Last week’s column set out my principal queries as to our nation’s housing policy and the intervening events have only put those into better focus.

Key points –
‘Cheaper Govt Houses’ in the Sunday Guardian of 27th June featured an interview with Dr. Roodal Moonilal, Minister of Housing and the Environment. The Minister touched on some of the key issues and confirmed that

“…Some people simply cannot afford the market value of the homes. As a result, Government is looking to provide a further subsidy to assist with the purchasing of homes. I intend to take a proposal to Cabinet to consider the price reduction of the housing units…”

- see link .

There was no mention of rented housing in that article, so it seems that the new Minister has adopted the existing policy of preferring to sell the new homes built by the Housing Development Corporation (HDC). In addition, he is proposing to increase the housing subsidy. An important correction is that HDC houses are not sold at ‘market value‘ as the Minister implied. Market value is the amount the new home could sell for on the open market and the HDC offers the new homes to applicants at a lower price.

What is Housing Subsidy?

This is an important aspect of the housing policy discussion and these are the basic points -

·      Public funding – To create new homes, the HDC has to spend public money for land acquisition, professional fees and cost of construction – these are ‘first costs’ for new homes, but there are other significant costs of getting a needy family to move in.

 

·      Housing subsidy – For example, if the market value of a new HDC home is $900,000 and those homes are sold to applicants for $425,000, the housing subsidy in that case is $475,000. Please note that I am not relating the sale price to the cost of production of the new home – that is a mistaken approach, because it ignores the opportunity cost of the investment decision to sell at that reduced price. Effectively, this ignores the market to the detriment of the taxpayer. Even in the case of rented housing, the same basis would apply, with the difference between the market rent and the actual rent being the weekly housing subsidy.

 

·      The allocation of Housing Subsidy – Fidelis Heights at Bates Trace in St. Augustine is a new HDC development of townhouses near to UWI – in my view, the homes there are middle-income units which should not have been built by the HDC. In that case the housing subsidy per unit is in excess of $850,000. In view of the desperate national housing shortage and the scarcity of resources, it was a grievious mis-allocation of both public capital and housing subsidy to have embarked on this scheme. In the examples cited by the new Minister, the housing subsidy is far lower. The people who purchased units at Fidelis Heights got them at between $780,000 to $900,000. I am also aware that those homes were allocated without reference to housing need – i.e. some of them went to single people, without children. To put it plainly, there is no case for allocating $850,000 in housing subsidy to a single person, when there are entire families in greater need, who are not catered for by the system. There is a very poor quality of discussion on the issue of housing subsidy. That is because of the system of cost-based pricing, as mentioned above, which error is compounded by the sparse references in the official statistics. I have only been able to unearth a single official attempt to quantify housing subsidy in the ‘2010 Draft Estimates of Development Programme‘ - see link ‘Provision of Housing Subsidies at Greenfield sites’ is stated, at line H 003 to be $3,058,863. I am not saying that there is a poor understanding of the role of housing subsidy. That would be untrue, since the people who are manipulating the system all understand the real value of housing subsidy very well.

·      Rent control – ‘Rent subsidies for tertiary students’, also in Sunday’s Guardian – see link – featured a discussion on the housing situation affecting 14,000 UWI students.

[Minister of Science, Technology and Tertiary Education (MSTTE) Fazal] Karim said while the university has established mechanisms to register landlords “there exist no mechanisms to monitor prices, ensure quality accommodation, minimise security anxiety or seek the interests of the landlords and students.” In the near future, Karim said, the MSTTE and the Health Ministry will establish a committee that will make recommendations to establish mechanisms for the provision of subsidies “on rents to all students residing in the region and who are registered at tertiary institutions in the area.”

It seems from his statements that the MSTTE is proposing a rental subsidy to all tertiary students, whatever their means. In a situation of scarce resources, that type of policy can have inequitable consequences, since some of these students are not needy at all.

The Minister of Legal Affairs, Prakash Ramadhar, attending as MP for the area, said -

…what adds to the problem is the lapsing by the Rent Assessment Board. “We nationally had to debate the issue if this country would go into a free market in terms of rent or rent restriction.”

Ramadhar said he would like to see free market forces determine rents.