Rethinking Institutional Reforms in the Philippine Housing Sector i

I. Introduction ......................................................................................................................................................................... 3
II. Context: Philippine Housing ......................................................................................................................................... 3
III. Performance of the Housing Sector ......................................................................................................................... 5
Housing Subsidy ..................................................................................................................................................................... 5
CMP .............................................................................................................................................................................................. 6
Slum upgrading programs ................................................................................................................................................ 6
Resettlement and Sites and Services Programs ......................................................................................................... 7
Unified Home Lending Program (UHLP) .................................................................................................................... 7
Joint Venture............................................................................................................................................................................ 7
IV. Proposed Directions of Institutional Reforms ........................................................................................................ 7
Reforms on the Land Market ............................................................................................................................................ 8
Reforms in the financial market........................................................................................................................................ 8
Reforms in the governance structure of housing ................................................................................................... 8
Program-specific reforms .................................................................................................................................................... 8

Rethinking Institutional Reforms in the Philippine Housing Sector ii

It is apparent that the government, over the past 25 years has
employed different strategies to solve the housing problem in
the Philippines. From direct housing production, to policies on
rent control and pricing, to security of land tenure. But despite
these strategies, very little improvement and impact has been
made.
The gap between the demand and the supply specifically to
the low to middle income housing is widening, and the
families in slum and squatter colonies in key urban areas are
rising. Not only that, the standard of living is decreasing: 13%
of urban household lack potable water, 1 out of 5 households
has no toilet facility, only 50% of municipal wastes are
collected, and 76% of the total housing stock does not comply
with the current regulations. Housing strategies to solve housing problem
in the Philippines
This leaves us to think, “What really are the effects of
government strategies on the housing market, if there are any?” This report will try to present these
effects and at the same time present the strengths and weaknesses of these strategies.

There have been major reforms to effectively implement its strategies in housing. During the 1970s, the
housing strategy was highly centralized wherein an umbrella organization was created that oversees all
shelter agencies that had evolved since the 1950s. The umbrella organization was the Ministry of Human
Settlements (MHS). During these times, the local governments functioned mainly as an administrative
arm of the central government housing offices and they have limited accountabilities on squatter or
informal settlements in their jurisdiction. Housing programs include completed housing, medium rise
housing, resettlement/ relocation, public rental housing, development financing, end-user financing and
housing guarantee.
The rationalization of the shelter agencies were done in the 1980s. During this time, the MHS was
dissolved and the HUDCC was organized to coordinate the remaining shelter agencies (the shelter
agencies were reduced from 9 to 5). The participative approach started around this time. For low income
shelter production, the government started joint venture. The government, represented by the NHA tied
up with private landowners, developers, contractors, and other national and local government agencies
for shelter production. With this arrangement, both the government and the private sector shared the
resources, expertise, risk and profits. For informal settlements, slum upgrading was prioritized which
required intensive community and beneficiary participation in the design and implementation of projects.
Programs implemented during these times were slum improvement, resettlement, sites and services,
community-based programs, core housing, medium rise housing, development financing, end-user
financing, housing guarantee and mortgage trading.
The move towards privatization and devolution happened during the 1990s. The responsibility given to
the local government was increased through the Local Government Code of 1991. The LGC devolved

Rethinking Institutional Reforms in the Philippine Housing Sector 3

the housing and urban development functions to the LGUs. The LGUs now undertook housing
developments, led land use planning and gave authority to access private capital market. The devolution
focused on security of tenure and private housing. Some of the programs were similar during the
previous decade, only the rental housing was re-introduced.
During this time, the National Shelter Program (NSP) was crafted. This key action agenda for housing
aims to increase the housing stock for households in the lowest 50% of population. The program has 3
key areas that contain the various policy instruments in housing: production or the construction and
development, finance or the funds and budgetary appropriations, and regulation or the rationalization
of building standards.
The privatization in the 1980s up to present brought about noticeable changes on housing strategies. It
led to the prioritization of programs, participation of the business community and household in housing
increased, and incrementalism is applied on repayments. But because the participation of the local
government was increased, the functional responsibilities between the central and local government
were not clearly defined in housing development. Above all, because some of the LGUs depend on its
IRA, the funds were limited unlike with the central government.

Timeline of reforms in housing

Rethinking Institutional Reforms in the Philippine Housing Sector 4

The 1993-2002 NSP performance showed that more than half (51%) of the housing stock were obtained
from the developments provided by the private developers and financed through the different housing
finance programs (e.g. UHLP, MWLS, GFIs, Pag-ibig), the other half were from government housing
projects: 13% benefited from the NHA resettlement program, 12% from community-based programs
such as CMP and LTAP, and 16% from ownership of land through presidential proclamations of public
lands for socialized housing. Unfortunately, the impact of these accomplishments has been insignificant,
representing less than 1% of the total estimated housing need of about 3.8 million for period 1993-2002.
The succeeding discussion will discuss the performance of each housing program, what it contributed
to the performance of NSP and also its inadequacies.

NSP Performance, 1993-2002 (in number of HHs)

Security of Tenure
16%
CMP & LTAP
12% Private Sector
Development
51%
Resettlement
13%

Special Projects
5% NHA Regular
Production
3%
Private Sector Development NHA Regular Production Special Projects
Resettlement CMP & LTAP Security of Tenure

Housing Subsidy
There are four general types of subsidies in housing:
a) Interest rate subsidy, represents an implicit subsidy or income transfer because the borrower
pays a lower interest rate than what he would have paid in the market.
b) Land cost subsidy, beneficiary pays a lower-than-market price for the land.
c) Tax exemption, income or profits of developers from low-cost housing developments is not
taxed.
d) Cash transfer, refers to actual transfer of funds (e.g., grants).

Rethinking Institutional Reforms in the Philippine Housing Sector 5

 Tax Exemption,Land Cost
In government subsidies, only the higher 1,141.10 Subsidy,
income households are the main beneficiary Cash Transfer, 1,302.00
3.5
because loans are provided on the basis of
capacity to pay, which is computed as a fixed
proportion of borrower’s income.

During the year 1993 to 1995, 90% of

subsidies to the housing sector consisted Interest
of interest subsidies provided through end Subsidy,
user and development financing programs. 22,951.10
Even for interest subsidy it is difficult to target
poor household. Based solely on the loan
amortization tables of HDMF, GSIS and SSS,
the majority of pension fund members will not Interest Subsidy Cash Transfer
qualify for loans even at subsidized rates.
Tax Exemption Land Cost Subsidy

CMP
The Community Mortgage Program is dubbed as one of the more successful housing program. In 1993
to 1995, CMP received about 3.7% of the interest subsidy. Though the CMP has the most number of
low-income beneficiaries the bulk of its beneficiaries still are middle income families. It is also observed
that more than half (61% for CMP and 58% in LTAP) of the community accounts are at least six months
overdue. Unfortunately, the NHMFC is not capable of foreclosing overdue accounts. One reason is
NHMFC lacks manpower to follow through and monitor these tasks. The CMP has originators that help
the community in organizing and application, but their role in loan collection has not been clearly
defined. Furthermore, no penalties are given to originators in case there are overdue payments to
community loans. Another reason why there is low loan recovery in CMP is that there are no penalties
for delinquencies.
CMP has high dependency on government funds and capital financing. For the period 1995-2001,
government allocated P4.4 billion for the program but based on reports, only 44.5% of that amount has
been released. The rate of utilization of these funds shows that the program has mainly used up an
amount equal to the capital infused into the program.

Slum upgrading programs

This program has low efficiency rate of only 25% and has minimal beneficiary participation, that NHA
adopted a community self-help approach showing better results. This sought to reduce direct
government intervention and shift the responsibility for implementation (including the level and phasing
of development) to the principal stakeholders (e.g., beneficiaries and landowners). For instance,
collection performance of World Bank (WB) assisted slum-upgrading projects yielded a total collection
efficiency rate of 65% as of end 1999. The experience with these WB projects showed that initial efforts
at cost recovery in all completed projects had been disappointing. However, intensive campaign drive
improved collection efficiency.

Rethinking Institutional Reforms in the Philippine Housing Sector 6

Resettlement and Sites and Services Programs
In terms of collection efficiency, the resettlement and sites and services program turned out to be more
effective. Collection efficiency for resettlement is at 74% while 53% for sites and services. But resettlement
are known to be unsustainable. Beneficiaries abandon their housing units because most of the
resettlement sites are located in far flung municipalities with no proper transport system and livelihood
opportunity. These families return back to the urban areas and again squat.

Unified Home Lending Program (UHLP)

The UHLP was established in 1988 as a centralized housing fund for SSS, GSIS and PAG-IBIG members.
It is intended to facilitate home lending and allow borrowers to transact with just one agency thus
making it easier for developers to transact on behalf of their buyers for loan take-out under the program.
One major setback of this program is that the credit risk accrues mainly to the pension funds which
creates incentives for developers to exploit information asymmetry and provide housing for borrowers
who are not eligible, or to produce substandard housing. Some developers create non-existent
borrowers and submit mortgages supported by defective documents. They produce houses and earn
sure income from the takeout mechanism without credit risk exposure.

Joint Venture
From the period of 1978 to 2001, 131 JV arrangements were formed under the NHA JV program. And
more than 50% of these arrangement, the contribution of NHA was mainly technical assistance. The JV
program for mostly addressed the bureaucratic problems of other housing programs when dealing with
government offices. With JV, the NHA deals and help in dealing with government agencies thus
expediting the process. This program also enabled the NHA to facilitate developments of its land while
the private sector infuse investments into the project. Unfortunately, while the NHA prepares the
feasibility study, packaging, and finalizing, it also approves the project ending with no check and balance
of the project. In this program, the NHA has a larger accountability when it comes to accounts and
delays because NHA has a hand in reviewing the mortgage take-out before submitting to the NHMFC.
Even in delays caused by changes in policy of other shelter agencies over which NHA has no control.
And in the event that the partner is unable to collect from NHMFC, NHA also suffers from defaults from
the bridge financing it has provided.

Based on the performance of the existing housing programs in the country, many problems on housing
are linked to institutional barriers in the land and financial markets. Though the government has focused
reforms on organizational and program-specific issues, these reforms can only be effective if the basic
institutional issues are first addressed. Therefore, the following directions for reforms will be on the
following:
1. Land Market

Rethinking Institutional Reforms in the Philippine Housing Sector 7

 2. Financial Market
3. Government Structure of Housing
4. Program specific

Reforms on the Land Market

Reforms in the land market have to be undertaken to create an efficient functioning housing market.
Reforms on land taxation should be prioritized. Land taxation should be used effectively to generate
revenues and to serve as equalizing factor in the distribution of wealth. With real property tax, the
government will be flexible in providing basic services and maintaining physical infrastructure.
Furthermore, an efficient enforcement of property tax also nullifies the necessity of an idle land tax and
allows an efficient functioning of the land market.
Land Administration and Management Program (LAMP), though a long process should also be
continued and implemented in other parts of the country. This solves the issue on real property valuation
and conflicting ownership that stalled CMP negotiations.
Reforms in the financial market
Reforms in the financial market should link housing finance to the private capital markets. In the late
1990s, a Presidential Mass Housing Commission was created that implemented a new subsidized mass
housing program funded by the social security funds. This reform can be pursued further with few
adjustments such as to reduce subsidy starting with high- and middle-income markets. Rather than
enforcing a mass housing market with public guarantees and subsidies, it may be more realistic to
consider different financial technologies for various income groups. For instance, focusing on
microfinance mortgage lending, employer based housing, and cooperative-based mortgage finance. A
rental housing reform program should also be pursued.

Reforms in the governance structure of housing

For reforms in the governance structure of housing, the LGU access to private capital markets need to
be undertaken. In particular the reforms include the following: (1) improving information structure of
LGUs; (2) reviewing the regulatory framework on LGU deposits and borrowing limits; (3) providing
complementary mechanism for private sector and government funding; and (4) upgrading the design,
marketability, and competitiveness of LGU bond issuances.
The creation of a Department of Housing is not critical. What may be necessary is the creation of an
organization with a corporate personality to manage the funds rather than the creation of a Department.

Program-specific reforms
Because resource constraint is apparently not the only issue affecting low repayment, lending to the
poor through groups rather than individuals may be considered. The literature on group lending shows
that certain group dynamics (e.g., peer pressure, group solidarity) have had positive effects on repayment.
Moreover, the following issues have to be examined so that significant reforms in program requirements
can be undertaken:

Rethinking Institutional Reforms in the Philippine Housing Sector 8

 longer term of housing loan;
 highly heterogeneous households;
 group size of about a hundred households:
 problems of “professional squatters” and the “unitization” of land title being tied to
community loan performance tend to aggravate domino effect for nonpayment.

Rethinking Institutional Reforms in the Philippine Housing Sector 9