Tag Archives: subsidies

Moving Forward: Alternative Forms of Subsidy in the GCC

By: Maysa Sabah Shocair, Managing Director, GCC Region


All GCC countries use a combination of non-cash and cash housing finance subsidies. Non-cash subsidies include: (i) making land available for housing either through land grants or directly producing residential projects on allocated land; (ii) housing grants to needy groups including families with limited income, families with special needs, and divorced, widowed, or unmarried women, and (iii) subsidizing water and electricity. On the other hand, cash subsidies include: (i) grants to purchase, build, repair, or expand a house given to those with limited income; (ii) interest free housing loans to buy, build, repair, or expand a house, ranging in value from USD 52,000 in Oman to USD 350,000 in Qatar with a repayment period ranging from 25 years in all GCC countries, with the exception of Qatar, which offers loans up to 35 years.


However these subsidy programs are not getting people into housing fast enough, resulting in long waiting periods and extensive waiting lists for government housing services. Indeed, government subsidy programs in most GCC countries are facing many challenges, including: (i) increased demand for housing due to local population growth; (ii) rising cost of housing, mainly due to rising cost of land reflecting the increased demand for housing from the growing expatriate population; (iii) lack of coordination between different government entities which is negatively impacting housing supply and affordability; (iv) complexities and red-tape involved in the present subsidy programs; (v) lack of clear eligibility and priority rules leading to friction (when some are denied and others helped), game playing (where some maneuver themselves to become eligible), and political subterfuge (where those who should not be eligible use personal connections and favors to try to wriggle into eligibility); and (vi) specific challenges to each program to be discussed in detail in another blog.

housing crisis 

Moreover, these subsidy programs heavily promote home ownership at the expense of rental housing. Even in countries such as Bahrain and Kuwait, which provide rental apartments, governments are unintentionally stigmatizing rental housing by offering rental assistance to the “least fortunate”, such as those who have been on waiting lists for more than 5 years, divorced or widowed women, or to households with very low incomes. However, quality affordable rental housing is an integral part of a well-diversified housing stock because it better serves many households, including: (i) young couples just starting out, who need a place of their own but lack the assets to buy a house and may not know how large their family will be; (ii) singles who wish to live independently but may be married in the future; and (iii) older couples whose children are grown and who no longer want the responsibility of maintaining and improving their home.


housing 2

housing brochure

Villa housing units

Furthermore, housing authorities are advocating living in villas by predominantly building villas, allocating apartments, in the rare event that they are built to the “least fortunate”, granting land to build villas, and mandating large residential plots. Although the desire for a villa is universal, the health of our cities and hence of our economies and nations, depends on diversifying beyond villa, mainly because (i) villas are ecologically stressful, adding to our rate of land and energy consumption; (ii) higher density resulting from greater diversity of housing types can lower average costs and incentivize developers to enter the affordable housing market; and (iii) diversifying housing types enhances social cohesion by allowing people in different stages of their lives to move to larger or smaller homes without leaving their community.

Governmental resources must be made to go farther through reforming the current subsidy programs and exploring new ones. Reforming current subsidy programs may include initiatives such as: (i) revising eligibility and priority rules, which need to be available only to those who cannot succeed in the open market, based on principles of ‘common sense equity’, clearly state who is in-or-out, and self-adjust with changing economic conditions; (ii) reinventing the land grant system. For example it could be a grant of a plot of land sufficient to hold a villa within a preapproved subdivision, to be built by a private developer according to specifications, with a loan on favorable terms. People who own a plot could have the option to turn it back for cash or credit.

sheik zayed apartment sheik zayed housing

Products of the Sheik Zayed housing program

Governments can promote rental housing through programs, such as: (i) a supply-side program, probably through non-profits or religious associations.  For example, Waqf land is grossly underused in the GCC and could be the source of land for rental or charitable housing; (ii) a demand-side housing subsidy that eligible households may use to pay part of their rent on accommodation found in the marketplace.

Moreover, governments can encourage diversifying beyond the villa, through strategies such as: (i) redefining the subsidy. Instead of asking “would you like a villa or an apartment?” ask “You have this amount of subsidy, how would you like to spend it?” Those who spend less can reserve the money for future use, or receive cash rebates. In other markets, when faced with such a choice, some voluntarily consume less; (ii) letting people move into apartments via rent-to-own and start enjoying their new home while saving to buy it. This will help those not in a position to purchase a home to do so and build equity; and (iii) letting people stay on a waiting list for a villa, while moving them into an attractive apartment now.

Other tools that governments may want to consider include non-cash tools, such as: (i) limiting density, which creates a renewable and monetizable commodity that government or the private sector can sell or trade; (ii) providing trunk and on-site infrastructure, a tool to improve the quality or affordability of housing and offer significant value to the developer or owner; (iii) assuming risk or enhancing credit to encourage private banks to participate. Governments can take the credit risk associated with lending to affordable households or properties through purchasing loans originated by others, insuring loans originated through approved intermediaries, and guaranteeing a government or private sector entity; and (iv) exempting eligible projects from government imposed fees to reduce overall costs and increase affordability.


Cash tools include: (i) soft debt – a government entity lends money to a developer or property owner, and takes a subordinate lien position to other lenders to encourage the development of new affordable housing; (ii) hard equity – to encourage the development of affordable housing, the government gains an ownership stake in the property, or the organization developer/ operator and seeks an economic return on its capital; (iii) operating subsidythis can be on the supply-side when given to property owners who then charge residents low rents or on the demand-side when given directly to householders or residents to help defray their costs; and (iv) re-directive subsidy – government can capture revenue from another income stream and direct it to housing, through, for example, payroll deductions, ore revenues from transportation or utilities. 


In other nations that we have looked at successful policy instruments have evolved during an extended period of trial and error that led to the evolution of a mixed system of low-income housing policy with a much diminished national role in program design and outcomes, an ascendant role for local governments and the private sector, and the opportunity for the recipients of housing vouchers to scout the private market for the best deal they can find. The permanent nature of housing inspires caution on the part of policymakers.  Homes can be the physical and enduring expression of policy, and as a result, every city in the world has some properties that are the reminder of a previous experiment that either failed or outlived its utility. Thus, giving stakeholders clear information and access to technical expertise can help them proceed with confidence.

oman housing 1 oman housing 3 oman housing 6

Housing in Oman

PART TWO: The need for “better” lending to poor Indian

[Continued from last week’s Part 1.]


By: Janaki Kibe, South Asia Associate

Loans from moneylenders are problematic for many reasons. For one, interest rates are exorbitant, which means that monthly payments are often barely scratching the principal and instead being used to pay high interest rates and stay afloat. Secondly, moneylenders rarely believe in “working” out a loan repayment schedule. The techniques used by money lenders to ensure repayment can be draconian and harsh.


But, with financial exclusive policies formal banking institutions provide little solace to informal, poor borrowers. The terms and conditions of formal sector loans (free and clear land title, salaried occupation) mean that a large portion of would-be clients are driven out of the formal sector. Their only option to access finance is to resort to under the table negotiations with informal moneylenders.


While the Reserve Bank of India has tried to pressure financial institutions to lend to poorer households—especially for home improvement—the results have been less than impressive. Most financial institutions are scared away by the myriad of paperwork and illegality that accompanies poor households. But, this is where the public sector has an advantage. It’s like one of my professors used to say “The one who has the gold makes the rules.”


It is up to the public sector to be the ringleader—enforce better banking regulations and ensure that financial institutions are embracing real and scalable inclusionary methods. I’ve had enough of financial institutions accepting poor household’s deposits but refusing to give them credit. In many ways, credit functions as the bridge to greater investment—investment in income-generating enterprises, investment in better housing, investment in health. It allows you to move beyond the constraints of your income frontier—even if just for a 6-month or 3-year term. In many cases, that small amount of credit is all that a poor household needs to move out of the trenches of poverty.

PART ONE: India needs more plans

By: Janaki Kibe, South Asia Associate


1_Growth of urban slums
Urban slums have grown in response to insufficient housing options for the urban poor


When I tell people in India that I’m an urban planner the response is a uniformly enthusiastic, “Oh great! India needs more planners! We have no planning!”


While it’s true that the total number of town planners registered with the Indian Institute of Town Planners hovers around 3,000—meaning that there is only 1 town planner for approximately every 100,000 urban dwellers—it’s not entirely true that we have no plans.


We actually have a lot of plans; they’re just poorly thought out, coordinated and implemented.


If you look at a city like Delhi, you find multiple visions for the future Delhi represented in the City Development Plan, the State Plan, the Delhi 2021 Vision Master Plan, the Jawaharlal Nehru National Urban Renewal Mission and the Rajiv Awas Yojana.


Yet, according to a note filed before the Supreme Court on management of municipal solid waste, “A sizeable population [of the city still] lives in unplanned areas having no proper system of collection, transportation and disposal of municipal solid waste.” So what’s going on? Why do we have this giant disconnect between the plans on paper and the results on the ground?


Poor project design and weaker project implementation.


10 toilets equal 10,000 votes? I say build them now!


A lot of development plans are driven by the ebbs and flows of political ambitions and the electoral schedule.  It’s no surprise that the months leading up to election season are the noisiest, not just with the din of politicians, but also with the sounds of bulldozers and motor graders. The pot hole ridden roads that emerge after the election, however, illustrate the short-term approach to a lot of planning in India. It is poorly conceived and too deeply swayed by a get votes right now mentality.


When you’re working on a fast approaching deadline, you don’t have time to conduct lengthy participatory planning consultations or feasibility studies. Heck, you might not even have time to enforce any sort of quality control checks. Maybe you can swing in one community meeting, but let’s be serious, time is of the essence and those community members do like to complain. The result: poorly thought out development plans that often exclude the insights and depths of real community engagement and planning.


To give an example, in 2005 the Ministry of Housing and Urban Poverty Alleviation (MoHUPA) launched the ambitious Jawaharlal Nehru National Urban Renewal Mission (JNNURM) to address the development needs of urban India. With the grand goal of “augmenting social and economic infrastructure in cities, ensuring basic services to the urban poor including security of tenure at affordable prices, initiating wide-ranging sector reforms and strengthening municipal governments to decentralize” JNNURM was a loud declaration that 21st century India would purposefully drop its rural garb and embrace an urban one.  


The Integrated Housing and Slum Development Scheme (IHSDP) emerged as a byproduct of the decidedly urban focus of JNNURM.  IHSDP, which is meant to complement JNNURM and applies to all cities and towns that are not covered under the JNNURM, was designed to improve the conditions of urban slum dwellers who do not possess adequate shelter and reside in dilapidated conditions. The scheme seeks to enhance public and private investments in housing and infrastructural development in urban areas. Unlike other government programs that have focused on slum clearance and renewal, the IHSDP focuses on in-situ slum upgradation. The IHSDP program functions by offering subsidies for slum upgrading and housing improvement to eligible households based on a needs-based assessment.


In theory, the IHSDP provides a much needed alternative to traditional slum clearance and relocation approaches. It acknowledges informal housing as settlements that have great potential for improvement and upgrading. In the context of rising land costs in urban India, it avoids the problem of having to buy expensive land and capitalizes on the central locations of many slums.


While policymakers always envisioned households bearing some of construction costs of home upgrading—initially households were scheduled at contributing between 10-12% of total construction costs—the IHSDP subsidy has increasingly fallen short of total construction costs. Construction and labor costs have increased in the last 7 years—meaning that a subsidy that was once envision to cover 88-90% of total construction costs now covers as little as 30% of the construction costs.



*Based on a series of informal interviews and anecdotal data collection from Jodhpur


Wait a minute, if households are able to pay up to 70% of the construction costs surely it means they’re not as poor as we think!? Wrong. It turns out, after speaking to residents in Jodhpur who are partaking in the IHSDP most residents are plugging the funding gap by turning to high-interest rate loans that are being offered by moneylenders. And when I say high interest rate I mean 60% per annum. In essence, a government program that is meant to help fund housing improvement may actually be driving poor households into making financially poor and irreversible decisions. Sounds a bit like the subprime crisis doesn’t it?


[Continued next week in Part 2.]