Page 349 - 2019 6th AFIS & ASMMA

probably spending 30,40 percent of its entire budget on housing, which One million homes program, if I remember correctly. So if you look at
brought down the government. That was an extreme case, but subsidies the housing prices here, they're relatively stable. Of course, there are also
can go wrong badly. So, the lesson that we've learned as we work with some problems, but I think it's an example that is a bit overlooked. When
governments on subsidy policy, is importance of having transparent, it comes to incentives, it's always easier to introduce some demand-side
highly-targeted subsidy to ensure you're clear who you want to benefit, interventions, because it's nice for the politicians to say, "Yeah, we're
and make sure subsidies for the private sector don't distort and don't going to help these families buy homes". But if you just work on the
replace the role of the private sector, but instead work with it. The other demand side and you don't take care of the supply side, then it will not
one is that subsidy tends to work much better on the demand side. really help to give them access to affordable housing, because again, this
When you subsidize the price of a house or provide cheap funding for capitalizes to higher prices. When you look at best policies, I think it's
developers, you are only likely to end up with rich developers with no important to always look at the country-specific context. For example, in
other impact; the subsidy does not get to reach the people you wanted Japan, after the war, they introduced idle land tax, where they basically Session II
to. Therefore, subsidies on the demand side, like mortgage payments, is a levied a tax on idle land to incentivize landowners to build.
good one.
It worked well in Japan. Now I learned, in the Philippines, they also
To pick an example, again, India has a relatively successful subsidy have an idle land tax, the problem is that it's not implemented well. Every
program, called ‘Credit Link Subsidy Scheme’. It's not a big scheme, city can implement it, but they don't do it. Why is it so? Apparently, land
but it's pretty well-targeted. It could be better, but it's non-distortive tax is not clear, sometimes even the tax administration doesn't know
and because they got this 2022 goal, they're really making big efforts about the existence of the idle land tax. So, in the Philippines, they
to reach down the income distribution. It comes back to some of the collect very few taxes through the idle land tax, which led to little effect
issues mentioned earlier, the affordability issue by Matthias. A lot of the on boosting the housing supply. So, the context is also very important to
affordability issues are on the price of the units. So in India, you're able to make policies work.
get units as cheap as seven, eight thousand dollars, relatively well-built,
small and modest. If you get that pricing together with a subsidy on the
demand side, then you are really reaching down the income distribution. » Moderator | Henny Sender
I think that's an example that could work on a global level. I'll come back to that issue in a second, but first a question from our
audience, which is very specific. We, as governments, have policies
to fund public housing through interest rate subsidies and secondary
» Moderator | Henny Sender mortgage financing. Which one is more effective according to your
Wonderful. Matthias, anything to add? experience?

» Panelist | Olivier Hassler
» Panelist | Matthias C. Helble Well, the general view is that subsidizing through interest rates is not
Yes, I think one country that actually managed the housing price very a good thing, because it has unintended consequences and destructive
well is actually Korea. When you look back the history, in 1980s, there implication. First of all, not all financial institutions can participate,
was a shortage of housing, but the government came in together with the because, in general, these subsidies are limited to a certain limited
private sector and massively built houses. number of lenders. And it kind of kills the supply, because you create

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