Thank you for that warm introduction, and for coming to this meeting. It is not the first time I have been honored by your invitation, and you will forgive me if I have come to enjoy it very much.
Anyone following our proceedings, especially if he or she were not supportive of what we are doing, might find reason to suggest that our topic has been so framed to enable me to talk about what the Vice President of the Philippines does in an ordinary day as member of President Benigno S. Aquino III’s cabinet.
“Providing shelter, creating jobs, and fueling growth” seems to describe, with a minimum of inaccuracy, my job as chairman of Housing and Urban Development Coordinating Council or HUDCC and principal presidential adviser on Overseas Filipino Workers concerns, not to mention my duties as chairman emeritus of the Inter-Agency Committee Against Trafficking or IACAT and head of the Task Force Against Illegal Recruitment.
Although in varying degrees, everyone in the Aquino government shares in that responsibility; but I am sure that if I failed to do my job, so many of our homeless would remain without homes, many of our unemployed would remain without jobs, and an important stimulant of growth would be lost. It is a 24/7 job. I believe our hosts are very much aware of this, but I don’t believe that, for all your kindness, you just wanted to give me a very easy time.
Every serious political administration tries to do what it can to transform its country’s physical, social and economic landscape. Our own ambition in that regard necessitates large plans to address unmet needs in urban development, mass housing, infrastructure and social services, among others. The fast rate of urbanization, the changing roles of stakeholders, and the increasing competition for funding compel us to innovate and adopt new approaches and strategies. We try to learn from the experience of others and learn from our own mistakes. It is an unending learning process.
But whatever we do, we try to advance our broad national agenda which is to deliver within the shortest possible time the highest quality service possible to the nation at large, but especially to the poor and marginalized. Our commitment to eradicate poverty precedes and goes beyond the declared targets of the United Nations’ Millennium Development Goals; I assure you we would still be pursuing the same objectives, even if the MDGs had never been articulated.
For such, we believe, is not only the mandate of our constitution and our laws. It is above all the reason for being of government. For us, the eradication of extreme poverty, as expressed by homelessness, unemployment, hunger, and absence of hope, is not only an indispensable option; it is the very purpose and function of government.
By anchoring our programs on our Constitution and our laws and entering into the most productive collaboration with our development partners, both public and private, external as well as domestic, we move ourselves closer to our defined objectives. In housing alone, where we must fill a deficit of 3.6 million homes within the next few years, we could probably shorten the route by developing new land tenure instruments and creating new construction designs and methods. We can also extend new incentives for greater private sector involvement in projects that guarantee as many affordable homes in areas where people will have excellent access to permanent sources of livelihood.
From a highly centralized and heavily subsidized housing policy in the sixties to the eighties, we have since moved to local government-initiated, climate change-sensitive, market-oriented and participative approach to housing. At least four major laws have made that shift possible—the Local Government Act of 1991, the Urban Development and Housing Act of 1992, the Climate Change Act of 2009 and the Disaster Risk Reduction Act.
The Local Government Code of 1991 laid the groundwork for a decentralized regime in the country and the devolution of housing and urban development functions to local governments. This law mandated local governments to undertake housing developments and take the lead in land use planning in their respective jurisdictions. It also extends authority to access the private capital market through the issuance of bonds for development projects (e.g. municipal housing bonds). Permits and licensing of land development in the local area, a task previously assigned to the HLURB, was devolved to the local managers.
Similarly, the Urban Development and Housing Act of 1992 provided the local governments the mandate and the framework by which housing and urban development initiatives and programs should be implemented. The law highlighted the role of LGUs in housing provision and promoted strategies such as the localization of housing, public-private sector partnership, beneficiary-led approach to resettlement, and protection of the rights of informal settlers.
The UDHA particularly humanized the removal of informal dwellings and the legal transfer of informal settlers. People’s organizations and non-government organizations have also been empowered to provide housing communities with financing programs and services for site and home development.
Republic Act 9729, otherwise known as “The Philippine Climate Change Act of 2009,” created the Philippine Climate Change Commission to promote the integration of climate change awareness, adaptation and mitigation into the comprehensive land use and development plans of the local government units.
This environmentally sensitive policy was strengthened further with the passage of Republic Act 10121 - the Disaster Risk Reduction and Management Act. It made the local government units primarily responsible and accountable for integrating climate change adaptation measures into the comprehensive development plans and for designing a continuing program for disaster risk reduction and mitigation.
So much needs to be done. Compared to our neighboring countries, the annual growth rate of our real estate development per capita GDP, which enjoyed an enviable position in the 50s, suffered a sharp decline starting in the early 80s, as shown by data from the Asian Development Bank.
As of now, our average annual public expenditure on housing, of at 0.089% of GDP, remains the lowest in Southeast Asia, compared to Bangladesh with 0.354%, Malaysia with 0.383%, Thailand with 0.742%, and Sri Lanka with 0.758%. We have a lot of catching up to do.
As mentioned earlier, we need to build homes for 3.6 million families between now and the end of 2016. Not all those families live without a roof above their heads; more than 1.4 million belong under the category of two or more households cramped together inside one small housing unit; many others are living in marginalized housing units in danger zones, exposed to the natural and to criminal or anti-social elements.
With over sixty percent or 53 million of our population living in urban areas, the rapid rate of urbanization has to be, by common consent, one of the country’s most urgent problems. Informal settlers comprise more than a third of the urban population, and they are concentrated liberally in the country’s more than 200 urban areas with Metro Manila or the National Capital Region as the dominant center. Metro Manila accounts for almost 40% of the Philippines’ GDP and 13% of the country’s total employment. It ranks 14th among the world’s 20 megacities.
The challenge of urbanization is made more complex by inward migration from the rural areas, the longer life span of the average individual because of advances in health care and medical science, resulting in a sharp decline of the death rate despite the equal decline in the birth rate, and the relatively inelastic housing supply particularly at the lower end of the housing market. By 2030, the country’s urban population is estimated to hit 96 million, with three of every four Filipinos living in urban areas. This assumes a demographic and social mutation of Philippine society, which will require new knowledge and skills to manage, which are compatible with the freedom and aspiration of individuals and families.
Some of the key issues that need to be addressed lie in the housing finance sector. One such issue has to do with the limited resource pool. The public sector provides close to 75% housing finance, usually through housing loans primarily provided and serviced by the Home Development Mutual Fund or Pag-Ibig, National Home Mortgage and Finance Corporation, among others. This admits of an urgent need to encourage a larger participation of the private sector in housing finance. And there are various ways by which it can be done.
The housing finance structure can, and should, encourage the private sector to become less risk-averse. This is not so right now. The structure is known rather for creating fiscal risks and crowding-out effects. For instance, the underwriting process by government creates disincentives for the proper risk assessment, and the provision in the law makes it virtually impossible for the private sector to compete with the key public sector shelter agencies on a level playing field. This then pushes away the private sector from participating vigorously in housing finance.
Likewise, the low returns due to risk factors associated with the market do not encourage the private sector to be more daring in housing finance. Another key issue is the regressive nature of the housing sector’s subsidies: those who need subsidies the most are the poor, who have no access to them, while those who are able to avail of the loans the most are of the middle-income class. Independent of these factors, there are risks associated with the environment and climate change as they impact housing and development projects. Financing schemes and designs must be appropriately reviewed in light of these.
As chair of HUDCC and the key shelter agencies under it, my job description and mandate is to house the entire nation, going far beyond mere physical structures. In trying to fulfill this mandate, I have had the good fortune of counting on the dedication and zeal of the men and women of the following agencies:
The National Housing Authority or NHA whose mandate is focused on housing production and urban resettlement projects;
The Social Housing Finance Corporation or SHFC which runs the Community Mortgage Program or CMP which in turn finances the purchase of land by informal settler families from the initial land owners and undertake community upgrading. SHFC is also mandated to develop innovating housing schemes for the low-income informal and informal sectors.
The Home Guaranty Corporation or HGC, which provides credit and bond guarantees to provide incentives for expanded home lending activities;
The National Home Mortgage Finance Corporation or NHMFC, a secondary mortgage institution tasked to develop secondary mortgage markets, and a former lender of IUHP subsidized loans;
The provident fund Home Development Mutual Fund or HDMF, often called “Pag-Ibig”, the largest housing lender in the country.
Not to be outdone is the World Bank in its effort to meet the challenge of urbanization and development in the Philippines. The bank’s first urban renewal project in the country involved the upgrading of the country's largest slum settlement, Tondo foreshore, and traffic management and road investments in manila. This was a first attempt to demonstrate an alternative to the government’s expensive and ineffective slum relocation policy.
The most recent bank assistance in informal settlements upgrading involves two grant-funded projects aimed at piloting new approaches to slum upgrading and renewal. With the bank’s sustained involvement, the transformation of our blighted communities can only be a matter of time. From a city smothered by informal settlements everywhere, Metro Manila could be reborn as a world capital freed from its old wretchedness and squalor.
In initiating this discussion on “Housing Finance in Emerging Markets” the Bank has placed itself squarely behind our effort to renew the face of our country. I would like to assure the Bank that it shall find no more faithful and enthusiastic partner.
With unemployment at record highs in many parts of the world, and threatening the position of some of our Overseas Filipino Workers particularly in a number of European capitals, we look to investment in housing to play a major role in producing jobs for our people. The construction of one housing unit creates work for at least eight persons, and for every 100 new jobs in the construction industry, another eighteen jobs are generated in other sectors. And so far, the consolidated housing production of the shelter agencies has generated 1.5 million jobs to urban and rural workers.
Housing investment also helps “unlock” dead capital. It stimulates local property taxes. Over time, it builds household wealth through its sheer appreciation in value, providing a base for income generating activities where none existed before, while opening the door to credit. For its part, social infrastructure investment develops socially inclusive and environmentally attractive settlements. In addition, it helps develop human capital, worker productivity and ultimately, economic wellbeing.
We have brokered a working partnership between local governments and the key shelter agencies, and this has proven to be a great source of strength for housing. Under this model the shelter agencies provide the financial and technical support for land development and actual construction, while the LGU provide the land. Under the program, the local government unit is eligible to receive additional developmental financing of about us dollar one million for every medium-rise building and us dollar 500,000 for every phase of horizontal development. I envision this program to bring down housing cost to levels well within the reach of the average head of the Filipino family.
At the same time, we are encouraging private banks to assume a larger role through government guaranties that make housing loans practically risk-free. To help finance rural homeowners, we now provide guaranties to housing loan accounts of rural banks and microfinance institutions which have shown a capacity to service housing loans responsibly.
Last year alone, the Home Guaranty Corporation provided guaranties to 25,000 housing loan accounts of private commercial banks, rural banks and microfinance institutions all over the country. Seventy-two percent of these accounts were for socialized and low-cost housing.
Mortgage market will play a critical role in boosting housing. The National Home Mortgage Finance Corporation, as the major government secondary mortgage institution and fund mobilizer (using the capital markets), is poised to issue within the year two innovative products.
Targetted for issuance this coming July 2012 is Bahaybonds 2, the first-ever retail housing mortgage-backed securities in the country under the securitization law. The issue will not only mobilize funds for housing but also provide an alternative savings/investment instrument for Filipinos with savings and/or excess cash as it provides higher yields than regular/special savings accounts. It is also tax free.
As the National Home Mortgage Financial Corporation continues to develop new products for the capital market, it is projected to assist its subsidiary, the Social Housing Finance Corporation, to issue by the fourth quarter of 2012 the first-ever Community Mortgage Program or CMP Asset-Backed Securities in the market (CMP-ABS).
The Community Mortgage Program is an alternative form of financing that allows the poorest of the poor to purchase land via a shared mortgage vehicle, and expedite the provision of secure tenure to informal settlers and at the same time protect them from unscrupulous operators. With CMP having one of the highest collection efficiency rates across the key shelter agencies, the housing finance sector can be improved by making the CMP sustainable and adaptive to the changing needs of the housing sector.
The proposed community mortgage program asset-backed securities has also been approved as an alternative compliance instrument for subdivision developers under the balanced housing requirement of the Urban Development And Housing Act. This law requires subdivision developers to put up twenty percent of the area or cost of the subdivision project for socialized housing and Section 18 provides the alternatives modes for compliance with this requirement. The CMP bonds or securities shall soon be another mode of compliance thereby providing additional financial resources that can be used for housing for the poor.
This will further provide credence to our vision that the low-cost and socialized housing sectors of our economy are also good payers and therefore provide backing for products or instruments that might be issued in the future. The Community Mortgage Program-Asset Backed Securities also ensures the sustainability of the SHFC as it taps the capital market for the continuance of the CMP program.
On the part of the Housing and Urban Development Coordinating Council, we are pro-actively exploring ways in which the current low income housing finance system in the Philippines can be expanded and sustained by improving affordability, improving efficiency and ensuring better access to shelter by low income groups.
To provide the core capacity required to improve sector governance and to address sector issues and challenges, we look forward to the passage of one of our President Benigno Aquino's priority legislations, the creation of the Department of Housing and Urban Development or DHUD. The department, by closely working with environmental planners, builders and community beneficiaries, shall ensure a holistic strategy in addressing access to and affordability of the human basic needs. The department will enable the government to address these problems through regulation and the formulation and implementation of the necessary reforms, sector policies and program interventions that will mobilize public and private resources and ensure their synchronization. The department shall impose national targets on its attached agencies through performance contracts with its heads, which shall include the streamlining of personnel for efficient and effective service.
At this stage, it is necessary to set up targets as a guide for future performance. These could include increased access of low income group to housing finance and the housing market; improved viability, loan origination and underwriting performance of public housing finance institutions and enhanced leveraging of private finance; consideration of climate change impact and disaster risk reduction and management in coming up with new financing schemes; well targeted, cost effective and broader impact of subsidies; and improved housing affordability for the low income group.
A strategic plan for housing finance reform is needed the better to serve those who are already being served, and finally to reach those who are either underserved or not being served at all. The main challenge is to bring greater sustainability to the current products and institutions and improve affordability and access to finance of as broad a base as possible of needy households.
Let me now conclude.
I have the highest hopes for this conference. From here I hope we would all go back to our respective countries equipped with new knowledge, fresh insights and heightened resolve to attain the highest level of success in our sector. This is what we saw from the last global housing finance conference; something similar and better should happen here.
Aware of the need and opportunities to develop strong housing financial markets, we must now create lasting partnerships between the public and private sectors in our individual countries, and also among ourselves, partnerships that will overcome the individual weaknesses of parts and project only the strength and vitality of the whole.
Thank you.