The Global Urbanist

News and analysis of cities around the world


Philippines: mobilising savings rates is part of the key to universal housing

We often think that housing policy requires improving poor households' access to finance and pooling community resources. The history of Singapore's universal housing program suggests that housing supply can only be sustainably increased when it is matched by aggressive macroeconomic policies that forcefully shift consumer demand towards the housing sector.

Kerwin Datu

Cities: Manila, Singapore

Topics: Housing, Urban economics

Gross National Savings as a percentage of GDP, selected Southeast Asian countries. Source: World Economic Forum
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Last month I wrote about the Philippine Government's reluctance to mobilise funds for any kind of program that would sustainably house all its people. Its National Housing Authority estimates that rehousing all of Manila's informal residents within the city would cost one-third of the national budget.

I contrasted that with Singapore in the 1970s, as wealthy then as the Philippines is now, which needed to commit only 2% of its budget, sustained for several years, to ultimately house 85% of its population.

Today I propose that one of the reasons for Singapore's success (and the Philippines' failure) has little to do with how much of its own money the government spends, but how it leverages the whole economy's savings rate to increase residents' spending capacity and stimulate demand for housing.

Often when we think of housing policies in developing countries, we look at the amount by which housing is undersupplied, and try to work out how to pay to make up the shortfall. We assume that policies for housing supply must be balanced by policies for housing finance.

Singapore's approach is broader. Instead of supporting housing supply with new financial instruments, it balances it against aggressive policies to boost demand.

Since we are often dealing with residents with no capacity to access formal finance, we resort to two kinds of measures: improving access to finance by pooling community resources, or government subsidy. But neither of these really change the burden that housing supply places on a society, they merely reorganise it.

Singapore's approach is broader. Instead of supporting housing supply with new financial instruments, it balances it against aggressive policies to boost demand. In the 1950s and 60s, core institutions were created for both sides of the equation. The Housing and Development Board ramped up the supply of housing, while the Central Provident Fund (CPF) created a big pile of money earmarked for housing expenditure, driving up demand.

For the CPF a portion of every employee's salary is levied, matched by a levy on employers; then when residents want to buy a house, the fund offers them grants and rebates to do so. In 1995 the scale of these grants was extraordinary: 50,000 Singaporean Dollars ( 35,100 USD/22,300 GBP) per applicant household. The proportions levied and the grants paid can be manipulated from year to year like a central bank's interest rates, providing the government with finely-calibrated levers to boost or dampen activity in the housing sector.

It might seem that this is just another way of pooling resources and improving access to finance. The Philippines has exactly the same kind of institution in its Home Development Mutual Fund, known as the Pag-Ibig (Love) Fund. But the difference is how much clout the government gives this fund, and what effect it is allowed to have on the economy overall. While the Pag-Ibig is a simple mutual fund, the CPF is really a macroeconomic policy, restructuring the country's production around the housing sector, sometimes even to the detriment of other consumer sectors such as retail.

When the Pag-Ibig was created in 1978, it levied 3 per cent of salaries from employees, matched by 3 per cent from employers, reducing this to 1 to 2 per cent in 1986. From 1987 to 1995 contributions were voluntary, and while this is no longer the case, the fund nevertheless has great difficulties forcing companies to pay their contributions.

By contrast the CPF was launched in 1955 with levies of 5 per cent on both employers and employees. From 1968 to 1984 it was gradually increased to 25 per cent each, remaining compulsory throughout, and is now levied at between 16 and 36 per cent depending on one's age and income bracket.

The impact on the national savings rate is seen from the table above. While most of its neighbours around the South China Sea save between 30 and 35 per cent of their GDP, Singapore's savings float between 40 and 50 per cent, one of the highest rates in the world.

It is this massive restructuring of the macro economy, and the huge sums held by the CPF earmarked only for housing or retirement pensions, that explains Singapore's ability to achieve a universal housing program, not just the CPF's nature as a mutual fund or finance instrument.

The point is that the Philippines is in a good position to finally embark upon a real program to adequately house its people--all of them.

In comparison, the Filipino economy languishes below most of its neighbours with a savings rate of around 20 per cent. It simply has not organised its considerable internal resources in any way commensurate to its investment needs.

As I pointed out last month, the Philippines is as wealthy now as Singapore was in 1975 when its housing program was building up steam. I note now that Singapore's savings rate in 1970 was 19.3 per cent, again quite comparable to the Philippines today. The point is that the Philippines is in a good position to finally embark upon a real program to adequately house its people — all of them. It requires only the political will to do so, and some understanding of history.


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