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How rent could solve the housing problem

In a previous article I pointed out four main challenges for the housing minister in providing adequate housing to the millions of families seeking their right to an affordable and safe home. One of these challenges was making government housing projects work.

The last housing project, the National Housing Program (NHP), never achieved its target of 500,000 units, while tens of thousands of completed units have been standing empty — either because they never got their infrastructure hooked up, or because they are in remote areas lacking security and public transportation.

The most glaring shortfall of the NHP, however, was that middle and upper-middle income earners benefited more than the poor from the billions of pounds in public spending that the project consumed.

Today, we have three government-backed housing projects currently on the table, all of which are targeting the so-called low-income families. The main project is the Social Housing Program (SHP), or “Million Wehda (million units) run by the Ministry of Housing, which, as the name suggests, promises to provide one million units to low-income families between 2012 and 2017.

The second project is the Central Bank Initiative (CBI), a boost to the joint initiative of the Ministry of Housing, Guarantee and Subsidy Fund (GSF) and World Bank Affordable Mortgage Program, where the Central Bank of Egypt (CBE) has agreed to offer lower interest rates for 10,000 subsidized units.

The third project is the redundantly named Million Wehda or Million Units Project (MUP). Unrelated to the SHP, this is a joint project by the Army Corps of Engineers and an Emirati developer, Arabtec, to build one million units for low and middle-income families between 2015 and 2020.

So is this good news, or are we going to witness the same inequities of the NHP? For that we need to find out who “Mr. and Mrs. Low-Income” are.

Most SHP unites and all CBI and MUP units are being sold through one mortgage scheme or another. The Mortgage Law currently defines low-income as those families that earn up to LE30,000 a year. Last January, the Cabinet approved — but has yet to implement — an amendment to raise that to LE40,000 a year.

But when you compare these earnings with the latest Household Income, Expenditure and Consumption Survey (2012/2013 HIECS), produced by the Central Agency for Public Mobilization and Statistics (CAPMAS), you realize that these earnings are all in the highest quintile. Simply put, without the amendment, almost anyone in Egypt except the richest 10 percent can apply for a subsidized housing unit.

This doesn’t seem fair, as already limited subsidies and public investments are being spread thin across a wide spectrum of people, which include families that, on paper, don’t deserve subsidies. The situation is made even more unfair by the fact that to qualify for a mortgage, a family must also have a minimum income to do so.

The Mortgage Law allows borrowers to ask for a loan of no more than 25 percent of income, which I think is a responsible limit, as Egyptian families typically spend between 15 percent and 25 percent of already stretched incomes on rent. However, the unit prices are high, meaning the poor can’t afford the cheapest formal housing units, while no other government housing programs cater for them.

The CBI units range in price from LE75,000 to LE110,000, and according to the GSF website, the cheapest unit requires a minimum income of LE14,440 a year, to include only families from the poorest quintile. But these families are expected to make a down payment equal to their annual income, in addition to having a formal job, a prohibitive requirement for most people in this income bracket — two-thirds of the Egyptian workforce are informally employed.

More important, though, is the SHP, which will put 50,000 units on the market this June, which are said to range in price from LE110,000 to LE130,000. According to the housing minister, the cheapest installment plan is LE480 a month, which under the Mortgage Law means only families earning LE23,000 a year can afford them. When compared to income statistics from the 2012/2013 HIECS, this means that half of Egyptians are effectively blocked from the benefit of the LE8.7 billion in public spending currently earmarked for this project.

MUP prices — the Armed Forces-Arabtec project — are yet to be announced, though they are expected to be even more expensive. The project won’t receive cash subsidies, but will instead rely on public land allocated to the project for free.

So Mr. and Mrs. Low-Income actually belong middle and upper-middle income families that have formal jobs, and not the lower to middle-income groups and the poor, who mostly work informally. This simply doesn’t make sense.

What does make sense is that under Article 78 of the 2014 Constitution, the government is obligated to provide adequate housing to its citizens — and to do so, it must redirect all these billions in state funds to the poor. And here’s how.

A portion of the SHP units are going to be offered via rent, and not ownership by mortgage. Historically, this portion has been as small as 10 percent of a program, which has had little if any effect. However, if this rent option is expanded to include two-thirds of the entire million units, so that a range of affordable rent is offered according to the income of the poorest two quintiles, then the SHP will have a dramatic effect in alleviating the housing crisis.

Expanding the rent option will not only help provide much needed housing for the poor, but will also curb urban sprawl on agricultural land. As we know, most of the homes built informally are much cheaper than government-built housing, and providing affordable rentals will mend this situation.

The real estate and construction material market would also stabilize if the remaining portion of the SHP, and possibly the MUP, are sold through a more affordable mortgage arrangement to middle-income families, negating the need to subsidize them.

Going down the rental road instead of selling the units to poor families is the only win-win choice. After all, the public money has already been spent, and the Ministry of Finance isn’t waiting for it back.

Do we have a taker?

Yahia Shawkat