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THE HOUSING INDICATORS PROGRAM

EXTENSIVE SURVEY

PART I: INTRODUCTION

A JOINT PROGRAM OF mE UNITED NATIONS CENTRE FOR HUMAN SETILEMENTS AND THE WORLD BANK

ROOM SIO-ISS, INURD, mE WORLD BANK, 1818 H STREET NW, WASHINGTON DC 20433, USA TELEPHONE: (011) 202-473·1013 FAX: (011) 202-477-1391

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THE HOUSING INDICATORS PROGRAM

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PART IV-"(,RI~ATIOH.vtDEO is·.·.~·.47~minute. videota~~hichintroduces.theHousin9 .Indicators Program and pro!idescinswers.tofrequently asked quest ions about.>i.ts vari.ousaspects •

THE HOUSING INDICATORS PROGRAM

1. The Problem: Lack of Tools for Managing the Housing sector as a Whole

Existing tools for managing the housing sector, particularly in developing countries, are almost wholly inadequate for:

a. understanding what a well-functioning housing sector is and monitoring its performance;

b. understanding the relationships between policies and sectoral outcomes; or

c. understanding the relationships between the performance of the housing sector and broader social and economic development outcomes.

Deficiencies in data and lack of serious quantitative analysis considerably hamper the ability of governments to make informed choices concerning desirable housing sector policies, and other policies which have major impacts on the housing sector. There is often no clear sense of the norms in a well-functioning housing sector, or of how best to bring about or move toward those norms. As a result, costly policy failures occur, inhibiting the development of the housing sector and frustrating broader development objectives.

2. The Objective: creating Tools for Managing the Housing Sector

The global objective of the Housing indicators Program in general, and the Extensive Survey in particular, is to develop conceptual, analytical and institutional frameworks for managing the housing sector as a whole. More specifically, the program has three aims:

a. Providing a comprehensive conceptual and analytical framework for monitoring the performance of the housing sector;

b. Providing important new empirical information on the high stakes of policy making in the housing sector for societies and economies; and

c. Initiating new institutional frameworks that will be more appropriate for formulating and implementing future housing policies, in the light of new research findings.

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3. Housing Indicators: Implementing the Global Shelter strategy

For any realistic turn towards effective management of the housing sector as a whole to occur, deficiencies in data availability and applicability must be corrected. Towards this end, the Housing Indicators Program was initiated jointly by the World Bank and the United Nations Centre for Human Settlements (Habitat) in October, 1990, and is expected to continue through 1991 and beyond. It is an outgrowth, and indeed an essential step, in the implementation of the Global Shelter Strategy for the Year 2000 endorsed by the UN General Assembly in 1988.

The Global Shelter Strategy calls for a fundamental shift in governments' role in housing - from attempting to provide housing directly, a policy which has usually failed, toward an enabling role, one which facilitates, energizes and supports the activities of the private sector - both formal and informal - in housing development. This shift necessarily requires governments to obtain a broader overview of the housing sector as a whole, and to better understand the mechanisms governing housing sector performance. There is a widespread recognition among governments that this requires better data and better, policy­oriented analysiS of such data.

Now that the focus of government attention must shift to the housing sector as a whole, and away from government-centered housing delivery, there is a need for operational tools for measuring sector performance and for comparing it across time and space. Such tools are now necessary for seeing housing policy in a more global, comparative perspective where lessons learned in one country can become more relevant to another. And it is this comparative perspective which may be invaluable for countries in charting their paths, in formulating development objectives, and in measuring their attainment vis-a-vis expected norms.

To date, the Program has received broad international support as well as financial support from a number of development agencies. So far, in addition to support provided by the co-sponsors of this program, resources have been provided or pledged by the UN Development Programme, the US Agency for International Development, Finnida - the Finnish Development Agency, and the US National Association of Realtors.

4. The Research Agenda: Developing Indicators for Policy-Making

The Housing Indicator Program seeks to answer three fundamental questions:

(1) Can informative, robust, reliable and cost-effective techniques be developed to:

(a) measure key aspects of housing sector performance;

(b) establish the linkages between the socio-economic and policy environment and key housing sector outcomes; and

(C) establish the linkages between housing sector outcomes and broad social and macro-economic performance?

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(2) How should the use of key indicators of housing sector performance be integrated. into the formulation of national shelter strategies and international development assistance to the housing sector? and

(3) What institutional developments can be initiated to ensure that housing indicators will be used effectively in informing housing sector policy?

5. The Program Structure

To explore these questions, the Housing Indicators Program has three major components:

(1) Existina Data Analvsis: Household survey and associated socio­economic data already exists for 10-12 countries that have been studied earlier by the World Bank. These data provide information on housing supply and demand parameters and on housing quality and quantity for cities of different sizes and at different levels of economic development. This information is presently being used to formulate hypotheses on bivariate and multivariate relationships among housing indicators. These hypotheses will be tested in the cross-country comparison which will be made possible with the results of the Extensive Survey;

(2) Intensive Surveys of the Housing Sector: Intensive surveys have now been initiated in two countries (Hungary and the Philippines), and may be extended to a third country later this year. These Intensive Surveys, which include a Household Survey as well, aim at obtaining values for a comprehensive set of approximately 150 housing indicators. The objectives of these surveys are:

(a) to assist on-going efforts at formulating and implementing National Shelter Strategies;

(b) to establish monitoring criteria for housing sector performance; and

(c) to evaluate the validity and cost-effectiveness of specific indicators;

(d) to determine how best to integrate information on housing indicators into the process and the institutional framework for housing policy formulation and implementation; and

(3) Extensive Surveys of the Housing Sector: The Extensive Survey will be conducted in one major urban area in each of 40-50 countries in all five continents. Each survey will aim at obtaining values for 25 key indicators of housing sector performance, 10 alternate indicators, 10 regulatory indicators designed to quantify the regulatory and institutional framework within which the housing sector operates, and 10 alternate regulatory indicators.

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6. The Extensive Survey

The specific component of the Program for which international cooperation among in-country experts is being sought is the Extensive Survey of Housing Sector Performance in 40-50 countries in all five continents.

The objectives of this Extensive Survey are:

(1) to create a basic set of indicators for the housing sector;

(2) to obtain current estimates for these indicators in 40-50 countries; and

(3) to establish key relationships among these indicators, and between them and key indicators of social and economic development, using cross-sectional data from the extensive surveys in these countries.

The more practical aims of the Extensive Survey are:

(1) to provide an analytical tool for governments for measuring the performance of the housing sector in a comparative, consistent, and policy-oriented perspective;

(2) to establish base-line data in participating countries for new national shelter strategies and new housing sector loans;

(3) to create a framework for comparing housing sector performance between cities and countries, as well as between different time periods;

(4) to contribute toward establishing a new institutional framework within countries for formulating and implementing sector-wide housing policies; and

(5) to work toward the creation of an international network of experts and institutions capable of overseeing the development of the housing sector.

7. OUtputs: Institution Building and Research Reports

a. Regional Meetings and Country Seminars

(1) Regional Meetings. To ensure the reliability and comparability of data, and to begin to form the international network of experts and institutions engaged in housing sector monitoring, a series of Regional Meetings will be conducted in Asia, Africa, Europe and the Middle East, and Latin America and the Caribbean. The meeting in each region will discuss the findings in each country in a comparative regional framework, and follow-up activities within each country and at the international level will be planned. Program staff as well as regional World Bank staff will participate in the regional meetings.

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(2) In-Country Seminars. Following the regional meetings and a preliminary compilation of the indicator data from all participating countries, the results will be communicated to the Country-Based Consultants in each country. Each Country-Based Consultant will be then be expected to conduct an In-Country Seminar. The objectives of the In-Country Seminars are:

(a) to present the comparative findings of the Extensive Survey;

(b) to examine the policy implications of the findings; and

(c) to assess the practical implications of the survey for further, more intensive data collection and analysis in support of new housing policy initiatives.

Funding for these In-Country Seminars is beyond the scope of the Extensive Survey itself, but will be sought at a later stage - either as part of a dissemination phase of the Housing Indicators Program or as part of the technical cooperation activities of UNCHS and UNDP.

b. Research Outputs

Alongside the institution-building outputs discussed above, the Program has four major kinds of research outputs:

(1) Tables showing indicator values for a set of 25 key indicators, the 10 alternate indicators, the 10 regulatory indicators and the 10 alternate regulatory indicators, for 40-50 cities in selected countries;

(2) a set of tested hypotheses, described both graphically and verbally using cross-country comparisons, concerning the significant relationships among these indicators;

(3) a monograph, provisionally entitled Housing Indicators for Policy Making. The monograph will have two main parts. The first part will introduce the conceptual framework for using housing sector indicators to measure sector performance and to guide policy, and will discuss the indicators and the relationships among them. The second part will discuss methods for data collection, data processing and analysis, institutional arrangements for creating and using indicators, and comparative costs of alternative approaches. Needless to say, all contributors to the Program will be credited in the monograph; and

(4) Research papers by Country-Based Consultants and their associates, using comparative international data on the indicators to discuss national housing policy and future monitoring of the housing sector. (This is not seen as a requirement of the program, but as an opportunity for those participating in it).

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8. Expenses: Level of Effort.

The Housing Indicators Program will cover travel and per-diem expenses for the participation of country-Based consultants in the Regional Meetings, as well as make available to consultants US$ 5« 000 for in-country data collection expenses. It is estimated that the coordination and data collection effort will require 4 working weeks over a three-month period, and that each Regional Meeting will be conducted over three working days.

9 • Schedule.

Following the receipt of the research funds in late May, 1991, consultants have been recruited during the month of June. Preliminary data collection for the indicators can take place from the beginning of July, 1991 to mid-september, 1991. The preliminary communication of results will take place via telecommunication in mid-September, 1991. The regional meetings, are scheduled for early November, 1991, and the final submission of the completed extensive surveys is scheduled for late December, 1991. It is expected that the preliminary compilation of results from the ExtensiVe Survey will be available by the end of February, 1992. In-Country Seminars are planned for April and May 1992.

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THE HOUSING INDICATORS PROGRAM

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1. Modelling the Housing sector as a Market

In recent years, market relations have been observed in the housing sector at all levels and in all of its segments, from the most meager squatter settlements to highly-regulated rent-controlled apartments. Even in centrally­planned and formerly centrally-planned economies, housing is viewed increasingly as a commodity with an exchange value, rather than as a good to be produced and allocated outside of the marketplace. The housing sector in turn is being viewed as one which is driven by a variety of market forces, by supply and demand, and that these forces exert powerful influences throughout all parts of the sector despite the existence of apparently distinctive submarkets.

Recognition of the pervasiveness of market forces has led to the view that even though responsible housing policy must certainly be sufficiently refined to deal with particular submarkets, e.g., luxury suburban housing, high-rise condominiums, public housing rentals, inner city slums, squatter settlements, and informal land sub-divisions, still, in a broader perspective, it is useful to look at the housing sector as a single market. In such a market, the housing units in individual sub-markets are viewed as particular combinations of qualities which are obtainable for a given price. Housing units are seen as packages which are distinguished by a number of qualities, e.g., floor area, durability, availability of basic services and amenities, accessibility, and security and form of tenure.

Prices, and thus housing affordability by different income groups are determined in the market by demand and supply factors. Housing demand is determined by demographic conditions, such as the rate of urbanization and new household formation, as well as macro-economic conditions affecting household incomes. It is also influenced by the availability of housing finance and by government fiscal policies, e.g. taxation, subsidies and particularly subsidies targeted to the poor.

Housing supply is affected by the availability of resource inputs, such as residential land, infrastructure and construction materials. It is also affected by the organization of the construction industry, the availability of skilled and productive construction labor, and the dependence on imports. Both the demand and supply of housing are affected by the regulatory, institutional and policy environment.

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Housing policies and housing outcomes may in turn affect broader socio­economic conditions, such as the under-five mortality rate, the rate of inflation, the household savings rate, manufacturing wage and productivity levels, capital formation, the balance of payments of the government budget deficit.

In graphic terms, the model of the housing sector is described in Figure 1 below:

Figure 1

2. Qualitative Norms for a Well-Functioning Housing sector

While the existence of housing markets and sub-markets is a fact, it does not necessarily mean that these markets are functioning well either in terms of efficiency or equity. Nor does it mean that these markets satisfy housing needs or help attain broader social and economic development goals. Policy making in the housing sector must necessarily be based on a normative view of how the housing sector should work, in a given context with given constraints on resources.

To develop a normative view of the housing sector, it is necessary to look at the performance of the sector from a number of different perspectives. The five most important perspectives are those of housing consumers, housing producers, housing finance institutions, local governments, and central governments.

Each of these five perspectives focusses on different aspects of the sector and on different qualitative norms. Some of these qualitative norms are listed below:

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(1) Housing Consumers

a. Everyone is housed.

b. There is a separate dwelling unit for every household.

c. Housing expenditures do not take up an undue portion of household income.

d. House prices are not subject to undue variability.

e. Living space is adequate.

f. Structures are safe, providing adequate protection from the elements, from fire, and from natural disasters.

g. Infrastructure services and amenities are available and reliable.

h. Location provides good access to employment opportunities.

i. Tenure is secure and protected by due process of law.

j. Households may freely choose between different housing options and different housing tenure (owning vs. renting).

k. Housing finance is available to smooth housing consumption over time and allow households to pursue desired patterns of saving and investment.

1. Adequate information on housing options is available and affordable, to ensure efficient choice.

(2) Housing Producers

a. Adequate supply of residential land is available at reasonable prices.

b. Infrastructure networks are adequate and do not hold back residential development.

c. Building materials and equipment are available at reasonable prices.

d. Entry of new firms, large and small, into the residential construction sector is not impeded.

e. There is sufficient skilled manpower in the housing sector.

f. The residential construction sector is not discriminated against by special tariffs or controls on imported building materials and equipment.

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g. Adequate financing is available to enable efficient land development and construction.

h. Housing production and investment can respond to changes in demand without undue delay.

i. contracts are enforceable.

j. Regulations concerning land development, land use, building, land tenure, taxation, or special programs are well-defined and predictable, and government application of these is efficient, timely and uniform.

k. There is a wide latitude in the choice of input combinations, which can generate a broad spectrum of housing choices.

1. Adequate information exists to enable producers to forecast housing demand with reasonable certainty.

m. Rates of return on all types of housing investment, including rental housing, are sufficient to maintain incentives for investment.

(3) Housing Finance Institutions

a. Housing finance institutions are permitted to compete for deposits on even terms.

b. They are not forced to compete unfairly with subsidized housing finance institutions.

c. Lending should be at positive, real interest rates with a sufficient margin to maintain the health of the institution.

d. sufficient deposits exist of an appropriate term structure for long-term mortgage lending.

e. Mortgage lending instruments are permitted which are in demand by households, and which provide adequate protection for the institution.

f. Systems of property rights, tenure security and foreclosure are such that the financial interests of lenders can be protected.

g. Appropriate institutions exist, in either the public or the private sector, which protect financial institutions against undue risk associated with mortgage lending.

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(4) Local Governments

a. Housing and associated infrastructure are of adequate quality to ensure that public health and safety standards are maintained.

b. Infrastructure networks and services are extended in a timely fashion to all communities.

c. The location of new housing communities is in close proximity to existing main infrastructure networks.

d. The spatial organization of the urban area, in terms of land use, is productive and efficient.

e. Sufficient land can be obtained for laying infrastructure networks and providing local amenities and public services.

f. Housing provides a main source of municipal revenues for building and maintaining infrastructure services and neighborhood amenities.

(5) Central Governments

a. Adequate, affordable housing is available to all.

b. Targeted subsidies are available to assist households who cannot afford minimum housing.

c. Housing sector policy and strategy is integrated into national social and economic planning.

d. The performance of the housing sector is monitored regularly.

e. The housing sector contributes toward meeting broad social and economic objectives:

1. The alleviation of poverty;

2. Controlling inflation;

3. Generating household savings and mobilizing household productive resources;

4. Generating employment and income growth;

5. Enabling social and spatial mobility;

6. Increasing productivity;

7. Generating investment growth;

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8. Accumulating national wealth;

9. Reducing the balance of payments deficit;

10. Reducing the government budget deficit;

11. Developing the financial system

While the above list is partial and incomplete, it does provide a broad normative view of a well-functioning housing sector from the most important perspectives.

3. The Regulatory Audit

It is becoming increasingly clear that the regulatory and institutional environment of the housing sector affects its performance in a number of important ways:

(1) By making housing unaffordable to low-income groups

Unrealistically high standards for land subdivision, project infrastructure and construction make it impossible to build low-income housing legally;

(2) By restricting residential land supply

Restrictive land use and zoning regulations, e.g. agricultural greenbelts, restrict the availability and hence raise the price of residential land;

(3) By preventing the formation of new housing institutions

New housing institutions, e.g. condominiums, cooperatives, mortgage banks, cannot come into being because the necessary enabling legislation does not exist;

(4) By preventing markets from operating efficiently

Inappropriate regulations distort the prices for land and building materials as well as for rents, making markets inefficient; lack of appropriate rules make exchanging residential property difficult;

(5) By making investment in housing unattractive

Insecure land tenure, for example, prevents households from investing in their houses, while low rents prevents new investment in rental housing;

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(6) By forcing large numbers of people to break the law

Since people must live somewhere, if legal housing is not affordable, they are forced to live in illegal housing;

(7) By creating bureaucratic bottlenecks which cause delay

Inefficient or uncertain administration of regulations creates substantiai delays in securing permits, increases project financial costs, and creates monopolies by keeping small developers from entering the sector;

(8) By preventing the development of property taxation

Without appropriate regulations, the tax system cannot recapture a portion of the private gains on the appreciation of property values from public effort expended on housing development.

One of the key objectives of the Housing Indicators Program is to draw attention to the importance of the regulatory and institutional environment, and to its effect on housing sector performance. This is a difficult task, because many of the features of this environment are inherently difficult to quantify. We have attempted to create a profile of this environment by trying to quantify some of its features, and by placing special emphasis on the existence on non-existence of specific regulations or institutions. We thus focus on a small number of quantifiable indicators, and a large number of yes/no questions.

The regulatory environment of the housing sector may achieve the goals of a well ­functioning housing sector through a variety of forms, depending on cultural traditions and historical circumstances, but each regulatory system must create a comprehensive, determinate matrix of relationships among the recurrent actors ­- those who consume, build, service, finance, and regulate housing. Such a legal framework must guarantee:

(1) Clearly defined, stable, and reasonably broad private ownership and use rights in land and housing;

(2) The ability for private actors to transfer those rights through enforceable agreements; and

(3) A predictable, inexpensive, publicized and accessible system for enforcement.

Ideal regulatory systems are structured to achieve the goals of a well ­functioning housing sector in a way that minimizes transaction costs, while maintaining fairness, stability, and consistency. In such systems, public and private rights in property are balanced, conflicts are inexpensively and speedily resolved, outcomes are predictable and publicized, land use regulations encourage private investment, building regulations are affordable given the level of development, financial regulations allow institutions flexibility to adapt to

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changing market conditions, and risk is efficiently allocated and insurable. By contrast, a 'dysfunctional' or less-than-ideal legal system imposes a cascading set of constraints and distortions that make housing unavailable and unaffordable.

For a vibrant private housing sector to function, governments must provide an enabling legal framework -- that is, a system sensitive to the economic consequences of regulation --.in each of the major housing delivery systems, and along the entire cycle of housing development, transaction, use, maintenance and replacement. Improvements in the regulatory and institutional environment of the housing sector is the most direct policy instrument that governments have to achieve the goals of an enabling shelter strategy.

Despite the diversity of regulatory systems, ideal regulatory systems aim towards a common set of norms. These qualitative norms may in turn be embodied by a limited number of concrete policy goals and measured by quantitative indicators. A partial list of qualitative regulatory norms follows:

(1) Housing Market Development.

a. Private individuals have a broad set of rights to ~ and use land and housing, there are mechanisms to transfer those rights through enforceable agreements, and an efficient system for dispute resolution.

b. Regulation encourages emergence of the broad range of housing types, institutions and actors, including developers, contractors, building materials suppliers, and estate managers.

(2) Land Market Development.

a. The regulatory system makes sufficient land available for development and redevelopment.

b. Tenure systems encourage transfer and development of land.

c. Conversion of agricultural land to urban uses is not too cumbersome.

d. The land registration system has broad coverage.

(3) Housing Finance Development

a. Financial institutions are allowed flexibility to respond to changing market conditions with new financial instruments and organizations.

b. Regulations ensure the solvency of financial institutions directly through appropriate supervision and indirectly through insurance markets.

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c. Effective foreclosure and eviction processes allow land and housing .to be used as collateral for loans.

d. The regulatory system responds to the informal financial sector by providing it an accessible dispute resolution mechanism.

(4) Public Sector Involvement.

a. Public sector involvement in the direct development, production, and management of housing is limited.

b. The public sector uses indirect controls to organize and manage housing production and delivery by the private formal and informal sector.

c. The regulatory system ensures adequate production of public goods such as environmental amenities and infrastructure through structured private incentives and direct provision.

d. Targeted regulations and public assistance protect especially vulnerable groups.

(5) Low Price Distortions.

a. The regulatory system has transparent and low price distortions in land markets, housing production, sales, rental markets, and in financial markets.

(6) Bureaucratic Bottlenecks.

a. The regulatory system functions with low bureaucratic costs and delays both under the formal procedures and in practice.

(7) Affordable Standards.

a. Land use and building regulations: minimum lot sizes and density restrictions, and other regulations explicitly take into account their economic effect on housing affordability.

b. The regulatory system is appropriate to the level of economic development and low-priced housing can be built in compliance with the codes.

c. Urban planning requirements allow a broad range of development options and flexibly respond to changing market conditions.

(8) Compliance.

a. Well-functioning urban legal systems increase compliance by requiring affordable standards and imposing low bureaucratic costs and little delay.

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(9) Squatter tolerance.

a. The regulatory system responds effectively to the presence of a large number of squatters by providing them with regularized tenure and affordable infrastructure, by limiting evictions, and by ensuring that adequate land is available for new low­priced housing.

(10) Housing as a local tax base.

a. The tax system -- including property taxes and assessments - ­can recapture a portion of the private gains on the appreciation of property values from public effort expended in housing and land development.

4. From Norms to Policy Goals and Indicators

Clearly, the number of different norms makes it impossible to provide a simple overall measure of performance of the housing sector. The housing sector is complex, and determining whether or not it is performing well is a complex matter as well. It is possible, however, to derive a limited set of policy goals from the above set of norms, and to create a set of indicators which can measure progress toward the attainment of these goals.

A preliminary attempt at this derivation is presenting in the table below. As can be seen from the table, housing policy goals have been rearranged into five groups:

(1) Quantity and price goals;

(2) Quality goals;

(3) Demand-Side Goals;

(4) Supply-Side Goals;

(5) Regulatory Reform Goals;

A sixth category of housing policy goals defines broader socio-economic goals which may be affected in part by housing policy:

(6) Broad Socio-Economic Impact Goals.

The specific definitions of each of the proposed indicators in the first four groups appear in Section 3 below. The preliminary number of key housing indicators has been limited to 25, and the number of alternate indicators has been limited to 10. Hence not all of the norms of the well-functioning housing sector have been included. For some norms, simple, measurable indicators cannot be constructed. In addition, there are 10 indicators and 10 alternate indicators for measuring the efficiency and effectiveness of the regulatory and institutional environment of the housing sector.

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Housing Policy Goals

(1) Quantity and Price Goals:

Adequate Housing for all

Affordability

(2) Quality Goals:

Reduction of Overcrowding

Durability

Provision of Basic Services

Accessibility

Security of Tenure

Choice

(3) Demand-Side Goals:

Development of Housing Finance

* Alternate indicators

No. Housing Indicators

1 New Household Formation

Al (Households Per Dwelling Unit)·

2 Homelessness

3 Housing Production

4 Housing Investment

5 House-Price-to-Income Ratio

6 Rent-to-Income Ratio

7 The Housing Price Index

8 Floor Area Per Person

A2 (Persons Per Room)

9 Permanent structures

10 Water Connection

11 Journey to Work

12 Unauthorized Housing

A3 (squatter Housing)

13 Residential MobLlity

14 The Vacancy Rate

15 OWner Occupancy

16 Residential Segregation

17 The Housing Credit Portfolio

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18

A4

AS

A6

A7

Development of Fiscal 19 Policy

Subsidies for Low-Income 20 Groups

(4) Supply-Side Goals:

Residential Land Development 21

A8

Infrastructure Provision 22

Low-Cost Construction 23

A9

A1D

Reorganizing the Building 24 Industry

Construction Labor Force 25 Development

(5) Regulatory and Institutional Reform Goals:

Housing Market Development Rl

Land Market Development R2

RA1

RA2

Housing Finance Development R3

The Credit-to-Value Ratio

(New Housing Credit)

(Mortgage-to-prime Difference)

(Mortgage-to-DepositDifference)

(Mortgage Default Rate)

Housing Subsidies

Targeted Subsidies

The Land Development Multiplier

(Land Concentration)

Infrastructure Expenditures Per Capita

Construction Cost

(Import Share of Construction)

(Construction time)

Industrial Concentration

The Skill Ratio

Restrictions on Exchange

Land Registration Coverage

(Public Land OWnership)

(customary Land OWnership)

Housing Finance Development

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Public sector Involvement

Low Price Distortions

Removing Bureaucratic Bottlenecks

Affordable Standards

Compliance with Regulations

squatter Tolerance

Housing as a Local Tax Base

(6) Broad Socio-Economic-Impact Goals:

Alleviation of Poverty

Controlling Inflation

Generating Household Savings

Generating Income Growth

Increasing Productivity

Generating Investment Growth

Reducing the Balance of Payments Deficit

Reducing the Government

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R4 Public Sector Involvement

RS Rental Price Distortion

RA3 (cement Price Distortion)

RA4 (Extent of Rent control)

RAS (Rent control)

R6 Permits Delay

RA6 (Foreclosure Delay)

RA7 (Rental Eviction Delay)

R7 Minimum Lot Size

RA8 (Salable Land Ratio)

RA9 (Land Development Controls)

RS Compliance

R9 Squatter Tolerance

RlO Effective Property Tax Base

RA1D (Property Tax Receipts)

Under-Five Mortality Rate

The Rate of Inflation

The Household savings Rate

Manufacturing Wage Growth

Manufacturing Produc­tivity

capital Formation

Balance of Payments Deficit

The Government Deficit

------------------------------------------------------------------------------Budget Deficit

5. Research Hypotheses·

The relationships between indicators offer tantalizing suggestions of their analytic power for policy-making in the housing sector, yet few of the apparent interconnections have ever been tested empirically. One relationship that has been touched on in earlier research is the relationship between the House-Price-to-Income Ratio and a generalized Index of Macro-Economic Regulatory Stringency known as the Agarwala Index (see Figure 2).

As can be seen, there is a clear positive relationship between these two indicators: the more distorted the economy, as a result of inappropriate regulations, the higher house prices are in relation to incomes.

Housing Prices and Economic DistoItions

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7 , 10 11 12 13 a IS l' 17 11 I' 20 :a• Agazwala Index

Figure 2

Another example of a bivariate relationship is the inverse relationship between Persons-Per-Room and GNP per capita: (see Figure 3). This relationship is self-explanatory: higher income countries have less overcrowding. It is important to note, however, that countries with highly regulated housing sectors such as Malaysia and Korea have more overcrowding than that expected by their level of incomes. With data for a large number of countries, it is possible, therefore, to see not only the relationships between variables but to identify countries with higher or lower expected values and to seek to explain these variations. Unfortunately, even data for this simple relationship have not been compiled for most developing countries in the years beyond 1971.

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PeISons pel Room and Income

• _,cla* A.a."S

O~______~____~~__~~-L~~________~__~__-L__L-~~~~

$:10 0 $2,000

GNP pel Capita. [19711

)~------------------------------------------------~

2

• l.~.....l .. ..5

1

• s..••

••,,,,,.1,, • J..l ••dl.M."'"•• tI.'I.""

•••••••

••cull

Figure 3

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THE HOUSING INDICATORS PROGRAM

The Program has developed a conceptual framework based on the provisional list of 25 key housing indicators, the 10 regulatory indicators and 10 socio-economic impact indicators. These indicators were distilled from a comprehensive list of 160 indicators developed at a HABITAT workshop in Nairobi in October 1989 and can be divided into five major groups:

(1) Housing Demand Indicators; (2) Housing Supply indicators; (3) Housing Output Indicators; (4) Regulatory Indicators; and (5) Socio-Economic Impact Indicators.

Some of these indicators measure the performance of the housing sector in and of itself (e.g. rent as a percentage of household income); others measure the impacts of critical supply and demand indicators on housing sector activity, and of sector activity on the economy as a whole. In addition, some housing policies and regulations affect supply and demand, as well as housing outcomes and may also adversely affect the economy as a whole.

Data for the 10 Socio-economic indicators is available from other sources and need not be collected by Country-Based Consultants.

A provisional list of the 25 key housing indicators and their associated definitions appears below.

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Quantity and Price Goals

Indicator 1: Hew Household Formation defined as the annual percentage increase in the number of new households.

Indicator 2: Homelessness defined as the number of people per thousand of the urban area population who sleep outside dwelling units, (e.g. on streets, in parks, railroad stations, and under bridges) or in temporary shelter in charitable institutions.

Indicator 3: Housing Production def ined as the total number of units (in both the formal and informal sectors) produced last year per 1000 population.

Indicator 4: Housing Investment defined as the total investment in housing (in both formal and informal sectors in the urban area), as a percentage of gross city product.

Price Indicators:

Indicator 5: ~he House-Price-to-Income Ratio defined as the ratio of the median free-market price of a dwelling unit and the median household income.

Indicator 6: ~he Rent-to-Income Ratio defined as the ratio of the median annual rent of a dwelling unit and the median annual household income of renters.

Indicator 7: House Price Appreciation defined as the annual rate of change of house prices, measured as a weighted average of all sales during the most recent year.

Housing Quality Indicators

structure and Density:

Indicator 8: Floor Area Per Person defined as the median usable living space per person last year.

Indicator 9: Permanent structures defined as the percentage of structures of permanent materials.

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Infrastructure Services:

Indicator 10: water Connection defined as the percentage of dwelling units with a water connection in the plot they occupy.

Indicator 11: Journey to Work defined as the median length in minutes of a one-way commute in the urban area excluding home-based workers.

Tenure:

Indicator 12: Unauthorized Housing defined as the percentage of the total housing stock in the urban area which is not in compliance with current regulations.

Choice:

Indicator 13: Residential mobility defined as the percentage of all households who moved their unit last year (including newly formed households).

Indicator 14: The Vacancy Rate defined as the percentage of the total number of completed dwelling units which are presently unoccupied.

Indicator 15: Owner-Occupancy defined as the percentage of all dwelling units which are owned by their occupants.

Indicator 16: Residential Segregation defined as the percentage of the 'Urban population living in the largest contiguous low-income settlement in the urban area.

Housing Demand-Side Indicators

Financial Indicators:

Indicator 17: The Housing Credit Portfolio defined as the ratio of total mortgage loans to all outstanding loans in both commercial and government financial institutions.

Indicator 18: The Credit-to-Value Ratio defined as the ratio of mortgage loans for housing last year to total investment in housing ( in both the formal and informal sectors) last year.

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Fiscal Indicators:

Indicator 19: Housing Subsidies defined as housing subsidies as a percentage of the government budget last year.

Indicator 20: ~arget.d Subsidies defined as the :percentage of housing subsidies reaching below­median-income households.

Housing Supply Indicators

Inputs:

Indicator 21: ~he Land Development Multiplier defined as the average ratio between the median land price of a developed plot at the urban fringe in a typical subdivision and the median price of raw, undeveloped land in an area currently being developed.

Indicator 22: Infrastructure Expenditures Per Capita defined as the ratio of the total expenditures (operations, maintenance, and capital) by all levels of government on infrastructure services (roads, sewerage, drainage, water supply, electricity and garbage collection) during the current year, and the urban population.

Indicator 23: Construction Cost defined as the present replacement cost (labor, materials, on-site infrastructure, management and contractor profits) per square meter of a median-priced dwelling unit.

Labor and Management:

Indicator 24: Industrial Concentration defined as the percentage of new formal-sector housing units constructed by the five largest developers (either private or public) in the urban area last year;

Indicator 25: ~he Skill Ratio defined as the ratio between the median wage of a construction worker with at least five years of experience in a skilled trade, e.g. carpentry or masonry, and the median wage of an unskilled construction worker.

The 10 Alternate Indicators are:

Indicator Al: Households Per Dwelling Unit defined as the ratio between the total number of households and the total number of dwelling units of all types in the urban area during the current year.

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Indicator A2: Persons Per Room defined as the ratio between the median number of persons in a dwelling unit and the median number of rooms in a dwelling unit.

Indicator A3: Squatter Housing defined as the percentage of the total housing stock in the urban area which is currently occupying land illegally.

Indicator A4: Hew Housing Credit defined as the ratio of new mortgage loans to all new loans in both commercial and government financial institutions made last year.

Indicator AS: Mortgage-to-Prime Difference defined as the average difference in percentage points between interest rates on mortgages in both commercial and government financial institutions and the prime interest rate in the commercial banking system.

Indicator A6: Mortgage-to-Deposit Difference defined as the average difference in percentage points between interest rates on mortgages in both commercial and government financial institutions and the interest rate on one-year deposits in the commercial banking system.

Indicator A7: Mortgage Default Rate defined as the percentage of mortgage loans which are three or more months in arrears in both commercial and government financial institutions.

Indicator AS: Land COncentration defined as the share of vacant land in the urban area owned by the five largest public, customary, or private land holders.

Indicator A9: Import Share of COnstruction defined as the percentage share of residential construction materials which are imported (in value terms).

Indicator AI0: COnstruction Time defined as the median time (in months) from the start of construction to completion of a median-priced dwelling unit.

In addition to these 25 key indicator and 10 alternate indicators, data should also be collected in the extensive surveys concerning the 10 regulatory indicators, and the 10 alternate regulatory indicators. These are defined below:

Indicator RI: Restrictions on Exchange Defined as a composite of questions on the extent of ownership and transfer restrictions in land, housing, and building materials.

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Indicator R2: Land Registration COverage Defined as the percentage of the metropolitan area covered by a land registration system which allows for buying, selling, long-term leasing, or mortgaging urban land.

Indicator R3: Housing Finance Development Defined as a composite of questions on the presence and flexibility of housing finance institutions and instruments.

Indicator R4: Public Sector Involvement Defined as the percentage of annual housing production under the direct control and ownership of public housing corporations.

Indicator R5: Rental Price Distortion Defined as a the ratio of the median controlled rent of the typical private-sector rent-controlled unit to the free-market rent of a comparable unit in the uncontrolled part of the market.

Indicator R6: Permits Delay Defined as the median length in months to get approvals, permits, and titles for a new medium-sized (50-200 unit) residential subdivision in an area at the urban fringe where residential development is permitted.

Indicator R7: Minimum Lot Size Defined as the minimum lot size for a single family housing unit in a new 50-200 unit residential subdivision.

Indicator Ra: Compliance Defined as the ratio of building permits issued to new housing starts in both the formal and informal sectors during the past year.

Indicator R9: Squatter Tolerance Defined as the difference between the number of squatter dwelling units for which tenure has been regularized last year and the number of squatter dwelling units demolished last year without resettlement.

Indicator RIO: Effective Property Tax Rate Defined as the percentage of the real market value of residential property which is collected as property tax.

The 10 Alternate Regulatory Indicators are:

Indicator RAl: Public Land OWnership defined as the estimated percentage of total urban land, including developable raw land at the urban fringe that is publicly owned, including parastatals, land banks, and expropriations.

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Indicator RA2: customary Land Ownership Defined as the estimated percentage of total urban land, including developable raw land at the urban fringe that is owned by religious, customary, tribal, clan, or trust owners.

Indicator RA3: Cement Price Distortion Defined as the ratio of the free market to the official price for cement.

Indicator RA4: Extent of Rent Control Defined as the percentage of the rental stock, including informal rentals, under the coverage of a rent control system

Indicator RAS: Rent Control Defined as a composite of questions on the stringency of rent control.

Indicator RA6: Foreclosure Delay Defined as the typical time in months from the beginning to the conclusion of foreclosure proceedings on a seriously delinquent mortgage.

Indicator RA7: Rental Eviction Delay Defined as the typical time in months to evict a private-sector rental tenant for non-payment of rent.

Indicator RAS: Salable Land Ratio Defined as the ratio of the maximum net salable residential land to the total undeveloped land area in a new middle-sized (50-200 unit) residential subdivision.

Indicator RA9: Land Development Controls Defined as a composite of questions on the affordability of land use and building code regulations.

Indicator RAIO: Property Tax Receipts Defined as the percentage of property tax receipts in the local government budget.

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To facilitate the collection of indicator data, 6 data collection modules have been developed, each requiring a particular field of expertise. The six data collection modules are:

(1) The Housing Affordability Module;

(2) The Housing Finance Module;

(3) The Housing Quality Module;

(4) The Housing Production Module;

(5) The Housing Subsidies Module;

(6) The Housing Regulatory Module.

These modules and the instructions and suggestions on how to complete them appear in PART II of the Extensive Survey.

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