THE shortfall in ‘affordable’ housing has now reached, according to the government’s best estimates, about 5.5 million, and will likely be 5.7 million by the end of this year. It has prompted Vice President Leni Robredo, in her capacity as head of the Housing and Urban Development Coordinating Council (HUDCC), to sally forth earlier this week to exhort the government and private sector to work together to solve the problem.
With construction cranes rising all across Metro Manila like a weird metal forest, it is a bit hard to imagine that the country is not building fast enough, but that actually seems to be the case; the shortfall is growing by about 200,000 units per year. As the population grows, that shortfall will grow at a faster rate year after year, if the current trend of residential construction continues and ‘affordable housing’ is not specifically addressed.
One thing that may confuse both policymakers and the public is exactly what is meant by ‘affordable housing’, so perhaps the first step VP Robredo ought to consider is to clarify it in a workable way. The definition is necessarily shaped by social characteristics, and the simplest one to include in it is people who have no homes at all. One step higher on the social ladder is people who can be generally considered to be living in below-standard dwellings, such as in squatter areas. The people in these two rather obvious categories are considered candidates for public or socialized housing, and account for about 1.4 million of the overall shortage of housing units.
The rest, however, are not so clear-cut. The idea of “a shortage of affordable housing” presumes that there are people who would like to own a home but cannot afford to do so because their incomes are too low. The only way to determine this empirically is to establish an average minimum price for an adequate dwelling, and then determine what part of the population does not earn enough to afford what would be the normal monthly amortization for that dwelling. In credit assessment, the rent (or mortgage) payment for a particular house, condo, or apartment should not exceed 30 or 40 percent of a person’s gross income, so given that, it would be rather easy to determine how many people could not afford the ‘average minimum’ housing unit.
But that number would almost certainly be too high; there are people who are completely capable of affording a house who for one non-financial reason or another simply choose not to. The only way to determine what the real lack of ‘affordable’ housing actually is to conduct a comprehensive survey, though even the best survey would have a significant margin of uncertainty.
That being the case, perhaps the government should focus first on the segment that is the most clearly defined, the 1.4-million gap in ‘public’ housing, and leave the rest of the not so easily defined shortage to market forces, because there are signs that the market forces are slowly pushing the housing sector to a new equilibrium.
The Philippines has followed a pattern typical of emerging economies that are discovering success; real estate development is one of the early sectors (after retail) to grow to soak up consumption in a growing economy. Developers typically target the part of the market that promises the fastest return, and that is typically the higher income bracket. Upward mobility between income brackets in a growing economy is faster, the lower one’s starting point; in other words, more people will move up from the D to C class than from the C to the B class in the same length of time. Thus what happens in the real estate market is that the available customers for higher-scale property are rather quickly absorbed and development outpaces upward mobility, leaving a balloon of middle-income group underserved.
Myanmar, which is experiencing even more rapid economic growth than the Philippines although starting from a much lower base, is experiencing the same problem in its real estate sector, with the current overstock of higher-end real estate now estimated to be about 6,500 units. Its solution has been to relax foreign investment rules to allow foreigners to own more property in order to soak up the surplus, a plan that has had limited success.
Here in the Philippines, the real estate sector seems to have taken a better approach in the lack of government guidance, and if left alone, might close much of the housing gap on its own. Developers are converting many units intended for sale into rental units, and there is growing interest in smaller-scale housing, such as that suitable for students or commuting workers. If the government is to become involved at all on this level, it should only be to make it easier for developers to access the market – actions that, for the most part, are already part of President Rodrigo Duterte’s stated aim to improve government efficiency and cut red tape and corruption.
Whether Vice President Robredo understands it or not, that’s really what “working together with the private sector” should mean, at least with respect to the housing shortage—let both sides focus on the part of the greater problem they’re best suited to handle.