Financing housing for the poor

Investment in housing stimulates the demand for labour in related industries. This effect on income production can be very marked, especially for the unskilled, while the provision of shelter plays an important role in the ability to work out of the home or nearby. Since only about 20% of housing investment in developing countries is devoted to the purchase of imported materials, and there is considerable scope for the use of local material, the production of housing (especially low-income units) does not present a balance-of-payments problem. As for price, in general, the inflationary effects of low-income shelter production are only very modest, though those from high-income shelter may be more serious.

The Sri Lankan Million Houses Programme (MHP) was initially planned for the period 1984-1993, subsequently reduced to 1984-1989, but the effects of the initiative are still bearing fruit. The programme's objectives were to: (a) generate basic solutions for shelter for the majority of people in need (rather than a specific minority); (b) develop links with local governments who should intervene directly and actively in the formulation and application of the community housing developments; (c) develop an indigenous programme for Sri Lanka (not simply copy and adopt programmes coming from abroad); (d) allow for expression of relationships between housing and cultural standards; and (e) emphasize different forms of popular expression regarding shelter and housing. The overarching responsibility for management and implementation lay with the National Housing Development Authority of Sri Lanka (NHDA).

Unlike earlier programmes (in particular the Hundred Thousand Houses Programme, 1972-1982) instead of directly building the houses or providing loans or land to developers or private groups, the state proposed to assist families themselves in the building of their own homes. The programme was designed around close collaboration between administrators, politicians and the people, with feedback and regular reassessment of objectives and practices. Features of the MHP programme were: (a) very small loans (the average family loan is US$178); (b) large participation by households, in the form of work or money, equivalent to 60 - 90% of the total value of the accommodation built; (c) absence of strict technical standards for building; (d) technical assistance and control of loan utilization provided by a local administration; (e) wide range of loans: for improvement, building of new accommodation, sites and services, water supply, sewage and drainage etc; (f) a policy for improving slums in Colombo and in other towns; (g) a policy to facilitate land access in urban areas, in which beneficiaries occupying public land could acquire ownership without purchase charges or, if the land was privately owned, the state undertook to purchase it pass on only part of the purchase price in the loan granted to the household; and (h) a subsidy policy, below-market interest rates, state financing of infrastructures, and no charge for loan administration.

Following a pilot project in Kandy, loans to cooperatives were included in the programme. A District Cooperative Union receives loans from the NHDA at 2% and passes them on to the cooperatives at a rate of 4%; the loans are then granted by the cooperatives to the beneficiaries at a rate of 6%. In 1990, 40% of the loans in rural areas were delivered through cooperatives, but only 10% in towns; of the total of 249,000 loans granted for housing at that time under the programme, 87% were in rural areas and 12% in urban areas. Review of progress was active on specific aspects of the programme, such as the difference between loans made and the value of houses built, housing quality and building materials, the role of the cooperatives, volume of subsidies and the effect of the programme on national and local economies. The MHP is regarded an an initiative of the greatest interest regarding financing of mass housing for the poor.