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How the State finances housing

Published Thursday 12th Febuary, 2004

Our national Housing Policy is set out in 'Showing a Trinidad & Tobago a New Way Home' published in September 2002 by the Ministry of Housing; this was distributed as a 28-page newspaper supplement.

The document sets out some of the country's serious housing needs and outlines suggestions for meeting these. The principal challenge identified is the scarcity of resources to meet the scale of demand; one estimate suggests that about 14,000 new housing units need to be constructed every year to meet those needs.

HMCS graph

It is important to understand that the State can finance its policies in 2 principal ways, by spending the money raised from taxes or by granting tax concessions to particular types of activity and individuals. In the first case, Government is spending from the pool of funds we call 'taxpayers' money' and in the second, the grant of the tax concession has the effect of reducing the size of that pool. Any realistic estimate of available State resources therefore has to consider both streams of funding.

State financing of housing exists in 4 parts as follows -

  • Low-income construction via the NHA and the Housing Ministry - over $715M has been spent by that Ministry in its Capital Program in the last 10 years. This spending is set out on the attached table.

  • Mortgage interest relief of $18,000 annually to each qualifying taxpayer in respect of their owner-occupied homes.

  • Tax relief to Approved Mortgage Companies in respect of mortgages under the official threshold - presently $450,000 in the East-West corridor.

  • Tax relief to property developers in respect of profits on units built for sale under that threshold.

This basket of measures is not in fact outlined in the Housing Policy and it is unclear, after enquiries with the relevant Ministries, whether there is any overview as to the quantities of money deployed via these policies. Given the importance of housing to achievement of developed nation status, it is disappointing that we were unable to obtain reliable figures for the number of homes built for this immense investment via the Ministry. Without such elementary data we are unable to assess the unit costs or effectiveness of various design and procurement approaches.

It is a given that policies ought to be subject to periodic review so as to assess their effectiveness in satisfying the original goals and indeed whether those goals themselves need to be adjusted. The Housing policy does acknowledge that "…a major deficiency in the Housing and Settlements sector is in policy making and coordination of strategic planning and programming…" It is clear that steps are being taken to address this critical matter.

The details of the Housing Ministry's capital spending show a consistent pattern of large variances between the estimated expenditure and the actual, with the norm being that less money is spent than budgeted. The point being that annual shortfalls in budgeted expenditure imply a deepening of the level of unmet housing needs. There is a need for research into the reasons for the variances since this can help in selecting the most effective procurement measures and designs for this sector.

If we are unable to say with certainty what is the level of funds committed via these policies, it is impossible to evaluate their effectiveness.

Some basic points can be made -

Value for money - As I said in the last installment, the quality aspect of housing is arguably more important than the more obvious issue of quantity. We would need to enquire whether the funds spent in providing proper infrastructure and title to 'established' squatter communities is better value for money than building new homes.

Mortgage Interest relief - This is a universal benefit that all qualified people are entitled to claim the $18,000 relief, regardless of the level of income. All claimants, from the wealthy to the more modest salaried homeowner, therefore enjoy this. The benefit would have far greater impact on the latter and conversely, its loss or reduction would have little real effect on the wealthier claimants. One could even say that the standard of living enjoyed by the middle class (for the sake of this discussion, let us say those living in houses worth less than $500K) is significantly higher today that that which prevailed 20/25 years ago.

Delivery Capacity - When we examine the table showing the Housing Ministry's Capital Program, we can see that there is expected to be a dramatic increase in expenditure from just over $33M last year to almost $109M this year. Given the stated deficiency at the Housing Ministry in strategic planning and programming as well as the consistent underspend, it is indeed cause for concern that spending is being more than tripled in just one year.

Policy overview - In the course of doing the research for this column, it is clear that there is a sense of urgency in augmenting the research capacity of the relevant Ministries.

In economists' terms, without the necessary overview the State could be making a potent misallocation of funds in terms of the consequences - poor living conditions, environmental degradation and so forth.

Afra Raymond - Property Matters

It is important to understand that the State can finance its policies in 2 principal ways:
  • by spending the money raised from taxes, or
     
  • by granting tax concessions to particular types of activity and individuals.