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