Northern residents face rising debt over housing construction issues, report says
View(s):A recent study titled “LIFE AND DEBT: assessing indebtedness and socio-economic conditions of conflict-affected housing beneficiaries in Jaffna, Kilinochchi and Mullaitivu districts” shows that building houses has increased indebtedness.
But it also points out to the gains in owning a house even though it leads to debt accumulation.
The report was prepared by researchers – K. Romeshun, V. Gunasekara and M.Munas from the Centre for Poverty Analysis (CEPA).
In its executive summary, the report said that a number of donors as well as government authorities are assisting the construction of permanent shelter for people returning from their area of residence in Northern Sri Lanka.
“While this is a commendable initiative that lays the foundation for rebuilding lives after war, an evaluation of housing programmes as well as recent reviews and news articles highlight a worrying observation – increasing debt amongst the housing beneficiaries (though this trend is not limited to the aforementioned group) and the inability of the returnees to manage their lives after resettlement. From the standpoint of donors and government authorities that are assisting the construction/reconstruction of houses for the people in the North, these are unsettling observations that must be closely examined so that measures to avoid such unfavourable developments can be taken in the future by development practitioners and policymakers,” it said.
The study covered 347 households in the districts of Jaffna, Killinochchi and Mullaitivu and its findings indicate that owner-driven housing is more of a catalyst rather than a cause of indebtedness in the households surveyed in this study as indebtedness of households precedes the construction process.
“Though in theory, the provision of a housing grant (that has been deemed sufficient for the type of house prescribed by the implementing agency) should not result in a beneficiary borrowing for construction, the findings of this study disprove this assumption as beneficiaries have in fact borrowed funds to supplement the construction of their houses. Housing construction related debt, however, can be attributed to both avoidable and unavoidable costs related to the construction process,” it said.
Avoidable costs were due to beneficiaries’ aspirations of building bigger houses and structures with features that differed from the prescribed.
Housing beneficiaries preferred bigger houses based on cultural factors such as vaasthu and to fulfill the desire to elevate the family’s social status by owning a larger and a beautiful home. The households that adhered (comparatively speaking) to the prescribed design spent (on average) an additional Rs. 25,000 during various stages of construction, whereas those that deviated from the standard features and sizes spent an additional Rs. 100,000 at the various stages. The analysis of completed houses reveals that households that adhered to the standard design spent (on average) an additional Rs. 210,000, whereas those that did not conform to the standards spent an additional Rs. 352,000. The maximum additional cost spent on completed houses was Rs. 1 million.
The report said the study indicated a high level of vulnerability to poverty of the surveyed households due to the consequences owing to the three decades- long war in Sri Lanka. The existence of a younger, unskilled, and relatively uneducated population poses serious challenges to individual and household earning pontential that is clearly visible in the comparison of household expenditure and consumption between surveyed households and the general population of Sri Lanka. The most common form of income generation – engagement in casual labour, which does not guarantee a consistent income stream, is indicative of typical post-war conditions such as the lack of livelihood opportunities and individual capacity to rebuild a sustainable method of income generation. Livelihoods have not yet become stable in the post-war areas where the research was conducted. There is clear evidence to the lack of a sustainable income for families to contribute to savings.
“According to this study the main reason for debtors failing to pay back their loans is insufficient income. Furthermore, households have reported borrowing for food-related expenses that indicate dire financial difficulty, where basic needs of families are not met with the existing income.
Although not explored in this research, numerous anecdotal accounts of individual suicides due to extreme indebtedness (and the inability to repay loans) are indicative of a serious social problem to which the only solution remains the restoration of sustainable livelihoods and the creation of viable employment options for people of the Northern Province,” it said.
The added costs of the housing construction process leave households no other option but to borrow funds from a wide array of banks that are eager to lend money. While the debate about whether restoring sustainable livelihoods should precede housing assistance is a “chicken and egg” situation, the self-perpetuating vicious cycle of indebtedness in the presence of an unstable income stream cannot be discounted. The recommendation stemming from this discussion is not necessarily that donors of owner-driven housing attend to the restoration of livelihoods simultaneously with the construction process. Rather, the primacy that this study assigns to the creation of sustainable livelihoods should be taken up by the government (both national and local) and the private sector, with the help of donor organisations.
“Additionally, it must be noted that some households are more vulnerable than others. For example, households that are female headed, or have one or more disabled members cannot be expected to participate in owner-driven housing in a manner that is equal to those that are not as vulnerable. For example, female-headed households in particular struggle to contribute their labour to the housing process, a uniform expectation of implementers. As such, instead of using a “one-size-fits-all” method, housing assistance should tailor measures to address specific challenges of such vulnerable groups,” it said.
“While the findings of this study indicate increased indebtedness that coincides with housing construction, it is important to note the gain in capital (owning a house), that occurs alongside the accumulation of debt.
Although not explored by this study, it is important to understand how beneficiaries view their final ‘balance sheet’ – would they prefer debt with a house, or debt without an asset? It would be fair to assume that any ordinary citizen (regardless of conflict-affectedness) falls into debt when building a house. However, this assumption is tied to another assumption that the borrower will eventually repay the debt. The inability to pay back loans compromises not only the wellbeing of the family, but may eventually take away the capital gain itself (foreclosure homes). It is the latter that is the main matter of concern and one that is highlighted by the findings of this study,” the report said.
The recommendations (for government authorities and donors) that are stemming from this study are as follows:
=Encourage implementing agencies to discuss with beneficiaries ways in which additional costs of housing construction could be reduced;
=Advocate the construction of houses with room for expansion at a later time period;
=Allow the option of “joint-housing”;
=Launch mandatory financial literacy and grant management programmes (in partnership with local banks) throughout the process of housing construction as prerequisites for receiving the grant installments;
=Consult government (both national and local), private sector and other development organizations about creating sustainable livelihoods, an initiative that should move in parallel to the construction process;
=Tailor owner-driven housing assistance to households that are deemed ‘more vulnerable’ in comparison to others (i.e. female-headed households and households with one or more disabled members);
=Revisit the definition of “female-headed households” for the purpose of efficiency in the owner-driven housing process.