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Housing Policy Imperatives – Part 5

Published Thursday August 5th, 2010 

This week the examination shifts to the scale of the failure of our national housing policy.  Three main points for consideration are –

Meeting the targets

The original target was for the HDC to construct 100,000 new homes in a decade, which figure was generated from the 1994 'PADCO' study – that study is available at the Ministry of Housing & Environment’s library.  The annual target was reduced to 8,000.  As noted in the previous article, the reduced targets should have yielded 60,000 new homes by now, but the HDC has built only 15,394 new homes.

The HDC made a recent statement that the number of empty new homes was approximately 10,000.  So just about 5,000 new homes have been built and distributed since the inception of this 'accelerated housing programme' in September 2002.  Even if we omit 2002, that is an annual average of about 700 new homes being built and distributed.

Even with the most optimistic assumptions, one is looking at considerable challenges in achieving these demanding targets.  At the current rate of performance it would take over 140 years to satisfy the original target.  That is how far off-track this accelerated housing programme has gone.  Deep into the long grass.

The Cost-based Pricing model

In previous articles in this series, I have been critical of the HDC's cost-based approach to pricing its units.  In terms of the central mission of the Ministry of Housing  - i.e. creation and distribution of housing to the needy – that pricing model is inappropriate.  That is because it does not identify either the housing subsidy allocated to successful applicants or the opportunity cost of the HDC's policies.

The value-based approach is the more appropriate model to satisfy those basic requirements.  That is because it offers greater clarity to policymakers, since it is based on the market value of the completed homes, with the housing subsidy and the opportunity cost being the difference between the value and the actual HDC selling price.

On 21st March 2008, this newspaper carried a report headlined “PM's son in line for apartment” - see link - on allegations that Brian Manning, son of the then-PM was in line to receive one of the HDC apartments at Fidelis Heights in St. Augustine.  Noel Garcia, the then-MD of the HDC, was reported to have said -

          “Garcia said the Government had taken a decision not to subsidise this     particular development.

          It is being sold at market rates in HDC’s thrust to expand and attract an open market clientele.

Given that the units were reportedly being sold for a maximum of $875,000 and that they were worth a minimum of $1.7M, it is clear that each new home there is sold with at least $800,000 in housing subsidy.  The only way Garcia's incredible statements could be correct is if one were using the misleading cost-based approach.

I entirely agree with his statement that the Fidelis Heights development “...is therefore not part of HDC’s provision of subsidised housing for low-income earners.“  It is really subsidised housing for the middle-income groups, but that could never be right when the waiting list is bulging with needy people who cannot even get an HDC unit to rent.

Fidelis Heights was, even by its name, a monument to misleading and wrong-headed thinking.  The HDC project with probably the highest level of housing subsidy per unit was built for the least needy on their waiting list.  Only if the underlying philosophies and resulting models are appropriate, can we avoid a repetition of this blatant waste of public funds in the face of real, human need.

Given that the HDC is unable to satisfy the needs of the people it was intended to serve – the poorest citizens who cannot afford a proper home – it is scandalous that its scarce resources should have been diverted to Fidelis Heights, or the one at Federation Park in Port-of-Spain.

The selection of this pricing model is proof of misguided policy at the most elementary level.  The basic concept of opportunity cost appears to have eluded the responsible officials and, what is more, that misguided policy appears to have been approved at the very highest level.

Wrong-headed thinking can only encourage corrupt behaviour.

Costs

What has the national housing programme cost this country?  That is no rhetorical question, since this fact sits at the heart of the analysis.  The Housing Development Corporation (HDC) is the State’s implementing agency for production of new housing, it was formed in 2005 by an Act of Parliament and replaced the National Housing Authority (NHA).  The HDC’s funding comes from four sources –

·         Treasury allocations – Those are announced in the budget and can be established from the Estimates of Expenditure as Capital Allocations to the Ministry of Housing.

·         Sale of new homes – When the HDC sells a new home, that money is also available to them.

·         Bond Issues – The HDC has also raised money by occasional bond issues; those funds can be used to either build more homes or ‘pay down’ on more expensive loans.  The bonds issued are government-guaranteed, so they are considered as virtually risk-free 'sovereign debt’.  Given that the government itself issues bonds at lower rates of interest, it begs the question as to why these SPE's are allowed to borrow on these terms.  That issue was raised by in the BG View of 20th August 2009 – see link.

·         Bank Financing – The HDC also borrows money from commercial banks or the IADB to fund their construction programme.

Try as I might, it has proven impossible to determine just how much the HDC has spent on building new homes in any given year.  That is because there are no accounts at all which are available to the public.

The HDC Act, at section 18 and 19, mandates that the Board shall keep and properly audit accounts.  Section 20 requires the Board to submit its annual report to the line Minister within 3 months of the end of the financial year.  The line Minister is in turn obliged, by section 20 (2), to lay that report in Parliament within 3 months of receipt.  See – link

The HDC has never laid either its annual report or audited accounts into Parliament for the public.  The failure to publish accounts is one of the most serious warning-signs of companies in financial trouble.

That failure to publish HDC or NHA accounts over such a long period (since 2002 at least) spanning several administrations, is a serious indictment of the main participants – the politicians, the Board Directors and of course, the professionals involved in the entire huge operation.

I have been reliably informed that the HDC’s new management is attempting to rectify this situation and that must be a priority if we are to properly assess the performance of this vital social programme.

The overall picture is stark -

Ø      Gross under-performance in terms of the output of new homes, only about one-quarter of the reduced target has been achieved:

Ø      Poor financial and project controls - as revealed in the Uff Report (at para 25:30 – see link), not one HDC project has a signed contract:

Ø      No accounts or annual reports, given the preceding point, that is not surprising:

Ø      An inequitable allocations policy, with lower priority given to those who cannot afford to buy.

Ø      Approximately 10,000 new homes remain empty and that is the one which tops them all.  The ongoing adverse consequences include – vandalism, the greater rate of general deterioration afflicting empty homes, the high cost of security and of course, the continued pressure on those people on the waiting list ‘holding strain’.

Given the combined effect of all this, which is probably hidden to most of today's readers, one can only wonder at the patience of our needy citizens.

The entire situation also raises potent questions about the purpose and performance of the SPEs.

 

Afra Raymond is Managing Director of Raymond & Pierre Limited and President of the Institute of Surveyors of Trinidad & Tobago.  Comments can be sent to afra@raymondandpierre.com.

Afra Raymond - Property Matters

Try as I might, it has proven impossible to determine just how much the HDC has spent on building new homes in any given year.  That is because there are no accounts at all which are available to the public...

...The HDC has never laid either its annual report or audited accounts into Parliament for the public.  The failure to publish accounts is one of the most serious warning-signs of companies in financial trouble.