Financing also calls for innovative and partnership-based financing arrangements

Financing

Supporting participatory slum upgrading and affordable housing
programmes require inclusive fiscal systems. The Sustainable Developments Goals
(SDG) seek to “ensure access for all to adequate, safe and affordable housing
and basic services, and upgrade slums” by 2030 (Target 11.1). So does the New
Urban Agenda, which support
effective, innovative and sustainable financing frameworks and instruments to
strengthen municipal finance and local fiscal systems for affordable and
sustainable housing and housing finance. It also calls
for innovative and partnership-based financing arrangements and for governance
arrangements that promote a range of financing options—both top–down and
bottom–up. Moreover, investing in improving slum dwellers’ lives is an investment
in human rights that ensure all urban dwellers could be engaged and included, and
no one would be left behind. It demands the full engagement of
national governments, municipal leadership, and people-centered approaches
strengthened through locally managed funds and community cooperative structures.

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This Chapter therefore promotes inclusive pro-poor financing regulation
and policies on participatory city-wide slum upgrading and preventive housing strategies
which emphasize in-situ slum upgrading and affordable housing. Resources for
slum upgrading and affordable housing may remain scarce; therefore, a
strategic, multi-level governance, and multi-partnership approach is essential
to brings together key players involved to address the challenge of financing
and ensure financial viability of housing projects. It has also provided a
financial scheme which catalyze the integration of commercial finance into slum
upgrading, blend with cross subsidies and community finance innovations, to
ensure financial viability and sustainability for both the investors and the
inhabitants.

·            
Availability of national resources and framework: In many countries financing for housing
programmes come from the national level, but the scale of finance needed may far
outweighs a country or city’s budget so sometimes they need to access external
sources. This indicator intended to assess the availability of national
resources and the framework that enable the state to access different levels
and forms of funding, so that can maximize the financial resources for slum
upgrading and affordable housing programmes.

0.          
No regulatory requirement to dedicate national resources on slum
upgrading and affordable housing programmes.

1.          
The regulatory framework requires to dedicate national resources (general
tax revenues and other central government revenue sources) on slum upgrading
programme. However, local governments rely entirely on capital grants from
central governments to fund housing programmes.

2.          
The regulatory framework requires to dedicate national resources on
slum upgrading programme. The regulatory framework created government
structures for multilateral housing finance, co-financed with subnational and local
governments is possible.

3.          
The regulatory framework requires to dedicate national resources on
slum upgrading programme. The regulatory framework created government
structures for multi-level government housing finance. It also supports the use
of international finance, including of development assistance from donor
agencies, international companies and private foundations.

4.          
The regulatory framework promotes multiple financial resources,
including taxation, loans, grants, international assistance, private sector
credit financing, NGO or community equity, NGO or community credits (savings
and loans).

 

·            
Municipal finance: While infrastructure and affordable housing provision
have traditionally been the job of national government, the complexities, nuances,
and dynamics of urban context have led local government to play an increasingly
prominent role. However, local governments are still often lack the legal
mandates, the organizational structures, and financing capacity needed to take
on these functions. Therefore, this section reviews the possibility for
municipal governments to generate revenue and the instruments commonly used to
engage in land value sharing and land-based revenue systems1. Apart
from the revenue systems, this section will also look into the institutional
environment for municipal government to gather external resources.

0.          
There is no legal mechanism for local government to finance the cost
of infrastructure construction. For example, there
is no legal statute that give local governments the authority to make provision
of infrastructure, or to collect development fees and other taxes for financing
infrastructure development. And there are no legislated provisions for deficit
financing or for entering international financial markets.

1.          
The regulatory framework authorizes local governments the mandate to
develop housing programmes and levy development fees2.

2.          
The regulatory framework authorizes local governments the mandate to
develop housing programmes and levy development fees. It also requires for
municipal budget to allocate resources (a certain percentage of the tax base or
the percentage of the total annual revenue) for slum upgrading and affordable
housing programmes.

3.          
The regulatory framework authorizes local governments the mandate to
develop housing programmes, levy development fees and allocate municipal budget.
It also gives the municipality the power to finance infrastructure through
different mechanisms — domestic and international development assistance; debt
instruments/borrowing3; joint
ventures; build, operate, transfers.4

4.          
The regulatory framework authorizes local governments the mandate to
develop housing programmes, levy development fees and allocate municipal budget.
It also promotes various land-based finance options. These include: recurring
taxes on land and buildings5; betterment
charges and special assessments6; developer
exactions7; land
value increment taxes8; sale of
development rights9;
land leases and sale of public lands10; transfer
taxes and stamp duties11; etc.

 

·            
PPP/multi stakeholder partnerships: PPPs are long-term contracts between a
private party and a government entity, for providing a public asset or service,
in which the private party bears significant risk and management
responsibility. It also provides an
alternative source of finance to traditional government borrowing and improve
the efficiency and quality of public facilities and services. However, there is
increasing concern about the accountability12
and flexibility of PPPs. Therefore, governments should stimulate and create
institutional, legal and policy environments enabling non-State actors to play
an active role in housing finance and supply, and also provide regulatory
framework to safeguard the PPPs projects. This section is made
to assess to what extent the government allows, guides and promotes PPPs
projects.

0.          
The regulatory framework does not allow PPPs.

1.          
The regulatory framework allows national/local government to develop
the project on PPPs but there is no detailed regulation to guide government and
private sector in entering into PPPs.

2.          
The regulatory framework sets out rules to guide national/local government
and private sector on PPPs projects, including laws regarding contract
enforcement and disagreement resolution.

3.          
The regulatory framework sets out rules to guide national/local
government and private sector, including laws regarding contract enforcement
and disagreement resolution. It also establishes mechanisms to decrease the
risk of PPPs (such as government repurchase, strict market entrance standards,
transparency requirements).

4.          
The regulatory framework does not only set out rules to safeguard
PPPs project, but also requires the government to gives priority to PPPs on slum
upgrading and housing programmes. Financial mechanisms are in place, for
instance, returns on bonds may be exempt from capital gains tax, thus reducing
the financing cost of the PPPs deal.

 

·            
Availability of government financial
assistant / Helping the demand side: Housing Subsidies: Housing subsidies are used by many countries
to help households purchase or slum upgrading. It has a major role in the
strategy to extend formal housing to low-income groups. Therefore, states
should support the low-income households and include in their housing
programmes incentives and subsidies to assist small-scale landlords. Such types of subsidies include:
(a) direct payments, either up front (to lower the amount of the loan, closing
costs, down payment or insurance premium, or capital grant) or on a monthly
basis; (b) subsidies tied to savings programmes; (c) interest-rate or
interest-payment subsidies; (d) tax subsidies and exemptions tied to mortgage
payments or real estate taxation.

 

0.          
No regulatory requirement for government financial assistant.

1.          
The regulatory framework requires the government to grant capital
subsidies to low income households. However, government has to take full-cost
recovery responsibility.

2.          
The regulatory framework requires the government to grant capital
subsidies to low income households. It also sets out rules on the duration of
subsidies as indefinite subsidies are unlikely to be sustainable in many cities,
and how the recipients of subsidies will afford to pay once the subsidies are
withdrawn.

3.          
The regulatory framework requires the government to grant capital
subsidies to low income households in a sustainable manner. However, direct
capital grant is the only type of subsidies.

4.          
The regulatory framework requires the government to grant capital
subsidies, tax subsidies and exemptions, and housing loans to low income
households in a sustainable manner.

 

·            
Access to housing finance for low-income
households / Helping the demand side: housing microfinance: Low-income groups are usually excluded from
the formal financial institutions due to the stringent loan conditions,
irregular income and high management fees. Lack of a legal framework conducive for the emergence and
sustainable growth of small-scale microfinance institutions and corresponding
supervisory and regulatory systems have impeded the development of market-based
microfinance services and limited their access to commercial sources of
funding. This indicator intends to catalyse the integration of
commercial finance into slum upgrading. It will assess to what extent the
Banks/Micro Finance Agencies 1) working towards a better access to formal
credit for the urban poor; 2) encouraging micro-finance13 for
housing; and 3) setting risk mitigation mechanisms.

 

0.          
Only commercial bank exists, no regulatory requirement to explore
ways to provide housing loans to low-income households.

1.          
The regulatory framework requires to promote the diversification of bank
activities (formal systems) for low-income households. For instance, incentives
exist to encourage commercial banks14 opened a separate window
for micro-finance services.

2.          
The regulatory framework requires to promote the diversification of
lenders activities (including both formal and informal finance systems in housing
development) for low-income households. For instance, microfinance is offered
by a range of agencies including Microfinance Institutions, banks, and Non-
bank financial institutions, cooperatives, credit unions and NGOs.

3.          
The regulatory framework requires to promote the diversification of
lenders activities for low-income households. Mechanisms exist to enable slum dwellers with informal and irregular
incomes to access loans for housing improvement. For instance, there are small
repeated loans15 for housing improvement
and social housing with a reasonable interest rate16; there are collateral-based
lending (foreclosure, group guarantee).

4.          
The regulatory framework requires to promote the diversification of
lenders activities for low-income households. Mechanisms exist to minimize the risk.17 For instance, the needs
of the residents were carefully studied and simultaneously tailored with banks
requirements to mitigate risks.18 There are mechanisms to
minimize the risks through the risk mitigation measures19.

 

·            
Savings
schemes and cooperative structures (community finance): The majority of slum
dwellers in informal settlements do not have access to microfinance loans from formal
financial institutions. A popular alternative is to develop community-driven housing
cooperative to assist residents. The housing cooperative is an association
formed for the purpose of providing housing assistance to its members on a
continuing basis. It is owned, maintained and controlled by its members. The housing
cooperatives can take various forms, including tenure cooperatives20, rental cooperatives21, finance cooperatives22 and building cooperatives23. Some cooperatives
combine two or more of those functions. The collective organization
enables cooperatives to assist communities in financing land regularization,
basic service provision and home improvements, which would otherwise not be
possible for an individual household. Therefore, this indicator is made to see if
the state legislation provides a clear legal framework for the operation of
housing cooperatives. Although community structures need a
certain degree of autonomy in order to regulate the relationship between the
members and the organization and preserve their decision-making autonomy, they
also require supportive legal and institutional structures in order to enable
their functioning. For example, the legal recognition and protection of
collective tenure, the possibility of taking on collective loans, tax benefits or subsidies tied to collective institutions, state provision of
technical assistance and urban land that is well located for collective housing
organizations.24

0.          
No regulatory requirement to support community saving schemes.

1.          
The regulatory framework requires the governments to develop and
support community saving schemes.

2.          
The regulatory framework requires the government to get local
cooperative involved in land regularization, basic service provision and home
improvements projects.

3.          
The regulatory framework requires the government to get local
cooperative involved in land regularization, basic service provision and home improvements
projects. Financial incentives exist to develop and support community saving
schemes.

4.          
The regulatory framework requires the government to get local
cooperative involved in land regularization, basic service provision and home
improvements projects. Financial incentives exist to develop and support diverse
community finance schemes, which include: savings and loans schemes (generated
internally) 25;
revolving funds (using internal or external funds and managed by community
organizations); guarantee funds (to attract external private bank lending to
communities for upgrading); community banking (internal savings managed by the
community).

In sum, depending on fiscal resources and technical capacity, countries
and cities can use different combinations of instruments to finance slum
upgrading and affordable housing programmes. For poor and low capacity cities, housing
programs will probably be solely financed by national government. As technical
capacity improved and more financial resources mobilized, housing programmes
can be financed by microfinance schemes, community credit, or through multi
stakeholder partnerships. At the top of the ladder are national housing
programs linked to financial sector and subsidy schemes that help urban poor to
leverage their savings and purchase or rent affordable housing.