Afra Ray­mond

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

Meet­ing the tar­gets

The orig­i­nal tar­get was for the Hous­ing De­vel­op­ment Cor­po­ra­tion (HDC) to con­struct 100,000 new homes in a decade, which fig­ure was gen­er­at­ed from the 1994 Plan­ning and De­vel­op­ment Col­lab­o­ra­tive (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, ie, 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 March 21, 2008, this news­pa­per car­ried a re­port head­lined, PM's son in line for apart­ment, (see http://lega­cy.guardian.co.tt/archives /2008-03-21/news8.html) on al­le­ga­tions that Bri­an Man­ning, son of the then-Prime Min­is­ter, was in line to re­ceive one of the HDC apart­ments at Fi­delis Heights in St Au­gus­tine. Noel Gar­cia, the then-man­ag­ing di­rec­tor 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 $1.7 mil­lion, 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 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:

�2 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.

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

�2�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 Au­gust 20, 2009 (see http://guardian.co.tt/busi­ness/busi­ness-guardian/2009/08/20/debt-de­pre­ci­a­tion-or-dis­ci­pline.)

�2 Bank fi­nanc­ing. The HDC al­so bor­rows mon­ey from com­mer­cial banks or the In­ter-Amer­i­can De­vel­op­ment Bank to fund its 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 three 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 three months of re­ceipt. See http://mphe.gov.tt/home/im­ages/sto­ries/pdfs/tthdc%20act%2024%20of%202005.pdf.

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:

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

�2 Poor fi­nan­cial and project con­trols–as re­vealed in the Uff Re­port (at para 25:30, see http://www.ray­mon­dand­pierre.com/ar­ti­cles/ar­ti­cle84.htm), not one HDC project has a signed con­tract:

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

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

�2 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 spe­cial pur­pose en­ter­pris­es.

Afra Ray­mond is man­ag­ing di­rec­tor of Ray­mond & Pierre Ltd and pres­i­dent of the In­sti­tute of Sur­vey­ors of T&T.

Com­ments can be sent to:

afra@ray­mon­dand­pierre.com.