Chapter II

Review of Related Literature

Conceptual Framework
This section presents the analytical tool with several variations and contexts. The
researchers used the data gathered from the respondents as an input of the study. Diagram below
shows the conceptual framework of the study.

Figure 1
Conceptual Framework

Institution of Rent Control in the Philippines

The Philippines, which was under the American colonial influence between 1901 and 1946,

followed the path taken by the United States in the legislation of rent control. Rent control was

imposed during the rehabilitation period following World War II and later removed during the

postwar years. Rent control was again implemented in the 1970s, but unlike other developed

countries, which moved into “soft” rent controls, the Philippines maintained a freeze on nominal

housing rents. (A summary of rent control laws is provided in Appendix 2.)

 No increase on monthly rental was imposed on residential housing units or on land with a

monthly rental of P300 and below (Republic Act 6126). This rent control was initially

implemented for two years but later extended to 1979 (Presidential Decree No. 20).

Towards mid-1979, PD 20 was amended to allow for a 10 percent yearly increase in rent

(Batas Pambansa 25). The re-imposition of rent control in 1970s coincided with the era of land

reform. Then President Marcos imposed martial law to pave the way for the implementation of his

administration’s “New Society” program. Among the package of policy reforms undertaken was

a land reform program on both agriculture and urban lands.

The Urban Land Reform Act (PD 1517 of 1978) froze not only rents but also land prices

in identified urban land reform sites. The provision of an urban land reform was based on the

premise that land and profits from land resources should be distributed to a greater segment of the

population. However, the freeze on land prices was not tenable, resulting in its discontinuance in

the early 1980s. Likewise, a freeze on rents was found to discourage investors in lower-cost rental

housing (NEDA 1984). Thus, the adoption of “second-generation” rents in the 1980s provided

relaxation of rent controls and also accomplished some political objectives. 5 Rent Control in the

Philippines. The “second generation” rent controls (i.e., similar to those put forward in developed

countries) were adopted in the country in 1985.

The “New” Rent Control Act (Batas Pambansa 877) initially took effect for a period of

three years and was extended through a series of legal amendments to the present. This Act

provided for yearly rent adjustment that approximated the average inflation in the country. The

rental cap differs every year based on allowable increases, which effectively expanded the yearly

coverage of the law. (The corresponding schedule of rent ceilings and maximum increases are

provided in Table 1.)

 Table 1. Schedule of rent ceiling and maximum rental increases
Legislation Year Rent ceiling (Php) Maximum Increase %
BPP 877 Beginning Rent 480 10
July-Dec. 1985 528 20
1986 634 20
1987 761
RA 6643 (Extends BP 877 1988 912 20
up to 31 Dec. 1989 1989 1,095
RA 6828 (Extends RA 6643 1990 1,314 20
up to 31 Dec. 1992 1991 1,533 20
1992 1,752 20
RA 7644 (Extends RA 6878 1993 2,270 20
up to 31 Dec. 1997 1994 2,724 20
1995 3,269 20
1996 3,923 20
1997 4,707 20
RA 8437 (Extends RA 7644 1998 5,431 15
to 31 Dec. 2001) 1999 6,225 15
2000 7,158 15
2001 8,232 15
RA 9161 (An Act 2002 7,500 10
Establishing Reforms of 2003 8,250 10
Rental of Certain
Residential Units) 2004 9,075 10

Table 1 in the previous page shows the schedule of rent ceiling and maximum rental

increases. From an initial rent of P480 per month in 1985, the coverage of rent control has

expanded to include rental units priced at P8,232 in 2001. The rental increases have practically

covered middle-income rental housing. While the 2002 extension of the rent control law reduced

the coverage to rental units priced at P7,500 per month, this amount is still much higher than that

of rental units being leased by poor households.

Key Features in the Housing Demand in the Philippines

The Philippine housing market reveals a tremendous gap between the demand and supply

of housing. At the root of this housing shortage is the fact that the majority of households are

unable to pay for the cost of housing and land. The minimum housing cost of P150 thousand per

unit is 3.8 times the yearly wages of unskilled laborer. Likewise, a P250 thousand-unit housing is

3.1 times the annual income of an employee earning a median income of P6,700 per month.

Compare this to the standard norm in industrialized countries of 2-2.5%.

The high price of land is the major factor in the high cost of housing in the Philippines

(Strassman and Blunt 1993). Grimes (1976) suggested that as an international rule, housing for

low-income families would require that 100m2 of land would costs as much as GNP per capita. In

Manila, however, the 1990 price (P1000/sq m) of a site outside the metropolis was 5.2 the national

GNP per capita. On the outskirts of the NCR, raw agricultural land costs only P60 per sq m (0.3%

of GNP) but the price rises by 2.5-3.0 times when the same land is zoned for urban use. It rises

further by 5.3-6.7 times the zoned land price when such area is developed (UNCHS and WB 1993).

The high cost of urban land in the country is due to constraints in the supply side of the

market (Ballesteros 2000). First, poor planning and infrastructure developments limit the supply

of housing land. Second, administrative bottlenecks in land and housing developments due to

contradicting land laws, unclear standards and overlapping turfs cause delays in the conversion of

agricultural lands to urban lands. Third, problems on property rights, e.g. fake titling, delays in

agreements of right of ways, land grabbing, etc. further increases transaction costs. Fourth, land

ownership is highly concentrated and holding land idle is encouraged by the low land and property

tax in the country. All the above scenarios limit the supply of urban lands, increases the cost of

servicing land thus causing phenomenal rates of increase in urban land prices.
 Another feature of the housing market in the country is the lack of long-term financing for

housing, which could provide a way to offset the high unit cost of housing relative to income. Like

most developing economies, the secondary financial market in the country is undeveloped. Long-

term funds for housing are constrained and highly dependent on funds from government social

security systems. Moreover, housing finance programs of the government have been

unsustainable. One reason is graft and corruption in the approval and release of loans for the low-

income sector. It has been reported that payments have been released to participating housing

developers with no existing household beneficiary. Another reason is poor subsidy transfer

mechanisms. Loans to targeted beneficiaries have been released based on formula lending (i.e.

loan amount is computed as a percentage of income), which does not recognize borrowers’

probable lack of capacity to pay or incur additional indebtedness (Llanto 1998). In addition, there

is less incentive for developers and lending institutions to be prudent since the loan is automatically

taken out from them (Llanto 1998). The government thus assumes the full credit risk on the loans.

The rental housing market for low-income households in the Philippines is also not

developed. There is very little information about the rental housing market in the country. It is,

however, observed that government housing programs mainly emphasized homeownership. Public

rental housing then called tenement houses have been one of the earliest government programs on

urban housing in the 1950s but this scheme did not take-off. There have been attempts during the

Marcos government to revive public rental housing but these houses ended up for homeownership

by the middle and high-income earners. The Marcos administration also tried to boost the rental

housing market specifically in urban areas by encouraging the development of private

“apartments” through the provision of a financing window. However, this program was given least

priority compared to the other government housing programs such as the sites and services and
zonal improvement programs. What occurred instead was the ratification of the “rent control law”

in response to the rising housing costs in urban areas particularly Metro Manila (Batas Pambansa

877 of 1985). This rent control law among others provided for the maximum allowable increases

in rents of residential units offered for rent. Since 1985, the effectivity of the law has been extended

to 2001. The implementation of the rent control law may have worked 4 against low-income

households, which the law intends to protect since rent controls tend to crowd out investments for

low-income rental housing.

Foreign Literature

According to COOK (2009) investing in rent stabilized apartments present good

opportunity to invest cash flowing apartments buildings with upside potential. Several States

enacted legislation over the past 50+ years to stabilized rents in the multifamily investment space.

These rent stabilized apartments typically rent for significantly less than market rates and required

owners to follow a set of guidelines around raising rents and apartments maintenance.

Before investing in a rent stabilized or rent controlled building, an investor should do

specific research around how much rent can be charged and when and how units can be de-

stabilized or de-controlled. Investors should consider when investing in rent stabilized apartment

buildings. First, consider the basic cash flow strategy. Simply holding the properties guarantees an

investor a set amount of cash flow every month. Additionally, the set rent increase allows for an

investor to benefit despite changes in the market rate rent. According to WASHL (2009) finding

and moving to new apartment can be stressful process. Fortunately, some advance planning can

help make rental housing choices easier. Renters searching for a new apartment should first decide

on what they are looking for. When looking for an apartment it is important to remember that
amenities like swimming pools, exercise rooms and dishwasher are luxuries that can drive up the

prices of an apartment. Every renter wants to save much money possible on their rental

accommodation.

A landlord has a right to a expect a tenant to keep the apartment clean and in good repair,

and to leave it in the same condition in which they moved in. The landlord can also expect a tenant

to notify him of any damage to the apartment. The landlord has the right to expect that the rent

upon be paid in full and on time. The landlord has the right to name price, but cannot change the

amount of rent during the term of the lease. The tenant has the right to expect that the procedures

for paying rent be clear, and that any changes in the policies be announced clearly and with enough

notice to comply.

In the study published in the journal of marriage and the family, John Model and Tamara

Hareven assessed the nineteenth century heyday of lodging in both domestic and commercial

establishment, nothing that “these two categories (from the point of view of the loger) essentially

competed within a single market.” Modell and Hareven found that the ninety century prevalence

of rooming and boarding can be associated with rapid industrialization, urbanization and

population growth couple with increases in the number of manufactory employees of young

unmarried, working men and women in the cities and of foreign-born urban residents- though the

authors stressed that lodging was far more characteristic of American and migrant cultures than of

foreign cultures, who generally turned to lodging only as an expedient. Modell and Hareven

proposed that “industrializing, rapidly society,” rooming and boarding “was so widespread as to

be reasonably considered indispensable.”

According to REAL STATE JOURNAL RESEARCH (2009) Amendments to the Fair

Lending Act have exempted an age restriction on ownership from fair housing prohibitions. This
paper studies the economic impact of such ownership restriction on housing values. Using

American Housing Survey data, we find that there is a significant premium attached to the

restrictive covenant when other factors are controlled. In particular, we find that imposing age

restriction on ownership increases the housing values by anywhere from 10.5% to 12.7%. At the

average house value, this is equivalent to a dollar amount between $14,642 and $17,399. The

estimates are robust to different specifications in hedonic equations.