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Housing and the economy

I have had the honor of achieving success in the world of business and politics. And one important distinction between the two realms is the fact that while most businesses focus on particular segments of the market, government must serve all of the people.

Simply put, in crafting policy government must consider the effect to all sectors in society.

The Manila Bulletin recently reported on a proposal to declare a two-year moratorium on the “processing and approval of pending or new applications for the conversion of the use of agricultural lands from agricultural uses to non-agricultural uses”.

I would like to share with you my thoughts on this matter, which I humbly hope can constructively contribute to better policy on this particular issue.

What could be the effect of the proposed moratorium? The impact would be felt by a wide sector of society like energy, transportation, environment, power, telecommunications, local development, and the economy in general. But the sector related to housing, construction and real estate development would of course feel the immediate effect. And this is what I want to focus on here.

Let us understand that real estate development typically involve the utilization of idle, unused and unproductive agricultural lands and transform them into subdivisions and commercial establishments intended to support and encourage the expansion of the middle class. They likewise turn them into socialized, affordable housing for low-income Filipinos enabling them to fulfill their life-long dreams of owning their own houses.

So it is reasonable to expect a slowdown in the activities of the housing sector as a result of the proposed moratorium. What would then happen if the housing sector experience a slowdown in real estate development? Let us consider the facts.

The housing sector is one of the cornerstones of a growing economy. This is the reason why in most developed countries “housing construction indices are some of the most common measures used by economists to gauge economic performance” (Center for Housing Policy).” The impact of a growing housing sector is good for the economy and is, in fact, a sign of a growth.

And this is easy to imagine. When houses are constructed, money is spent purchasing materials and labor. This benefits local suppliers especially in a housing boom where they would have to spend more buying materials and labor thereby creating indirect positive effects.

More importantly, you would expect the construction worker, carpenter, electrician, plumber, sheet metal worker, welder and mason to spend the money they earned buying food from the market or the neighborhood grocery store. They would also spend some of it for the education of their children, health care and the like. This is what economists call the “multiplier effects.”

The economist Dr. Winston Padojinog, president of the University of Asia and the Pacific, estimated that for every P1.00 spent on housing construction, P3.44 output is added to the Philippine economy.

Of the P3.44 contribution to the economy, Dr. Padojinog reported that 40 per cent or P1.39 is equivalent to the spending of laborers involved in the housing industry. In addition, and to demonstrate my earlier point, from the P1.39 spending of laborers about P1.14 is spent by those indirectly employed by suppliers.

And finally, just to drive home the point, his study concluded that “for every 1 peso spent on housing construction, 46 centavos goes to household incomes” and an equivalent 2.06 direct jobs are created.

Which brings me to an equally important question: how will employment be affected?

According to the National Statistical and Coordination Board (NSCB), there is an estimated 3.5 million members of the workforce belonging to the construction industry. They represent 8.5% of the total workforce in the country.

And mind you, they are not the architects nor the engineers but the blue-collar workers. They are laborers who need to work every day in order to put food on the table, send their children to school and pay for daily necessities.

Another point to consider: In August of this year, tens of thousands of Filipino workers in Saudi Arabia, many of them in construction, were laid off and have pleaded for assistance to be able to go home.

The question is, do we have the absorptive capacity to provide them with jobs when they go home considering that one of the reasons they left in the first place is the lack of jobs in the country? What happens when a slowdown in real estate development results in a decrease in job generation?

I believe that in the making of policies, we need to see the bigger picture. We need to ask these important questions so that we can come up with a development policy that will not end up hurting the poor.

And these are real people. They are not just numbers. They have real families to feed. This is the reason why I believe that policies need to be comprehensive and should avoid short-term solutions. Policies do not happen in a vacuum. They affect the public whose interest we need to protect and uphold. (Senator Manny Villar)