FUNDING PLAN FOR DEVELOPING NATIONS
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”).
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