RAMBASSUN SEWPAL, BA (Hons) DipArch
MSc (RealEst) RIBA ICIOB PA MAA
What is the ‘real’ problem in the social housing sector?
In recent years, the government has noticed that nearly 40% of NHDC homeowners have an unpaid mortgage debt. 9% of the mortgage debtors are faced with the imminent threat of eviction. The amount due to the NHDC is astronomical. There is a growing concern over the issue of affordability in the social housing sector. The problem has become worse over the last 20 years as house prices have increased faster than earnings. If policy makers do not take appropriate actions in due course to reverse the situation, the government can face a long-term problem on the social, economic and political front. Eventually, the NHDC can meet the same fate as its predecessor, the Central Housing Authority (CHA) which was closed down in 1993. An important debate is over which subsidy system would be more effective to bring about reform in the social housing sector, object subsidy or subject subsidy.
Is the government going in the right direction?
In the last 25 years, the government has shifted its housing policy from housing need to the more market-oriented analyses of affordability. Housing units constructed in the last 15 years are not in line with international minimum space standards. The government has not defined in its Housing Programme if 50 m2 is Gross Floor Area (GFA), Gross Internal Area (GIA) or Net Internal Area (NIA). Rising construction cost in Mauritius may lead the government to build even smaller housing units.
The government announced that; ‘10,000 low income families with monthly income of less than Rs20, 000 will have a housing unit in 5 years.’ The programme of the government to supply housing units to 10,000 low income families under the current object subsidy programme will aggravate the situation.
Why NHDC homeowners are unable to repay their mortgage debt?
Income deficit is the leading cause to the problem of mortgage debt among NHDC debtors. Many households on the NHDC estates earn less than Rs. 17,657 hence living below relative poverty line. In other words, housing is not affordable for low income families with monthly income of less than Rs. 15,000.
According to Statistics Mauritius (2017), the average monthly household income is Rs. 36,810 while the average monthly household consumption expenditure is Rs. 28,820 as for 2017. As of 2017, household size is 3.4 compared to 3.5 in 2012. The Household Budget Survey 2017 states that, ‘the relative poverty line for an average household comprising 2 adults and 2 children (aged less than 16 years) works out to Rs 17,657 in 2017.’ Statistics Mauritius (2017) tells us that the number of poor households have increased from 26,100 to 36,100 during the period of 2007 to 2017. Poverty level has gone up from 7.9% to 9.4% between 2007 and 2017.
How do we tackle the problem of loan default among NHDC homeowners?
The government should increase the minimum wage. In turn, it will increase demand for housing. A good example will be learning from past mistakes of the United Kingdom. The UK’s main objective of the last 25 years is now turned towards the quality of housing rather than tackling unpaid rent or mortgage arrears.
Why object subsidy failed to make housing affordable in Mauritius?
For now, object subsidy has guaranteed low- and middle-income earners access to housing but has not provided them with adequate security of tenure. They remain vulnerable to the threat of foreclosure. This is because at the time of acquisition, the NHDC housing units were made affordable through a one-off grant scheme, benefitting hugely the households buying their houses debt-free. The housing units were no longer affordable for many households who took out a mortgage loan from the NHDC because; they noticed that their monthly expenses were becoming higher than their income due to inflation. To sum up, the repayment capacity of many NHDC homeowners was reduced over the years hence leading to loan default.
What is the repercussion of the failure of object subsidy on the national economy?
The object subsidy system in place in Mauritius has high potential to create a subprime mortgage crisis which consequently could lead to a vicious cycle within the social housing sector. The government will have to bail out the NHDC if they encounter any financial loss and the money will come from public funds, a repercussion on the whole society.
Why choose subject subsidy over object subsidy?
Taking the example of United Kingdom — The growing academic literature in this field suggests that subject subsidy is the preferred solution as it offers choice to households to the type of housing and place they want to live but can only work effectively if targeting of low and middle income group is conducted in the right and proper manner.
King (2006 quotes Boyne et al. 2003) through the arguments of public choice theory to justify his preference of subject subsidies over object subsidies. The theory aims at criticising the role of public organisations based on three main points.
Firstly, it mentions that in the public service, there is a lack of innovation and officials are not motivated to keep cost at a minimum and this poor performance is the result of political pressure.
Secondly, performance indicators are absent in their system to allow evaluation of team work or individual contribution.
Finally, the control and coordination of public organisations are jeopardised due to their large size because performance declines as the size increases.
The proposed solution by theorists is to create competition between the public and private sector. It is intended that the competition will compel the public sector to reorganise itself and break down to smaller units and innovate their services to capture consumers. One approach proposed to justify subject subsidies is via targeting. This system for allocation of social housing targets low income households in need of shelter and withdraw support as soon as their income increases.
Subject subsidies have for benefit to be tenure neutral, hence is applied to all housing sectors, including owner occupation.
Furthermore, housing policy makers in Western Europe are reducing object subsidies in favour of subject subsidies to target people who have difficulties to pay their mortgages or rents. Implementation of the system relies on good and effective management to target beneficiaries according to their income. This will guarantee low income earners a dwelling of a minimum standard in the private rental housing sector. Housing allowance is a system that makes houses affordable through subsidies by the government.
Targeting
The issue of housing benefits revolves around the discussion whether housing allowance should be given to an individual or should he be provided with a house. The real argument lies on the fact of whether a low income earner can be trusted with money given to them from public funds. It is widely viewed that low income earners do not spend their money judiciously and hence it creates a debate on their competence of handling money. Therefore, the Government of Mauritius has to target the right people in housing need in a proper manner in order to allocate housing allowance as carried out in the provision of any benefits by the state.
Learning from past mistakes
King (2006 cites Power 1987) ‘Local authorities and housing associations have been guilty of building poor-quality and unpopular housing’ to invoke that there is no link between subsidies and quality in the United Kingdom. King (2006 cites Marsland 1996) to expose the problem of object subsidies which resulted to ‘ghettoisation and unbalanced communities’ in the UK. The subject subsidy system has for main advantage to offer the choice to households to the type of accommodation and to where they want to live. The lesson to be learned from this system is that no matter the income or tenure, social housing tenants should be given the choice even though it is limited. And regardless to the level, the concept of ‘choice’ has brought significant progress to the centralised and bureaucratic manner of housing provision in the UK.
Strategies to reform social housing
1.The government has to prepare a Housing Needs Assessment to know exactly how many households are in housing need for allocation to the right people.
2.Put more emphasis on ‘Good Quality’ in housing and meet the size of new housing according to occupancy
3.Build new housing units according to international minimum space standards for housing
4.Replace Object Subsidy with Subject Subsidy in the form of Housing Allowance
5.Provide social homes to rent with ‘right to buy’ scheme
References
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