Thinking Outside the Box: Housing Strategies

1 December 2011

Speech-Housing-StrategiesSpeech of senator Ferdinand R. Marcos Jr.
Chairman, Senate Committee on Urban Planning, Housing
And Resettlement, at the PBMP Luzon Chapter Assembly,
Hotel Stotsenberg Convention Center
Clark Field, Pampanga, 1 December 2011

Distinguished friends, ladies and gentlemen:

Good afternoon!

Frankly, I never realized how organized the Provincial Board Members League of the Philippines has been until I got to meet you in and interact with you in my capacity as chair of the Senate Committee on Local Government.

Congratulations indeed for the successes your organization has accomplished throughout the twenty years of your existence. It is therefore with deep gratitude that this humble representation comes to speak before you on a subject which for quite some time in the past was a major interest associated with my family, especially my mother who was former minister of human settlements, and which now is presently a policy area prioritized by the Senate Committee on Urban Planning, Housing and Resettlement which by providential coincidence has been assigned to me as chairman.

Hence, I do feel very at home discussing housing and land use planning issues, as these areas are precisely the current interest of my committee.

Perhaps to put a little perspective into my “out of the box” commentaries on housing, land use planning and the proper role of the local government units, allow me to proceed along five (5) key program areas by which housing policies, strategies and programs are presently being discussed, namely:

· Land use planning
· Production
· Regulation
· Finance and
· Institutional structures

Land use planning
The first key program area where Local Government Units and housing expressly relate to each other is land use planning. Perhaps I can presume here that all of you as members of the Sangguniang Panlalawigan are well aware and even knowledgeable about land use plan as it affects the annual investment plan which the provincial board has to approve and authorize together with the annual provincial budget. I just hope you don’t consider land use planning as a mere ordinary undertaking as it is the main basis for the local government investment plan and annual budget.

The Local Government Code of 1991 affirms the devolution of land use planning to local governments with the express proviso that cities and municipalities shall continue to prepare their respective Comprehensive Land Use Plans (CLUPS) enacted through zoning ordinances which shall be the “primary and dominant bases for the future use of land resources”. RA 6657, otherwise known as the Comprehensive Agrarian Reform Law of 1988 (CARL) and RA 7279 otherwise known as the Urban Development and Housing Act of 1992 (UDHA) further strengthen he legal bases of the LGUs in the formulation or revision of the CLUP. This land use function is supported on the national level through the housing and land use regulatory board which has been mandated in a) Section 5 Article II of Executive Order no. 648 “to promulgate zoning and other land use control standards and guidelines which shall govern land use plans and zoning ordinances of local governments; and b) Section 468,2, Article III, Chapter 3 Book 3 of the Local Government Code “to review the Comprehensive Land Use Plans (CLUP) and zoning ordinances of component cities and municipalities and adopt a comprehensive provincial land use plan, subject to existing laws”.

By definition then, the CLUP is a document that plans for the future use of land on accordance with the future spatial organization of economic and social activities and the traffic of goods and people serving as guides to land use activities; hence it can be directly translated into a long-term zoning plan or ordinance. The zoning ordinance thus becomes a legal document to enforce the LGUs land use plan.

Given these legal platforms, the obvious next consideration is the success or failure of the devolution strategy. If the submission of Comprehensive Land Use Plans (CLUPS) by the LGUs shall be the gauge in measuring performance, then I can personally and confidently say that a greater majority of the 1,900 or so municipalities/cities/provinces combined have satisfied this criterion. But you and i know that in most cases these comprehensive land use plans as submitted may not accurately reflect the actual conditions prevailing in the respective LGUs.

A glaring consequence of the devolution of planning functions to the LGUs is the identification of the technical expertise of LGU personnel. The sudden transfer of the planning function to the local level caught many LGUs sun prepared. This has caused the delay in the response of the LGUs to provide the national offices with technically competent, internally consistent and reliable plans. My experience as a former provincial governor has given me enough insight on this particular issue. As is standard in any provincial administration, I inherited a Provincial Planning Development Office (PPDO) whose main function among others is the preparation of the provincial development plan and the Annual Investment Plan (AIP) culled from an approved sustainable provincial land use plan. I have discovered that indeed, my PPDO personnel lacked formal planning education and substantial training and capability to come up with a decent AIP, responding to critical issues like climate change and disaster risk management.

Immediately, i have had to engage in capacity building not only for my PPDO personnel but also to the budgeting and engineering offices (of course I would have wanted to include the staff and members of the Sangguninang Panlalawigan, but that is a different issue). This by the way leads me to ask each and every one of you here present: how many of you understand and appreciate land use planning? I can safely bet that most of you are concerned only with your annual budget and its accompanying annual investment plan rather than in the CLUP and the zoning ordinance that goes with it. Hopefully, now you will learn the value of the CLUP and its underlying processes.

As a former provincial governor, I have likewise realized the deep political interference in the formulation of the Annual Investment Plan (AIP). It is given that most LGUs prepare their AIPs if only to comply with the requirement of the Department of Budget and Management (DBM) that only projects listed in the AIP can be charged against the Local Development Fund (LDF). But you and I know that the LDF performs as allocations to local politicians, notably the governor, vice-governor/mayor, and members of the Sanggunian similar to the “pork barrel” allocations of congress. No surprise then that the main contributors to the list of projects in the AIP are the recipients of the LDF allocations. Unfortunately, several studies have shown that the list of projects submitted by these politicians to be included in the AIP, “are often unrelated projects that have no clear connections with the longer term plan and development strategy of the locality. Effectively then the AIP becomes a mere compliance document rather than a local development plan.”

Such lack of responsive and critical components may not be attributed alone to the inexperience of the LGUs and the political interference that goes with it. For instance, if we were to look deeper into the preparation of the CLUPS, we will unavoidably discover that the main basis of this whole exercise is a basic map—a map of the municipality, of the city, of the province; effectively, a land use map that shows the contours of the territorial land, the rivers, dead or active volcanoes, seashore boundaries, existing roads and other infrastructure like ports and other similar facilities. It might interest you to know that these maps that we have been using have never been updated since the 1950s. These maps, I have been informed, have been published by the us geological services in the 1950s, presumably as an output coming from their preparations during the second world war.
Of course our policy makers in the past recognized this technical gap in our data requirements. In the early 1980s, the then Ministry of Human Settlements embarked on a pioneering process of revising the individual land use maps of our municipalities/cities/provinces. They sent trained technical staff to the LGUs to help them facilitate this monumental effort. A National Mapping and Resource Imaging Authority (NAMRIA) was created by then President Ferdinand Marcos precisely to obtain a more scientific and accurate imaging of the vast resources of the country and thus add to the effort of the LGUs on the field. It is my understanding that a good number of these amended land use maps had been submitted to the national office of the MHS for approval and confirmation. Unfortunately, after 1986, not a single copy of these plans has been located.

Still, because and in spite of this seeming lack of basic maps, we cannot anymore discount nor downgrade the critical role of land use maps in our planning activities. The operating word is “spatial.” In our CLUPS the analysis of existing situation and projection of future scenarios revolving around physical, environmental and socio-economic analyses cannot be achieved without spatial considerations conveniently provided by the land use maps. An updated land use map can therefore show the effects of climate change, of the divergence and reversion of the flow of rivers, of the changes in our shoreline, of the extent of our forest, of the effects of mining activities and the like. The generation and evaluation of alternative spatial strategies eventually produce a sustainable land use plan.
Effectively, the land use plan as its main product will then give an address and a face to the development efforts of the lgus. It will show for instance, where the ports are to be built, where the informal settlers have to be relocated, which barangay needs farm to market roads and/or care-giving facilities and where industries can be located. On the national level, neda sums up these plans to produce the national physical framework plan, usually for the next five to seven years but ideally for the next 25 years renewable every five years. Yet nowhere in the current national physical framework plan do we see these changes and effects. Disaster Risk Management for example, has been relegated to the policy back burner on an “as is” basis. Recent calamities have consistently proven that disasters can be minimized and avoided if we had the expertise and the correct information to forecast their occurrence that would prepare our local personnel and community volunteers for any contingent actions.

The next key program area that I would like to discuss concerns problems in housing production.

The National Urban Development and Housing Framework Plan (2009-2016) estimates a housing backlog of 195,000 housing units per year from 2005-2010. By 2010, the total requirement shall have reached 655,000 housing units (backlog plus new household). Studies show that 50% of this housing requirement is concentrated in Metro Manila, Calabarzon and Central Luzon where the cost of land and labor is noted to be much higher. If the average cost per unit is Php200,000, then a total of php132 billion annually shall be the funding requirement which we very well know is way beyond the combined current appropriations of all key shelter agencies. Such huge funding requirement only compounds the severe shortage of government funds for housing.

Additionally, were we to build to meet these backlogs, we would require approximately 3,000 hectares of land if detached housing is preferred. Less hectarage implies higher housing density or units of at least four stories high.

Obviously, the LGUs may not depend wholly on national government agencies in solving this monumental task. Technical studies identify and recommend available financial and non-financial courses of action. I will discuss some financial schemes available to the LGUs at a later part of this speech. What then are some alternative non-financial strategies that the LGUs may adopt and implement if only to hasten the provision of housing units in its respective territory?

First and foremost is to use its zoning ordinance power to identify potential housing sites that would be offered to private developers. The identification of these sites carries with it the location of existing and/or planned public amenities and utilities. These utilities should include waterworks, road nets, sewerage and electricity, among others. Using the zoning ordinance to attract and influence investors in housing and land development becomes more critical if and when competition among financial considerations appear stiff.
Secondly, ensure actual implementation of support infrastructure and amenities as identified in the zoning ordinance. A good water supply, an excellent solid waste management, efficient transportation and reliable power facility are few of the external features that private financiers will certainly appreciate.

Thirdly, explore joint ventures with the private sector and/or the NHA. Under the NHA arrangement, the LGU may simply provide land, or land plus cash equity, or land plus development or development with cash equity. Effectively, LGUs share in the risk and liability for housing projects under the joint venture scheme.

Regulatory functions
The regulatory issues in housing are plenty but most of them are national in scope. Hence continuous rationalization of building standards and regulations governing housing construction and subdivision development including real estate trade are still within the supervision and concern of the Housing and Land Use Regulatory Board (HLURB). Permits for subdivision developments have been devolved but not for socialized housing which remains with the HULRB. As I see it, the LGUs main participation has been embedded mostly in the zoning ordinance and implemented through the municipal/city engineer office.
The other regulatory component is the rent control law which has been formulated to protect tenants from unreasonable increase in rental prices and eviction. Unfortunately, no national agency has been tasked to specifically monitor the compliance to the rental law.
Currently, a national land use plan does not exist and land use standards are based on city or municipal plans that are technically insufficient or deficient to guide land use allocation.
Additionally, environmental measures and standards are observed to be inadequate if not weak.

Because of the huge demand for housing whether socialized, low cost, middle-income or informal settlers housing, against the acute shortage of available funds both from the government and the private sector, housing as a program of government has become a national priority, as pronounced by no less than the president himself.
It is not surprising that LGUs should therefore recognize the huge potential for creative alternatives in housing finance supported by national financial strategies.

On the national level, the role of the government remains that of a primary source/lender. NHA has been the lead agency for informal settlers and socialized housing with special participation of the cmp (community mortgage program) of the NHMFC; Pag-ibig has been mainly providing end-user financing while the home guaranty corporation and the national home mortgage corporation provide for guarantees and secondary mortgage facilities primarily for middle-income housing using private funds.

Recent technical papers on housing identify selected various schemes which LGUs, using national finance and funding sources may consider, namely:

1. Community Mortgage Program (CMP);
2. Joint venture arrangements with NHA for low-cost housing projects;
3. Land development grant from NHA for resettlement projects;
4. Development loans from government financial institutions and private banks;
5. Floating provincial/city/municipal housing bonds; and
6. Development grants or loans from the Municipal Development Fund (MDF) of the department of finance.

Of these six alternatives and schemes, the first 3 have been the favorite options of the lGUs.
CMPS are mainly oriented to social housing programs. Originators accredited by NHMFC include NHA, HGC, LGUs and NGOs. Recent data shows that the collection efficiency of the four originators averaged 71% with the LGU performance comparable to that of government housing agencies and better than NGO-originated CMP projects.

Joint venture arrangements with NHA and/or private developer remain a favorite among LGUs, with the latter mostly providing land as its equity. “four types of arrangement have been identified:

1. LGU owns the land and the private developer assumes all aspects of development and housing construction with the financial requirement assumed by the developer and the NHA;
2. LGU owns the land while financial requirement is shared with the NHA. Development is contracted out to a private developer;
3. LGU owns the land and undertakes the development of site and housing construction while the NHA provides the financial requirement; and
4. A private landowner owns the land; the LGU undertakes development and shares part of the financial requirement with the NHA.”

Borrowings for housing projects have been sourced by a few selected LGUs precisely because most of the lenders require sufficient IRA as collateral. Bond flotation has been seriously being considered by some LGUs as access to private capital markets still has major hurdles and drawbacks; for example, the need to review LGU limits on borrowing and the need for timely and adequate information for LGU bond rating. This is however overshadowed by the interest of private banks to participate in socialized housing projects in the form of guarantees on LGU housing bonds provided by the LGU guarantee corporation established in 1997 as a joint venture between the bankers association of the Philippines and the Development Bank of the Philippines.

Additionally, a substantial number of lgus have sourced larger municipal services and infrastructure loans from Municipal Development Fund (MDF) currently being administered by the department of finance. The MDF has control over a sizeable amount of resources and is currently being utilized as a conduit or foreign loans and grants.

Institutional structures
Let me now discuss the last, but not the least, key program area of concern as related to housing and land use planning.

Presently the Senate Committee on Housing and Urban Development which I chair has inherited four (4) draft bills amending the current laws on housing, and in fact effectively and unanimously proposing the creation of a department of housing and urban development. The basic law involved is the urban and development and housing act of 1992 which replaced executive order no. 90 dated December 17, 1986 issued by then President Cory Aquino abolishing the Ministry of Human Settlements and creating in its stead the Housing and Urban Development Coordinating Council (HUDCC) under the immediate control and supervision of the president of the Philippines to coordinate the activities of the government housing agencies and ensure the accomplishment of the national shelter program.

Apparently these four draft bills have all together recognized that after 25 years, the current operating institutional structure cannot achieve and in fact fell short of achieving the goals and projects identified in the national shelter program. Consider for example the organizational impropriety of one central organization formulating standards for land development and housing structures in its right hand while its left hand exercises regulatory functions imposing penalties on any deviations from such standards. Or take the case of a national agency coordinating and approving zoning ordinances of the local governments that identify their investment priorities but receive no corresponding investment funds from the national government. Such lack of linkage between local land use plan or physical plan or community development plan on the one hand and the national investment and budgeting guidelines on the other only creates confusion and divergence of efforts in seeking and propagating development on the countryside.

This incongruence of planning and implementation between the local and national levels may perhaps be a result of the way our government is organizationally structured. National agencies are organized largely by sector, for example, department of education, health, agriculture and the like; while local land use plans are formulated by area like Metro Manila, Metro Cebu, Caraga and the like. The immediate effect is the apparent lack of direct linkage between the long-term National Framework for Physical Planning (NFPP) formulated by NEDA to the Medium Term Philippine Development Plan (MTPDP) likewise prepared by NEDA. The functional jurisdictions of various national agencies defined by the MTPDP along traditional sectors do not deal squarely with Inter-sectoral, area-based and geographic prioritization of the CLUPS and the comprehensive development plans of the LGUs and plans formulated at the metropolitan level. Expectedly, therefore, most investment priorities identified by LGUs often have no concrete, verifiable and reliable connections to national sectoral policy concerns and priorities.

Of course our national policy makers are not blind to this problem. A joint memorandum circular 2007 among the DILG, NEDA, DBM and DOF has been signed that provided guidelines on the harmonization of local planning, investment programming, budgeting and expenditure management and revenue administration. This memorandum is aimed at vertical integration of local, regional and national plans and investment programs. It is so comprehensive in scope that its vertical harmonization efforts extend to local elections. Perhaps because of its comprehensiveness this effort has not yet progressed after its initial mobilization.

Institutional reforms on land administration and land management that improves availability of lands for housing is another direction worth pursuing especially on the national level. The rationalization and integration of land agencies – land management board, land registration authority, NAMRIA—shall force the formulation and enforcement of a standardized valuation and appraisal system and thus reduce transaction cost associated with land titling and management. Reclassification of lands of public domain into alienable and disposable lands, and redevelopment of NHA lands for relocation and resettlement shall expand the number of hectares for housing and help unlock unutilized land capital.

Restructuring and rationalizing the functions of financial housing agencies represent a principal interest in the institutional reforms agenda. As it is presently stipulated, the key housing agencies are to strictly and exclusively perform the following functions:

The National Housing Authority (NHA) is limited to housing production for informal settlers, low-cost and socialized housing, upgrading of sites and services and other resettlement issues hence this agency shall need direct financing from the national government for all its land and housing development.

The Housing and Land Use Regulatory Board (HLURB) shall perform quasi-judiciary role limited to adjudication functions;

The Home Development Mutual Fund (Pag-ibig) shall be mainly a provident fund. Except perhaps on end-user financing, it may not engage in direct financing of land and housing development by private developers;

The Home Guaranty Corporation (HGC) shall remain as the guarantor of mortgages underwritten by the banks. In doing so, it shall utilize perhaps 80% of the Pag-ibig fund as its base.

The National Home Mortgage Finance Corporation (NHMFC) shall be the main housing finance agency in developing the secondary mortgage market.

Briefly, only the NHA shall receive direct appropriation and subsidies from the national government. Pag-ibig shall be financed from the proceeds of the provident fund. HGC and NHMFC shall receive only their initial capitalization from the national coffers. The rest of the funding requirements shall be sourced from private capital through the private banks and bond flotation.

If you will realize at this point, there is a vacuum for “affordable housing.” It is proposed that a new housing corporation be created to address this gap (which may or may not require direct appropriation from the national government). In addition to this development function, it is also proposed that the proposed new housing corporation shall be empowered to issue housing bonds and other schemes to finance the housing needs “without getting direct appropriation and funding from the national coffers”. This function is critical in perfecting the financial system being proposed.

Except for these two agencies (NHA and the proposed new corporation), no other housing agency shall be directly involved in land and housing development.

In its simplest explanation, the suggested new financial system effective under the proposed functional rationalization shall operate along the following lines:

i) Private banks are encouraged to finance land and housing development being proposed by private developers/contractors, including socialized housing;
ii) The HCG assures the private banks that it will guarantee (maximum of 80% of the mortgage) the mortgages written by these banks to finance developers. HGC shall utilize certain percent of the Pag-ibig fund as its collateral base in its guarantee function.
iii) The NHMFC shall (together with the private banks) package the mortgages to be able to sell them in the secondary mortgage market.
should the NHMFC require additional funding, it may request the new corporation to float bonds, participatory trusts and other similar schemes for and in its behalf;

A major point of the foregoing financial strategy is the consideration that no housing finance agency shall deal directly with the private developers and/or contractors. All private housing projects shall be between the private banks and developers. The HGC simply guarantees a maximum of 80% of the bank mortgages.

My friends in the provincial board members league of the Philippines - Luzon chapter, it is my hope that the long-delayed creation of the Department of Housing will become a reality by early 2012 for it has long been in coming. But certainly by that time, all the hard work, thinking and conceptualizing should have found a home in the proposed Department of Housing and Urban Development or DHUD.

With your committed support and continued cooperation, we can look forward to 2012 as the landmark year for the housing and urban development sector of our economy and our country.

Thank you once again for your attendance and attention. Let me conclude by wishing you all the best as you go through your two-day assembly.
Advanced Christmas greetings to you and your loved ones! Maligayang Pasko at Maraming Salamat! Mabuhay kayong lahat.