World Policy Journal begins each issue with the Big Question, where we ask a panel of experts to provide insight into the cover theme. The question for the summer 2016 Renegade Cities issue is: How can governments collaborate with the private sector to provide affordable housing? Below, Myriam Ababsa explains why public-private partnerships in Jordan have failed to deliver. Click for additional perspectives from Brazil and Singapore.
By Myriam Ababsa
Jordan became one of the first Arab countries to develop a National Housing Strategy in 1987, but the country of 9.5 million has never managed to produce enough affordable housing for its low-income residents. The influx of over a million Syrian refugees has exacerbated this problem and increased pressure on the rental market.
Public-private partnerships, or PPPs, are seen as one way to alleviate this housing shortage. In 1996, the World Bank supported the creation of the Jordan Mortgage Refinance Company and pushed for the implementation of a housing PPP. The Housing Urban Development Corporation in partnership with the private sector has created 52 such projects so far. In most Jordanian PPPs, the government designs a publicly-owned asset and prepares the marketing. Developers obtain guarantees by the state in the form of prior payments at high market prices, and they are given building code exemptions, allowing for higher-storied buildings and greater density.
The biggest housing PPP so far has been the Decent Housing for a Decent Living Initiative—known in Arabic as Sakan kareem la ‘eish kareem—a project launched by King Abdullah in 2008. The initiative included a plan for private contractors to build some 100,000 subsidized housing units over five years on state land. The projects were to be carried out in five governorates.
Initially, however, the state did not financially support the project. As a result, the banks refused to offer loans to the majority of people who applied. Only civil servants and army veterans managed to obtain loans. In March 2010, the government decided to reduce the apartment prices by 15 percent and pay 3.5 percent of the 8.5 percent interest rate. By November 2011, with several banks having withdrawn from the project, only 8,448 housing units had been built and only a third of those had been sold. In August 2014, the Ministry of Education purchased all the apartments for its employees, with payment deducted from their salaries.
The Decent Housing for a Decent Living project was unsuccessful due to its inability to target public subsidies toward the needy segments of the population as well as its high cost to the government as a subsidy-driven program. Developers were paid 265 dinar ($373) per square foot, and the apartments were sold to the applicants for 220 dinar ($310) per square foot. In a functioning PPP, the rate of return for the private sector must be large enough to attract private investments yet small enough to protect public interest. In Jordan, unfortunately, PPPs are not always conducted for the public interest, as too much money is invested in land services and building and not enough in monitoring, marketing, or credit facilitation.
Myriam Ababsa is a social geographer based in Jordan. She holds a PhD in geography from the University François Rabelais of Tours.
[Photo courtesy of Mahmood Salam]