have no real deep understanding of this economy and its peculiarities, despite the abounding examples in length and breadth, industry to situations. we put a whole new meaning on “free”

    these are the individuals to whom housing policy flows and unfolds…right?
    refer back to my mentioning and cautioning of identifying “poor”

    I see in this article you end with the need for the research I identified in the comments to part one.

    good follow through

  3. “develop the culture of independence from State resources.”

    this comment from the above reader leads to understanding the peculiarities of this economy and the mismatched idea and mention of “free market” by the Minister of Housing…
    on further thought it shows how phrases and ideas from elsewhere are bandied about out of context and relevance to our realities and landscape

  4. why doesnt the end of each article have a tab to go to the next in series?
    let me check my right column
    um
    none
    next inclusion?
    oh, i see it after comments…think it needs to move

    to right under end of article, though I presume you are trying to get comments before folk move on…

  5. why doesnt the end of each article have a tab to go to the next in series?
    let me check my right column
    um
    none
    next inclusion?
    oh, i see it after comments…think it needs to move

    to right under end of article, though I presume you are trying to get comments before folk move on…

    nope, that was part three of another series.
    NOTE to AFRA: tabs of continuation after article, alongside “Trackback”

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