Government can achieve its affordable housing pledge by implementing social housing as promised, but both supply and demand factors will need to be properly addressed and fairly implemented.
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Halfway through the current administration, with 7,000 “Hiyaa” flats initiated by the previous administration still not handed over, many are becoming increasingly disillusioned by the thought that housing is just a talking point for political parties with no real end in sight.
The housing shortage is one of the major problems in Malé where, until the COVID-19 pandemic, rent prices were skyrocketing and causing many social issues. This has challenged sustainable development in the Maldives. Almost 47 percent of the Maldives’ population lives in Malé. It is among the most densely populated urban spaces in the world, with over 65,000 people per square mile. With more than 70 percent of households living in rented spaces, the need for social housing is felt the most in the Malé region, as a large chunk of household incomes are spent on rents.
As per the Household Income and Expenditure Survey (HIES, 2019), households in Malé on average spent 35% of their income on rent; however the poorest households can wind up paying over 68% of their incomes on rent. This is largely due to increases in rent prices, which, on average, have increased by more than three percent between 2015 and 2019.
The data on buildings construction in Malé shows that between 2014 and 2019, a total of 1,377 housing units were completed, which is 61 percent of the buildings authorised for construction during the period. Based on the residential buildings’ floor areas, if the assumed average of an apartment is between 300 to 500 square meters, the number of apartments would be between 800 and 1,360 units during the six-year period. Hence, on average the number of residential buildings supply is around 200 units per annum. Since it is projected that by 2054, over 60 percent of the population would be living in the Malé area, there is a huge need for the government to intervene, to increase the affordability of housing, and one main policy has been the provision of social housing.
In the Maldives, the construction of flats for social housing was initiated in 1990 with the assistance from the Government of China. This has continued with the Government of Maldives funding with less than, on average, 300 units built. With the first democratically elected government in 2008, President Mohamed Nasheed pledged to increase such housing by over 3,000 in the Malé region alone, but so far only around 1,000 units have been completed. Similarly, in 2014, the previous government pledged over 15,000 housing units but so far only 7,000 units has materialised — and these are yet to be handed over.
Social housing is an important dimension of the social welfare policy and affordable housing provisions that are used in many countries, although there is wide disparity in the definition across the world. According to the Organisation for Economic Co-operation and Development (OECD), ‘social housing’ is broadly defined as ‘residential rental accommodation provided at ‘sub-market prices’ that is targeted and allocated according to specific rules.
In the Maldives, according to the Maldives National Housing Policy of 2008, social housing ‘is to be made available to households whose circumstances and socio-economic situations are such that their needs are beyond the market.' It is targeted towards low to low-middle income households, with provisions for poor and vulnerable groups. However, there are many issues in the allocation of social housing as the neediest are often neglected — with many raising the issue of affordability.
Many of these issues were highlighted in the 'Comprehensive Housing Market Study for the Greater Malé Region’ by Housing Development Corporation (HDC) in consultation with the two universities of the Maldives. One key issue highlighted is the importance of setting ‘affordable rents’ since, according to the survey, close to 80 percent spend 50 to 75 percent of their household incomes on rent. Based on countries where social housing is provided, the rent prices need to be set at less than 30 percent of the income of households. One good example is Singapore where the Housing & Development Board (HDB) has ensured more affordable rates than comparable accommodation in other more affluent cities, with average first-time buyers devoting less than a quarter of household’s income to their mortgages.
However, when the most recent rent for ‘Hiya’ was announced it was MVR8,500 per month — inclusive of a maintenance fee of MVR1,000. This represents more than the average monthly income per person in Malé — averaged at around MVR7,000. More significantly this represents over 80 percent of the household income of the poorest 20 percent, who are supposed to be the main beneficiaries. As a result, many have argued that the rent should be set around MVR5,000 to 6,000, if it is to be affordable for low to middle income households or that some form of housing subsidy be provided.
Another key issue that has plagued social housing is units not being allocated to the deserving as per the social housing definition. Critics argue that many are using the social housing schemes to get ‘easy money’ by sub-leasing these properties. According to the HDC’s market study, ‘most of the people who were successful in getting social housing do not live there and the spaces are eventually leased as medium or high end housing.' They have thus recommended to ‘strengthen and regulate the means testing mechanism for allocating social housing to ensure that social housing is allocated to the targeted groups.' In addition, it is also important that a regular compliance audit be carried by authorities and if anyone is found in violation, the spaces need to be taken back and reallocated to more deserving households; a rare occurrence in the Maldives.
The provision of affordable housing is one of the most important pledges of this government and based on international experiences, the government needs to implement polices both on the demand and the supply side to address the issues. Many of these polices are highlighted in the SAP of the government.
On the supply side, one of the key policy measures implemented was the formation of 100 percent state-owned company, Fahi Dhiriulhun Corporation Limited (FDC) in 2019. FDC’s primary objective is providing social housing to the citizens of the Maldives. So far, a total of 6,000 housing units are being developed with an average cost of USD67,800 and a total cost of USD407 million. If the company is well structured and run efficiently, it has the potential to replicate the successful story of Singapore’ HDB which has over 1 million HDB apartments, with almost four-fifths of the permanent population of Singaporean living in one of these subsidised housing units.
The private sector can also contribute towards addressing deficits in affordable housing on the supply — land and infrastructure, construction and materials — and demand sides — increasing access to housing finance. For this government needs to intervene in the financial sector and establish a subsidised housing finance rate, by lowering the current 10 percent to around two to three percent, and also reducing the equity ratio to below 10 percent, from the 15-20 percent where it is currently at. HDC’s study, has also suggested creating ‘housing finance safety nets’ as a guarantee facility for housing loans for those who cannot afford the equity percentage required. Likewise, the land law needs to be revamped to make it easier for banks to sell properties if a loan is defaulted and also to enable developments of condominiums and the real estate market in Maldives.
Similarly, on the demand side, support in the form of housing allowances can be provided to low-income households that meet the relevant eligibility criteria. More importantly, an additional saving scheme, perhaps a Provident Fund, needs to be established so that working employees can start saving in addition to the Pension Scheme. In Singapore, such a system was set up in 1968, when the government transformed the Central Provident Fund (CPF) into an institution for financing homeownership by introducing the Public Housing Scheme. This enabled members to withdraw their deposits from the fund to finance the down payment and mortgage payments for HDB flats, with mortgage loans also offered by the HDB.
In the longer run, the housing problem can only be solved when other regional centres similar to Malé can be developed and the internal migration stabilised. This needs careful push strategies so that ‘jobs are decentralised’ and other key infrastructures such as schools and hospital are established. Singapore’s Prime Minister Lee Kuan Yew wrote that political stability can be achieved by promoting ‘widespread home ownership which would give every citizen a stake in the country.' And longevity of the People’s Action Party has shown that if this fundamental issue of housing can be resolved as promised, people may truly trust the government.
