That Will Stimulate The Economy And Create Permanent Jobs
PAST AND PRESENT PLANS HAVEN’T WORKED VERY WELL.
The governments of the U.S. and other Developed Nations and the numerous non-government organizations (“NGOs”) (collectively, “Donors”) have contributed huge amounts of money to assist with housing needs in the Developing Nations. Although their intentions were good, the results of their time, money, and efforts have been disappointing. The focus seems to have been to provide free, but very poor quality, housing.
The Donors have frequently provided the funds for contractors from their own countries to construct, with their own forces, large numbers of very small (~36 sq. meters) low-cost ($2000-$3000) houses. NGOs often use volunteers and materials from their own countries. Neither of these do anything to stimulate the local economy or create new jobs and skills training within the recipient Developing Nations. Donated labor eliminates paying jobs and skills training opportunities for the very people we’re trying to help. The local business climate is suppressed because there’s no way for the local businesses to compete with free labor, materials, and components.
The houses have tended to be of such poor quality (e.g. tin sheds with thin cracked concrete floors) that they probably should have been viewed as temporary housing, although they have been touted as permanent. They often have been constructed on tracts of land provided by the local governments, but without any infrastructure to support the new community such as streets, sewers, safe drinking water, electric service, schools, or transportation to the population centers where the jobs may be. Frequently, such things are intended to be added later, but seldom are. The houses are then given to the poorest citizens who frequently have minimal job skills and minimal sources of income.
Because the houses are of such poor and temporary quality and the communities are never developed into satisfactory living environments, no lasting market value has been created for the new homeowners. Even if the new homeowners had the income to do so, there would be no incentive for them to make significant investment or improvements in such housing. You can’t tile a cracked concrete floor and how can you improve a tin wall or make it more attractive? There is no value upon which a mortgage loan could be obtained. There is no opportunity to build equity in a home that could be sold in order to invest that equity in a better home. There can be no pride of home ownership in these circumstances. The result is: no equity--nothing to sell--no future! These new homeowners have, for the most part, been given a permanent living condition with almost no way to improve their lot in life. In short, we have built the next generation of slums. On the other hand, we have the capacity and ability to present the homeowners and their families with opportunities to build equity and wealth.
Such lessons have been learned in the U.S. even when good housing in convenient locations with appropriate services have been provided free, or substantially free, to its poorer citizens. People generally seem not to appreciate and take pride in things that are given to them without any effort on their part. When we have to work for something and contribute to its achievement, we appreciate it more and take pride in preserving it and improving it. Without that pride, such free housing communities soon become deteriorating slums.
Under the foregoing programs, the local economies of the recipient Developing Nations have not been stimulated since no new jobs were created and no significant amount of materials or goods were acquired from the local businesses. Although the new homeowners may have a temporary roof over their head, they still do not have a home in which they can take pride and in which market value can be created by improving the home. No lender would make a long-term mortgage loan on such property and no one, even if they had cash available, would be willing to buy the property. If a prospective buyer had the cash available, he would be more likely to use it as a down payment with a mortgage loan to purchase other property that would be expected to have increasing market value potential.
PROPOSED FUNDING PLAN THAT WILL WORK.
Rather than give away free $2000-$3000 houses that are devastating to both the short-term and long-term economies, build larger $10,000-$12,000 houses with solid floors, walls, and roofs and use the $2000-$3000 that would otherwise have been given away as a secure government guarantee rather than as a cash contribution. The mortgagee will be secure, and, since the default rate experience in popular housing is only approximately 3%, the same guarantee fund can be used to provide guarantees for many more houses than if cash equity were invested in every house. As the Equity Guarantee Fund grows, use a significant percentage of it to buy additional land at present prices for future residential developments as the land appreciates in value (“hedging”).
The key here is that you have provided a Sustainable Funding Source. Other factors to be considered are:
- The buyer should have some percent of cash deposit based upon their application and ability to meet the mortgage obligation;
- A one year savings plan could be set up to demonstrate a buyer’s ability to save consistently, prior to initiating a mortgage; and
- The $2000-$3000 government guarantee could be increased to $5000 thereby reducing the mortgagee’s risk even further, but with very little additional exposure to the guarantor.
Additionally, in order to correct the other shortcomings described above, the Donors should also:
- Assure that the sites for new communities are strategically located so as to promote local job opportunities and that proper community infrastructure is in place prior to construction of new housing;
- To the maximum extent practical, use construction materials and products that are produced locally within the recipient country in order to stimulate its economy and promote its local businesses thereby creating additional job opportunities locally;
- Provide skills training and supervision to the local citizens, many of whom may be expected to become residents in the newly constructed community, while employing them to construct the new houses;
- Encourage the governments of the recipient countries to establish long-term mortgage financing programs through their local banking systems that will allow prospective homeowners to finance their new homes at reasonable interest rates over longer terms making their monthly mortgage payments more affordable; and
- Subsidize houses that are attractive and durable and that will promote long-term increasing market values that will last for generations to come and, therefore, be mortgage worthy.
The struggle to afford a decent home is a “good thing”. Pride of homeownership is paramount to a successful society. Using the American experience as another example, many Americans buy more expensive homes than they can afford; but, then they work that much harder to pay for them, to improve them, and to enhance their quality of life. Let us endeavor to help the Developing Nations build houses not only for temporary shelter for the present generation, but to build homes that will last for future generations as well. Let us provide skills training and paying jobs that will promote the business environment and economic climate of the Developing Nations so that they will no longer need the assistance of others to grow the well being of their citizens.
This type of program has worked well in the U.S., so why not duplicate it in the Developing Nations? In the US, one of the primary indicators of the strength of our economy is the number of “housing starts” (commencement of construction of new houses). It is well recognized in our country that the construction industry, measured by housing starts, means significant new jobs, not only for construction workers, but also in suppliers’ factories and outlets for materials, appliances, furniture, etc. As housing starts increase, more jobs are created, thereby improving the economy. A positive economic cycle is fostered which allows citizens to move up in their standards of living and in the quality of home ownership. As the middle class of society moves up, opportunities are likewise created for lower segments of society, who are newly employed by the buoyed economy, to also move up. They may now be able to move into the houses vacated by the middle class, or, in many instances, into newly constructed low cost houses.
TO EXPLORE THESE IDEAS AND POSSIBILITIES FURTHER, PLEASE CONTACT:
Bond Building Systems, Inc.
2701 Reese Road
Davie, Florida 33314