After decades of neglect, the Palestinian housing sector is
capturing the attention of professionals as diverse as economists,
politicians and human-rights activists. The latter view shelter as
a basic human right, fundamental to improving living conditions.
Peace activists highlight the intrinsically political nature of
housing and land issues and advocate an end to the deleterious
Israeli practices of house demolition, land confiscation and
expansion of illegal settlements in Palestinian territories.
Economic analysis has generally focused on the housing sector to
illustrate the structural distortions characterizing Palestinian
investment patterns. For decades, the construction of primarily
residential buildings has mobilized the main bulk of personal
savings and business investment. Each year, approximately 80
percent of funds are invested in the sector. Economists point out
that, rather than being excessive, the level of private investment
in property and building is indicative of the low level of
investment in other sectors. This pattern was established in the
early days of occupation with the systematic undermining of the
productive capacity of the Palestinian economy. Moreover, unlike
the agriculture and manufacturing sectors, for example,
construction was perceived as relatively unaffected by fluctuations
in the political environment. Up until today - despite marked
improvements in the capital and commodity markets - risk-averse
investors continue to be attracted by the relative stability of
residential property and buildings. The diversion of funds from
construction to equity in business - i.e., injecting funds into
productive activities - is therefore commonly used to assess the
robustness of investment financing in Palestine.
More recently, economists specializing in housing issues have
bemoaned the lack of a formal financial system for the housing
markets in Palestine, and are quick to conclude that the housing
sector is rampant with inefficiencies.
Unanimous Claim
If there is one commonality, one unanimous claim concerning housing
issues, it is that rapid and affordable housing provision is a
critical challenge facing the Palestinian people. The Minister of
Housing estimated in 1995 that at least 250,000 housing units would
need to be constructed or renovated in the next ten years to meet
the housing needs of the Palestinian people. Exorbitant land prices
have contributed to the housing shortages, which in turn have
induced high housing density: in Gaza 41.2 percent of houses in
refugee camps shelter three or more persons per room. With an
annual population growth rate of 3.7 percent, compounded by the
return of thousands of Diaspora Palestinians, and an acute land
scarcity, the housing shortage is set to escalate, especially in
densely populated Gaza.
A Brief Look at Housing Projects
Available information suggests that current funding (private and
public investment, as well as donor assistance), although on the
rise, is dramatically low relative to housing needs. Ministry of
Planning and International Cooperation statistics indicate that,
between 1994 and 1998, U.S.$ 89.5 million donor funds were
allocated to housing development. This volume of donor funds
appears less substantive when compared with the education sector
(which received a cumulative disbursement of U.S.$ 297.3 million
over the same period), or even the police (which received U.S.$
93.1 million in four years. Apparently, this figure does not take
into consideration the U.S.$ 10 million project, funded by Japan
and allocated, amongst other, to the development of housing units
for the Palestinian police).
Donor-funded housing projects have taken various forms:
construction of new houses, renovation of inadequate or overcrowded
houses, upgrading of refugee shelters, technical and administrative
support to the Ministry of Housing and the Palestinian Housing
Council, loan schemes for home improvement and construction and
promotion of joint ventures in the construction industry. The
majority of the projects have been "traditional" construction and
rehabilitation of residential dwellings, including refugee
shelters.
These projects - funded by various sources such as the European
Commission, Spanish Cooperation, Japan, USAID and Canada - have
injected much-needed capital into the sector and have enabled
thousands of Palestinians to have access to adequate housing.
However, a sizable proportion of these projects has been "one-off"
projects, with little or no long-term implications for housing
development. As it is highly unlikely that donors will eternally
pump capital into the Palestinian economy, development efforts are
currently focusing on the design of sustainable housing finance
mechanisms. Some organizations, such as the American Near East
Relief Agency, are planning to experiment with the internationally
renowned formula of revolving loan funds for housing purposes
which, by definition, has a built-in sustainability
component.
Developing an Effective Mortgage Market
The comprehensive - some would say ambitious - housing project
currently being implemented by the Ministry of Housing, with the
financial and technical support of the World Bank, the
International Finance Corporation (IFC) and the Canadian
International Development Agency (CIDA) neatly fits this paradigm
of "self-sustaining financing system."
The project, which aims to stimulate capital into the production of
housing, encompasses the creation of the Palestinian Mortgage and
Housing Corporation (PMHC). The PMHC, modeled after the Canadian
Mortgage and Housing Corporation, was established to provide
technical and financial consultancy to the Palestinian banking
sector. CIDA, the principal technical partner, is providing U.S.$
2.5 million, the World Bank has disbursed a loan of U.S.$ 17
million and on April 22, 1999, IFC signed an agreement to invest a
total of U.S.$19 million in equity and loans in the PMHC. The
shareholders of the PMHC also reportedly include public sector
entities (Ministry of Finance, Ministry of Housing, Palestinian
Monetary Authority) and financial institutions (Arab Bank, the
Palestine Development and Investment Company [PADICO]).
The idea behind the establishment of the PMHC is straightforward.
As Palestine lacks an effective mortgage market - few operating
banks in Palestine have lending facilities for the housing sector -
there is a crucial need for financial mechanisms to enable the
maximum number of Palestinians to have access to housing loans. The
IFC points out that the project will also have a positive spillover
effect, in that approximately 3,400 jobs will be created annually
from increased demand for housing construction.
The functions of the PMHC (according to its Memorandum of
Association) are to design mortgage loan insurance products,
standardize mortgage-lending guidelines, and develop and improve
the financial markets for both the medium and the long term. To
alleviate the problem of risk perception and the conservative
attitude of the local banking system, which continues to prefer
short-term overdraft facilities, two additional components have
been designed. The Liquidity Facility will provide long-term funds
for lending by banks and other primary market lenders, and the
Mortgage Insurance Fund will provide partial risk coverage for
primary lenders.
On a smaller scale, initiatives are also being designed by other
organizations to accelerate housing finance. The Cooperation for
Development, a British NGO, for example, is implementing an
indirect lending program (through the provision of a guarantee
fund) that aims to increase the participation of local banks in
medium-term housing loans. The Ministry of Housing is also involved
in discussions with local banks regarding the allocation of an
additional U.S.$ 20 million in cash to be used for granting
long-term housing loans.
An Exclusionary Market?
The effective development of a mortgage system will no doubt
propel, in the long run, the growth of a demand-based housing
market enabling middle-income families to access housing. But
development practitioners are often quick to question how
low-income sectors of the population benefit from such projects. In
the World Bank/Ministry of Housing initiative, a specific component
has been devised to target the poor - the Palestinian Housing
Assistance Fund.
According to the deputy minister of housing, the Fund, which will
be administered by the Ministry of Housing, will generate
affordable housing for the low- to moderate-income households,
through an explicit program of savings, loans and grants. Contrary
to standard government subsidy schemes, the Fund intends to tap
into the savings of lower-income households. "A program that makes
use of existing - but habitually unmobilized - savings of
lower-income households and fosters the accumulation of new savings
for housing can expand the pool of long-term resources in the
economy. If such resources are made accessible to financial
institutions, they can support increased mortgage lending and
mitigate risks," claims the Ministry of Housing team. In order to
qualify for the grant, households will have to accumulate
sufficient savings for the necessary down-payment and present a
finance and savings plan for the projected investment. The grants,
combined with a loan from a financial institution, will enable
households to purchase housing in the range of U.S.$ 20,000 to
$30,000.
Whether the subsidy scheme will target the poor - much less the
poorest of the poor - however, remains to be seen. After all, 38
percent of the Gazan population is estimated at living below the
poverty line and, of these, two-thirds live in absolute poverty
without being able to meet their basic needs, including shelter
(Poverty Report, 1998). The designers and implementers of the Fund
should perhaps bear in mind that examples drawn from countries as
far-ranging as South Africa and Bangladesh suggest that government
subsidy schemes can function more effectively if they work in
collaborative partnership with local communities. With minimum
support - but with full control over the housing planning and
development process - the poor can be prolific producers of
shelter.
From Palestine Economic Pulse, Vol. IV No. 2, 1999. Printed by
permission.