Housing Policy: Developing a Market-based Housing Finance System

In the Philippines, the recent government's subsidized housing finance approach has replaced the previous government's market based housing finance program. The paper provides an overview of the previous Estrada government's innovative housing finance program. The program had three main objectives:

• Develop a sustainable market-oriented housing finance system;
• Address the bottom 30% of the society;
• Decentralize the shelter delivery system.

The recent government has abandoned this market-led approach for a subsidized housing finance program. The likely consequences as a result of this shift, are:

• Heavy fiscal burden on the economy;
• Housing portfolio funded out of pension fund members' and tax-payers' money; the pension fund members and taxpayers are also burdened with the risk of non-performing housing loans;
• Decrease in private sector participation due to market distortions;
• Benefits to non-poor members rather than the real target beneficiaries.

The author proposes several steps to prevent distortions and inequities in the housing finance market. Some of these are:

• Develop the rental housing market and encourage greater supply of dwelling units for rent;
• Develop market based housing finance and provide housing loans at sustainable rates;
• Promote contract savings for housing schemes which provide loans to households meeting a minimum savings criteria over a specified period of time.