Providing affordable housing for people excruciatingly slow

FOR the majority of Papua New Guineans in Port Moresby, providing a home for their families is only a dream as housing has become a luxury that only the rich can afford. The National’s reporter REBECCA KUKU takes an in-depth look into the issue. This is the first instalment of her three-part report.

IN the last 10 years, with a population boom in the capital city, housing prices and rental rates have increased dramatically, forcing many families to live out of rooms in the suburb areas or forced to live in the settlements scattered all over Port Moresby.
The Government had been attempting to address housing woes and concerns of the locals in the past three decades, commissioning reports for remedial actions. The first report was compiled in 1978 when the Morgan Committee was tasked to recommend means to increase the supply of affordable homes.
Another two reports followed in 2007 and 2010, the latter compiled by the Independent Consumer and Competition Commission. However, none of the recommendations in the reports were implemented.
Over the years, the National Research Institute had also produced research papers and reports on housing, namely:

• Property and Housing Policy Development 2016;
• EDAI Town Case Study 2017;
• PUBLIC Public Perceptions of Housing Benefits Tax in PNG 2017;
• PROMOTING Effecting Housing Delivery in PNG 2018;
• REVIEW of the National Land Development Programme 2018; and
• PUBLIC Perceptions of Housing Benefits Tax in PNG 2019.

Over the years, the Government had put up much effort to resolve the problem but with excruciating slow remedial results.
In 2015, the BSP First Home Ownership Scheme was launched with the Government depositing K200 million for BSP to provide low interest rate housing loans to help Papua New Guineans to own own houses.
Since its inception, many critics raised concern on how the scheme could only be accessed by the wealthy and, therefore, would not help address the housing issues of middle and low income earners.
The Public Accounts Committee (PAC) also announced its intentions in August to hold an Inquiry into the BSP regarding public monies (K200 million) that was invested with the bank for the home ownership scheme for Papua New Guineans.

Sir John … PAC can follow any trail of public monies

PAC chairman Sir John Pundari had said although BSP was a corporate body, the PAC had the power to follow any trail of public monies.
“So in this case, public monies were invested with the bank to cater for the scheme, so we will be investigating that as well,” he said.
Sir John said notices were served on Aug 21 to BSP to provide the information the committee had requested for.

Fleming … BSP helping more than 2,300 house buyers

BSP chief executive officer Robin Fleming told The National that the scheme did not involve any credit enhancement or guarantee from the Government.
“In the event a scheme loan goes into default, and BSP has to recover the outstanding loan, our normal recovery actions are pursued without any guarantee from the Government.
“It was also agreed that the scheme should apply for new houses costing about K400,000 (or below) to stimulate the construction sector growth.
“To date, 847 house buyers have benefited from the scheme’s total portfolio is K258 million. There is a good cross section of customers who have been able to take advantage of the scheme, including public servants, private sector employees and some BSP staff.
“BSP staff is also not the majority of the scheme borrowers. As a result of the scheme, some 1,000 new houses had been constructed with considerable economic benefits,” he added.
Fleming said when the scheme agreement was inked with the Government, it was initially capped at K200 million.
“However, the success of the scheme has allowed BSP to increase its portfolio cap without seeking additional support from the Government. BSP decided to increase the loans available under this scheme to K400 million and also to rebrand the “extended scheme” as an independent scheme of the Government without any funds from the Government.
“In total, BSP has a housing loan portfolio of about K600 million and between our standard home loan product and the extended scheme, helping more than 2,300 house buyers. Our extended housing loan scheme caters to both lower and high cost houses.
“Lower interest rates and longer term loans help customers with the purchase of their first home but the biggest factor is the cost of construction and developers continue to look at lower cost options for new housing projects,” he added.

Thornton … loan interest only 4 per cent and term up to 40 years

BSP group general manager (retail) Paul Thornton told The National that the scheme was designed to help Papua New Guineans own a house to call home.
“The loan interest rate is 4 per cent and the maximum loan term is 40 years. The loan product was designed this way to make the loan repayments as affordable as possible to enable more Papua New Guineans to enter the home ownership market. Additionally, the loan down payment from borrowers is 10%,” he said.
Thornton added: “With regard to down payments, borrowers can raise this from a variety of sources. Some employers assist their staff make that equity contribution but most borrowers turn to their superannuation contributions for help. The maximum loan amount is K400,000.
“Because the term of the loan is relatively long (40 years), it is in the interest of the home owner and the bank to ensure that the house is built using quality materials and constructed by a qualified builder. For a similar reason, the scheme loan product applies to new houses or houses that are no more than six months old.
“The repayment on a K200,000 loan at an interest rate of 4% pa over 40 years is about K385 per fortnight. Not all borrowers are the same and many have different financial and family commitments but based on an annual salary of K30,000, repayments of K385 per fortnight represents 34% of their gross income before tax and other expenses.
“Buying a home is a commitment and in addition to making regular fortnightly loan repayments, a house owner will also need to set aside or save funds to cover annual insurance premiums, land rates, water rates and council charges. They should also set aside funds to complete occasional maintenance on their house to ensure that it is always kept in good condition.
“Since introducing the scheme, BSP has approved 850 loans and we see this number increasing steadily in the future,” he added.

Barker … owning a house in NCD a major challenger for Papua New Guineans

Institute of National Affairs (INA) executive officer Paul Barker said: “For many Papua New Guineans, housing is certainly a major challenge in the National Capital District (NCD), and (to a lesser extent) nationwide.
“Going back to the colonial times, there was a policy for the population to remain in the rural areas on their own land, except where they were encouraged to travel out to plantations, or later to the resettlement schemes in oil palm and rubber estates.
“The government was not encouraging the growth of towns and cities, except as administrative centres serving their hinterland, with some public facilities providing service functions, as well as local trading and, notably, in the case of Lae, manufacturing centres.
“The Government did not see itself as having a responsibility to provide public housing, knowing that it could not afford to do so anyway, and concentrated only on providing public service housing in the towns and rural areas, as required for essential service delivery.”

“ For many families it is too difficult to make that first step, partly because there is limited land and affordable housing, with banks only willing to lend when there is a secure title from the State, not some informal or even semi-formal or innovative new land title arrangement.”

Barker said after Independence, with NCD and some towns growing, still relatively slowly, there was some consideration for updating housing policies, and some research and conferences were organised by both INA and Institute for Applied Social and Economic Research (IASER), now National Research Institute (NRI) in the late 1970s and early 80s.
“The emphasis was still that people coming to the NCD to work should be provided a return ticket by their employer to return to their home province at the end of their term of employment, rather than adding to the urban population.

“And that the Government could still only provide housing for public servants and providers of public utilities. Government also started providing some modest initiatives to facilitate the orderly development of the growing urban workforce, including through some hostels and designating some public land (notably in Morata) for low-cost housing development through self-help construction.
“Various settlements developed after the war in the city and other districts and provinces, particularly Lae, on public and customary land. But these remained relatively modest until the 1990s, when relative economic opportunities and basic services seemed increasingly redirected to the main centres, and infrastructure and economic opportunities in many provinces, with the more remote districts increasingly squeezed and availability of core public services in many cases even deteriorated.
“As the economy picked up in the 2000s, urban migration also leapt, but public expenditure remained tight. The stock of public sector housing was largely eliminated in the 1990s through a policy of sale of properties to tenants at knock down prices, making many incumbents relatively wealthy overnight, but leaving the public sector deprived of housing and failing to safeguard and invest the proceeds of the sales in new employee or public housing.
“The Government failed to designate and acquire large areas of customary land for low-cost housing development, partly because funds were limited. They also thought they could discourage urban development and some public sector leaders were benefitting as real estate owners from the inflated property prices and rental market.
“From 2005 to 2008, and then during the construction phase of the PNG Liquified Natural Gas (PNGLNG), demand for land and housing drove property prices and rentals through the roof, making NCD and even Lae some of the most expensive cities worldwide for higher end units.
“Even the cost of rentals in the settlements were driven to extraordinarily high levels, eating up the income of households, and driving up levels of urban poverty and malnutrition, when combined with lack of accessible and affordable staple food and vegetable supplies in NCD (rather than other centres),” he said.
Barker stressed that with the lack of land with formal titles as needed for borrowing for household or commercial property development, limited new development was occurring.
“This stressed the housing development needs of all, and all that could happen was that the housing and commercial property market and rentals for the limited available stock was pushed up.
“That was also true for hotels and hostels which were all full and very costly, even in the most basic premises. Finally, with the very high property prices and the major accumulation of funds being held with various financial institutions, including banks and superannuation funds, the pressure was on to acquire the limited available public land and to invest in high end “bricks and mortar”.
“Some businesses followed highly unscrupulous means to secure valuable land in premium places, including displacing squatters and occupying public park land, or misusing their political offices to grab land, redesigning development leases at business leases, or using dubious Special Agriculture Business Leases (SABLs) or other means, or exemptions from proper allocations and hearings.
“In any case, extensive new high end real estates were built in the past decade, largely for rental property, some office, commercial and hotel premises, albeit both through fair means and sometimes foul!
“This has had an impact on the high cost rental market, finally driving down the astronomical rentals for units, that reached K10,000 per week in a few cases; but rentals remained high by global standards and in relation to local incomes.
“The new investments also brought hotel accommodation prices well down, with many hotels now suffering relatively low occupancy, especially since the growth in facilities prior to the Asia-Pacific Economic Cooperation leaders’ summit in November last year. Rooms were converted into rented apartments. This greater availability of premium accommodations has enabled some relocation and upgrading of accommodation by PNG professionals.
“However, apart from a few significant private real estate developments, including semi-urban gated communities, there has been little additional formal land made available for middle and lower cost housing development.
“So the majority of the growing urban population continues to live in settlements, on State or customary land, under informal titles and limited tenure security.
“So, the issue is partly historical and partly due to prevailing policies, but it largely relates to the high population growth, both from rural-urban migration and high reproduction rates, combined with limited land and properties available.
“There has been very little opening up of land for low-cost housing, and to be able to extend affordable housing would require large tracts of land. Houses needed to be mass produced and bringing the unit costs well down, or using self-help construction, maybe using kit homes.
“This could be undertaken on a large scale and with new house owners applying for loans from cooperatives, a bit like traditionally in villages. Most of the smaller housing developments so far, have failed to bring the costs and prices down sufficiently for most households with limited incomes, or too many dependents.

“ Reducing the cost of living, not just rentals, but also power and utilities, and improving the quality of public transport and public services, especially responsive law and order.

“Clearly, trying to rise up that first step and acquire some capital, and be able to replace paying rental with repaying an affordable mortgage, are the greatest challenges to families. For many families it is too difficult to make that first step, partly because there is limited land and affordable housing, with banks only willing to lend when there is a secure title from the State, not some informal or even semi-formal or innovative new land title arrangement,” he added.
Barker said: “Addressing the problem has been restrained by lack of vision, malpractice, lack of will (with too many leaders and officials having little or no incentive to do so), ambivalent and even hostile views, particularly related to ethnic issues in NCD and other cities.

“Customary landowners were widely hostile to settlement from other tribes or regions with many unofficial and customary land rental and even land ‘sales’ occurring in NCD right through to smaller centres, such as land-short Alotau.
“To address the issues require a clear vision and shared goal, cooperation between authorities and utility providers (which have tended to function in isolation).
“There must be willingness to make available adequate land areas, and formalise the arrangements, whether on current State or customary land owners who must retain clear participation and benefit from any arrangement. It requires transparent land management and controlling the abuse, which has enriched some land leaders/officials, and which has allowed land to be diverted from lower cost to up-market end projects, or exempted land from formal allocation processes to back-hand deals.
“At the end of the day, if adequate and affordable housing is to be made available, and jobs and public services to start catching up with public demand, it will also require sound economic management, private sector investment and growth to make urban living more affordable.
“It will also require some restraint on population growth, not through (unconstitutional) restrictions on urban drift, but through effective measures to bring about development opportunities and quality services in the provinces, districts and rural areas.
“It must be recognised that urbanisation is a global phenomenon and will continue here, so it is necessary to prepare for it and make NCD and other cities attractive, but not so attractive that resources are unduly diverted from broader-based development, as has occurred over recent years.
“Reducing the cost of living, not just rentals, but also power and utilities, and improving the quality of public transport and public services, especially responsive law and order.
“Better planning for parks and recreation will all be essential to improving the quality of life, along with accessible markets, and allotment gardens for households to grow their own food and reduce living costs,” Barker said.