USING SUBSIDY TO INCREASE HOUSING STOCK
The
provision of affordable housing is one of the biggest problems of any
Government. Though most Governments prefer to shy away from this; yet the
problem stares at them.
One
of the major reasons for the “look-the-other-way” by Governments is believed to
be the lack of effective Housing Finance Model which would facilitate increase
in housing stock and easy access by prospective beneficiaries.
This
write-up would present a Model which, hopefully, would encourage Governments to
invest in Social Housing as a social infrastructure to address the enormous
Housing Deficit challenges.
For
better clarity of the Model, a subsidized housing project undertaken by the
Akwa Ibom
State Government, Nigeria, in about 1998/1999 would be used as a
Case-Study. It would compare the subsidy model used then with what we are proposing.
Developed
in 1998/1999, during the last military regime in the State, the project was
the brainchild of the last Military Administrator, Group Capt. John Ebiye. It
was meant to be a low-income estate with 100 units of 2 – bedroom detached
bungalows.
Well
situated along Udo-Udoma Avenue, the estate was unique as a model Direct-Labour
Project. It had reasonable infrastructure provision – paved roads, electricity
and water (though the bore-hole and overhead tank had since failed).
The
development cost per unit is not quite known. But per unit selling price was
highly subsidized. Each beneficiary was required to make a down payment of
N100,000= with the balance of N500,000= spread over fifteen years at zero
interest.(That was a huge amount then).
This write-up is concerned only with the subsidy and mode of payments by
beneficiaries. It is not concerned with the criteria of allocation or those who benefited from the project.
The Downside Of The Project
As
lofty as the project might have been, it only benefited 100 households; and
after fifteen years of repayment period, the project has not been able to add
even one more unit to itself - continuity and sustainability issues.
Beneficiaries
assumed full ownership of the units after fifteen years of installment payments,
despite the “Public Investment” –
Subsidy, in the project.
Housing
Market being almost always on the positive index, units’ value rose over and
above the original selling prices (not the subsidized value) in just under five
years.
(i) Most beneficiaries never occupied their
units but rented them out at market rates
giving them huge profits on their little or no investment. In fact those who rented their units invested nothing, as rents collected were in excess of their annual installment payments.
giving them huge profits on their little or no investment. In fact those who rented their units invested nothing, as rents collected were in excess of their annual installment payments.
(ii)
Some of the units had been out-rightly sold
out – again at hugh profits.
(iii)
Not much impact of the project in the
Housing Market.
But, does that imply there should be no Housing
Subsidy? The answer
is No! Housing Subsidy is an
absolute component of Housing Finance.
Without subsidy, a sizeable percent of the population, (more than 70% of
Nigeria’s population), cannot afford man’s second most important basic need, shelter.
But for
effective and efficient implementation of Housing Subsidy, with positive
impact, subsidized Housing must be treated as a Social Infrastructure that Beneficiaries occupied, NOT owned in
the real sense of ownership. By so doing, public investment in the project is
protected, and profiteering is eliminated.
SUBSIDIZED HOUSING FOR OCCUPATION,
NOT OWNERSHIP
As seen
above, it’s quite clear that there is the need for restructuring of Housing
Subsidy programmes for it to stimulate and encourage Governments’ interest. Policy
makers need to see the impact of the Subsidy in real terms to appreciate
continuous appropriations.
Where Beneficiaries
of subsidized housing assume full ownership of the units, it allows for
corruption, nepotism and favoritism.
Under Occupation arrangement, a beneficiary
must occupy the allocated unit; cannot rent, cannot sell, and cannot transfer
the unit to another occupier.
It is hoped
that the finances of some or most beneficiaries would not be static all through
their life span. There comes a moment where a beneficiary, by income or family
size, out-sized his/her allocated unit.(See Part i, here) In such circumstances a beneficiary, who
needs a larger unit, would simply handover the unit to the Authority managing
the scheme. A Transfer Value Formula
would be applied to determine the worth of the unit intended to be vacated. The
result could be “a plus” or “a minus” of the initial amount paid.
If there
had been a significant improvement that adds value to the unit, there would be
“a plus”, otherwise “a minus”. The amount would either be paid back to the
previous occupier or transfer as part payment for a new and bigger unit. The
vacated unit would be allocated to a waiting beneficiary.
Because of
the anticipation of getting back part of their investment, it is believed that
occupiers would be encouraged to maintain their units in good habitable
conditions.
Nevertheless,
transfer is dependent on whether or not Government accepts occupation rather than ownership.
This write-up will is focus on the application of Housing Subsidy for increased
Housing stock.
USING HOUSING SUBSIDY TO STIMULATE
INCREASE IN HOUSING STOCK – OUR CONCEPT
Over the
years, Housing Subsidy has been adopted and implemented by various Governments
as a means of alleviating the enormous Housing challenges being faced by the
society. Sadly though, not much has been achieved. Failure to achieve significant
impact could be attributed to the repeated “standard” methodology of
implementing Housing Subsidy.
For over
two decades, this author had been in search for an alternative methodology of
Housing Subsidy implementation.
Is Housing
Subsidy a viable initiative towards solving the daunting challenge of Housing Deficit? Or is
it just a conduit pipe that should be burnt off?
The word “subsidy” undoubtedly, could be expunged
from some countries lexicon, like Nigeria, if possible; what with the “Fuel
Subsidy” storm which is yet to settle!
But there
is nothing against subsidy, except how it is implemented.
Remove the
intermediaries, and let the subsidy go directly to the Beneficiaries, the
impact is overwhelming with more Housing units built.
HOW IT WORKS
To make the
methodology self-explanatory, we shall continue with the Project in our
Case-Study as our reference point.
1. Government has funds for 100 units of
2-bedroom bungalow. (It could be any house type). All Architectural/Engineering
Designs and Drawings done.
2. Sizeable land, to allow for expansion has
been acquired.
3. Development cost per unit determined.
4. Selling price per unit also determined
(Development cost plus 25% for Administrative expenses and prof. fees; without
any profit margin).
5. Allowed subsidy set.
6. Projected number of Beneficiaries is
established, using a formula developed by this author. The projected number of
beneficiaries would be significantly higher than 100 depending on the %-age
subsidy allowed.
7. Prospective Beneficiaries are asked to
make a Down Payment of not less than 30% of the subsidized amount. (Of course,
there would be more applications than the projected number of Beneficiaries).
So first-come-first-serve would be the business. Excess applicants must have
their Down Payment refunded, without interest.
8. Prospective Beneficiaries are formed into
a Housing Co-operative.
9. At this point, participating Financial
Institutions make available 70% of the subsidized amount.
10. With the 30% Down Payments and 70% from
Financial Institutions, more units are built for the additional Beneficiaries.
11. The 70% from the Financial Institution
would be repaid by all Beneficiaries under a pre-determined and agreed terms
and conditions.
The rationales
here are:
(i) Housing subsidies should be designed for those
who are unable to afford shelter
without some form of assistance.
without some form of assistance.
(ii) Even with the allowed subsidy ranging from
10% - 50%, target Beneficiaries would still need to pay the subsidized amount
by installments.
(iii) Rather than waiting ten to fifteen years of
final installments payment, when similar units could not be developed at
the original development cost; there should be a way of pulling funds together
for more units to be developed.
(iv) The installment payments would be better off for making repayments to the source(s) of the additional funds.
(iv) The installment payments would be better off for making repayments to the source(s) of the additional funds.
Had this
methodology developed and accepted for implementation at the time the
project
in our Case-Study was developed, the 100 units built would have yielded about
additional self-funded 116-150 units depending on the subsidy. That could have
resulted to a total of about 216-250 units without further financial inputs
from the
Government; and all beneficiaries enjoying the same %-age subsidy.
Please leave your comments below or e-mail the author at md@dplusonlineltd.net.
You can also read Part ii, here
Copyright
All rights reserved. This material, may not be reproduced, published, broadcast, rewritten or redistributed in whole or in part without prior express written permission from THE AUTHOR
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