25 1977 2002
PHILIPPINE INSTITUTE FOR DEVELOPMENT STUDIES Surian sa mga Pag-aaral Pangkaunlaran ng Pilipinas
Vol. XX No. 3
W
henever the rent control law comes up for evaluation and possible modification, public debates on the subject arise: What benefits can be derived from rent control? Who gains? Who loses? Does rent control cause homelessness? Rent control has often been advocated as a means of price control but has become a mechanism to ensure housing affordability as well. It is required to keep local rents from rising to prohibitive levels. However, studies on rent control, both theoretical and empirical, noted that its desirability cannot be decided a priori but should be evaluated on empirical evidence and on a case-to-case basis. This assertion has been raised particularly on recent forms of rent control or second generation controls, which provide soft but complex provisions on rental price increases, maintenance and tenant eviction. Originally imposed during the Second World War and interwar years to pro-
What's Inside 10
International higher education: Only for the rich?
12
Opening doors to foreign professionals
May - June 2002
ISSN 0115-9097
Rent control in Metro Manila
Houses for rent by Marife Ballesteros, Ph. D. PIDS Research Fellow
vide relief from subsequent economic and political shocks, various forms of rent control are implemented in about 60 countries, including the Philippines. In July 2001, the Congress of the Philippines passed into law an extension of the Rent Control Act of 1985 amid uncertainties of the benefits it would bring. The new law, known as Republic Act (RA) 9161, established “reforms in the regulation of rentals of certain residential units.� It expanded the coverage to residential units with monthly rents of P7,500 in highly urbanized cities and P4,000 in other areas, and included boarding houses, dormitories, rooms and bedspaces. It also reduced the maximum allowable annual increase in rent
from the previous 20 and 15 percent to 10 percent. With this recent development, it may be necessary to revisit the issue on the benefits of rent control. Rent control in the Philippines: Up close and historical The Philippines under the American colonial influence from 1901 to 1946 followed the path taken by the United States in the legislation of rent control. It was imposed during the rehabilitation period following World War II and later removed. It was then again implemented in the 1970s and remains in effect to date. However, there have been two kinds of rent controls in the Philippines. The first generation controls, page 3
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DEVELOPMENT RESEARCH NEWS
DEVELOPMENT RESEARCH NEWS Vol. XX No. 3 May - June 2002 ISSN 0115-9097 Editorial Board: Dr. Mario B. Lamberte, President; Dr. Gilberto M. Llanto, VicePresident (on secondment); Mr. Mario C. Feranil, Director for Project Services and Development; Ms. Jennifer P.T. Liguton, Director for Research Information; Ms. Andrea S. Agcaoili, Director for Operations and Finance; Atty. Roque A. Sorioso, Legal Consultant. Staff: Jennifer P.T. Liguton, Editor-in-Chief; Connie G. Bayudan, Genna J. Estrabon, Issue Editors; Sheila V. Siar, Jane C. Alcantara, Ma. Gizelle R. Gutierrez, Liza P. Sonico and Edwin S. Martin, Contributing Editors; Valentina V. Tolentino and Rossana P. Cleofas, Exchange; Delia S. Romero, Galicano A. Godes, Necita Z. Aquino and Alejandro P. Manalili, Circulation and Subscription; Genna J. Estrabon, Layout and Design.
May - June 2002
DEVELOPMENT RESEARCH NEWS is a bimonthly publication of the PHILIPPINE INSTITUTE FOR DEVELOPMENT STUDIES (PIDS). It highlights the findings and recommendations of PIDS research projects and important policy issues discussed during PIDS seminars. PIDS is a nonstock, nonprofit government research institution engaged in longterm, policy-oriented research. This publication is part of the Institute's program to disseminate information to promote the use of research findings. The views and opinions expressed here are those of the authors and do not necessarily reflect those of the Institute. Inquiries regarding any of the studies contained in this publication, or any of the PIDS papers, as well as suggestions or comments are welcome. Please address all correspondence and inquiries to: Research Information Staff Philippine Institute for Development Studies Room 304, NEDA sa Makati Building, 106 Amorsolo Street, Legaspi Village, 1229 Makati City, Philippines Telephone numbers 892-4059 and 893-5705 Telefax numbers (632) 893-9589 and 816-1091 E-mail address: publications@pidsnet.pids.gov.ph Reentered as second class mail at the Makati Central Post Office on April 27, 1987. Annual subscription rates are: P200.00 for local subscribers; and US$20.00 for foreign subscribers. All rates are inclusive of mailing and handling costs. Prices may change without prior notice.
Editor's Notes Shelter is one of man's basic needs. Through generations, man has sought shelter in various forms to protect himself from the elements.
Republic Act 9161 or the extension of the 1985 Rent Control Act was passed in July 2001 precisely as a way to ease the plight of house and space renters.
But shelter has become expensive through time. In the Philippine context, in particular, home ownership remains a dream to many Filipinos because of the high cost of owning a house and lot. Thus, almost every administration in the Philippine political arena has put shelter provision as one of its priority programs. The current adminstration recognizes this and therefore cites the Sariling Tahanan program as one of its core visions.
But any good intent sometimes brings about unintended counterproductive effects. And as certain quarters have claimed and maintained, the Philippine Rent Control Law may be one example. Whether there is truth to this or not may be gleaned from our feature article in this issue written by Dr. Marife Ballesteros, the newest addition to the PIDS group of research fellows.
Still, for many Filipinos, the more feasible recourse to shelter is through rental, especially in urban areas like Metro Manila. And rent control has been a means aimed at helping them even as they continue to dream of owning their place of abode.
What are the benefits of the Rent Control Law? Who stands to gain? Who stands to lose? These are some of the questions that Dr. Ballesteros tries to put more light into in her study. Hopefully, those who are in the position to make the corresponding responses will see the light. DRN
DEVELOPMENT RESEARCH NEWS
Rent control...from page 1 which were dominant prior to the late 1970s, kept rents frozen at nominal levels or provided intermittent adjustments at rates lower than the prevailing inflation. Oppositions to this type have argued that it discourages new construction, retards maintenance, causes abandonment and reduces mobility among some people (NEDA 1997).
3
Aside from allowable increases in rent, BP 877 also provides no restrictions on intertenancy rent adjustments. This means that landlords can freely choose a nominal rent when taking on a new tenant. The law is also silent on maintenance cost, which may be passed on to tenants under the Civil Code Law of the Philippines. However, BP 877 provides for control on eviction of sitting tenants (Table 2). RA 9161 or the extension on the rent control law, in the meantime, reduced the coverage of rental units in 2002 to those priced at P7,500 per month, an amount too high to be leased to poor households. Allowable increase was reduced to 10 percent and other major provisions remain the same.
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Compared to other countries, the extent of rent control in the Philippines is moderate. This is determined by using an index measure1 that is based on 10 elements of controls (nine are qualitative measures and the last one is a measure of average inflation rate). The Philippine score vis-Ă -vis the 10 elements is enumerated in Table 3. The controls are weakly enforced due to poor monitoring but the index increases because of strict rules on eviction and extensive coverage of the rental housing sector.
Thus emerged the second generation controls which redefined rent control. This type of control not only involves allowable rent increases indexed to inflation or construction costs but also costs 1 Based on the Malpezzi and Ball index measuring the pass-through provisions where landextent of rent controls across countries. lords can apply for rent increases above the regulated rent Table 1. Schedule of Rent Ceiling and Maximum Rental Increases increase, if justifiable. Such controls permit vacancy decontrol Legislation Year Rent Maximum whereby the unit becomes comCeiling (P) Increase pletely decontrolled when it is vacated (full decontrol) and B.P. 877 Beginning Rent 480 places no restrictions on Jul.-Dec. 1985 528 10% intertenancy rent increases. 1986 634 20% The second generation rent controls took effect in 1985 through Batas Pambansa (BP) 877. This Act was initially implemented for a period of three years but was extended through a series of legal amendments up to the present. It provided for yearly rent adjustments to approximate average inflation in the country. The rental cap differs every year based on allowable increases, which effectively expands the coverage of the law yearly. From an initial rent of P480 per month in 1985, the coverage of rent control has expanded to rental units priced at P8,232 per month in 2001. Table 1 shows the schedule of rent ceilings and maximum increases through the years.
1987
761
20%
R.A. 6643 (Extends B.P. 877 up to 31 Dec. 1989)
1988 1989
912 1,095
20% 20%
R.A. 6828 (Extends R.A. 6643 up to 31 December1992)
1990 1991 1992
1,314 1,533 1,752
20% 20% 20%
R.A. 7644 (Extends R.A. 6878 up to 31 December 1997
1993 1994 1995 1996 1997
2,270 2,724 3,269 3,923 4,707
20% 20% 20% 20% 20%
1998 1999 2000 2001
5,431 6,225 7,158 8,232
15% 15% 15% 15%
2002a 2003 2004
7,500 8,250 9,075
10% 10% 10%
R.A. 8437 (Extends R.A. 7644 to December 31, 2001)
R.A. 9161 (An Act Establishing Reforms of Rental of Certain Residential Units)
a
Maximum rent covered for highly urbanized areas (e.g. Metro Manila); other areas at P4,000.
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DEVELOPMENT RESEARCH NEWS
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Table 2. Provisions of BP 877 and RA 9161 Elements of control Coverage
BP 877
<P480/month; excluding dormitories, boarding
RA 9161
houses, rooms and bedspaces
<P7,500/month in Metro Manila; P4,000/month outside Metro Manila (including dormitories, boarding houses, rooms and bedspaces)
Maximum rental increase per year
10 - 20%
10%
Key money
1 month deposit
2 months deposit
1 month advance
subleasing without consent
same grounds
Grounds for judicial ejectment
1 month advance
3 months arrears in rent payment legitimate need of owner/family to use property need of lessor to make repairs based on order of condemnation
absolute ownership by lessee of another dwelling unit in the same city
expiration of the period lease of contract
Who rents? What is the profile? Rent control has been considered as a form of income transfer because tenants in rent-controlled dwellings pay lower rents than what they would have paid without a rent control law. The magnitude of this benefit is measured as the difference between the actual rent paid on the unit and the market rent of the same unit. The renters’ annual benefit from rent control may provide a clearer picture of the effect of the new law. In calculating the annual benefit of tenants in both controlled and uncontrolled units, data on renter house-
holds from the 1998 Annual Poverty Incidence Survey (APIS), a family and income expenditure survey of 40,000 households for the entire Philippines, are utilized.2 The National Capital Region (NCR) is the focus of analysis for model tractability. This section provides a profile of this rental sector, both controlled and uncontrolled units. Since rent control mainly targets housing units under normal lease arrangements, the sample households are limited to owner-occupiers or amortizing owners and renters of housing. In particular, these include households occupying single houses, duplex, apart-
Rent control has been considered as a form of income transfer because tenants in rent-controlled dwellings pay lower rents than what they would have paid without a rent control law.
ments, row houses, condominiums and town houses. Out of the total 3,947 households surveyed in the NCR, 76.8 percent or 3,033 households have been classified as either renters or owner-occupiers. Renters comprise about 32.6 percent. These renter-households were further categorized into rent-controlled and uncontrolled sectors based on the actual rent paid on the housing unit. The following is a profile of households in the controlled units: M
On the average, the actual monthly rents in the controlled sector are way below that of the uncontrolled sector (P1,022 vis-à-vis P13,538).
2 The APIS covers the same scope and sampling frame as the Family Income and Expenditure Survey (FIES). APIS started in 1998 and since then, has been conducted during those years when no FIES has been carried out. APIS has been chosen over FIES since APIS contains some relevant housing characteristics not found in FIES.
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DEVELOPMENT RESEARCH NEWS
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Table 3. Index on the Degree of Rent Control in the Philippines Elements of rent control
Scale/Standards
Enforcement
0 = controls not or rarely enforced 1 = selective or partial enforcement 2 = strict enforcement
0; controls are mainly enforced through judicial proceedings which are costly; and monitoring is poor
Coverage
0 = restricted to a very small part of the market 1 = covers a significant part of the market 2 = more than half of the market
2; the rent control sector covers about 90% of rental housing (incl. informal dwellings) (APIS 98).
Setting of fair rents (Initial rent)
0 = do not set fair rents 1 = some units covered or no info 2 = stringent rent setting
0; initial rent not covered by controls
Indexation
0 = rents indexed and closely tied to inflation 1 = partially indexed or no info 2 = rents frozen or rarely revalued
0; index closely tied to inflation
Cost pass-through
0 = if upgrading, maintenance and tax increases are often pass thru tenants 1 = some items pass through or no information 2 = if no or little pass thru
1; maintenance is mainly lessor responsibility (CC 1654); upgrading (cost pass thru new rentals); tax increases (no info).
Treatment of new construction
0 = newly constructed units exempted 1 = newly constructed units have a temporary exemption or some other differentia treatment or no info 2 = new construction are controlled
2; under RA 9161 temporary exemption of new construction has been suspended
Rents reset on new tenancy
0 = rents reset to market on new tenancy 1 = revalued but below market or no information 2 = if no change
0; no restrictions is placed on intertenancy rent increases, (i.e. when the place is vacated the landlord may provide a new rate on a new tenant)
Tenure security
0 = tenure security more or less covered by private agreement (leases) and normal grounds for eviction 1 = more stringent security of tenure or no information 2 = strict security of tenure
2; tenure security not covered by private agreements; grounds for ejectment are strict
Inflation index
Ave. annual inflation index (1985-2001). 1= ave. inflation of 10; if 15 = 1.5
1
3
Total index
1
Philippine score
2
8 (moderate to strict control)
1 A limitation of the index is that it does not cover all potential elements of control (e.g. deposits). Neither does it account for possible alleviating effects of other schemes (e.g. rent to own) on the degree of controls. Nevertheless, the index suggests some interesting hypothesis. 2 Index for the Philippines based on authorâ&#x20AC;&#x2122;s judgment. 3 The World Bank and UNCHS Housing Indicators Study measured the extent of rent control in the Philippines using coverage as indicator. The study estimated that 69% of rental housing units are covered by rent control. This measure counted both formal and informal sectors (maximum rent in 1990 is P1,314).
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DEVELOPMENT RESEARCH NEWS
M
M
M
M
These households have an average annual income of P185,614.00. Around 80 percent of the controlled rental units have floor areas of less than 50 square meters and water facilities that are mainly shared or sourced from wells or peddlers. Renters occupy either singledetached or apartment type buildings, row houses or condominiums. About 53 percent of housing units in the controlled rental sector are located in the outer core of the NCR (Muntinlupa, Marikina, Valenzuela, Taguig/ Pateros, Navotas and Malabon).
...About 44 percent of the households in the rent-controlled sector are from poor families...while 67 percent of households in the uncontrolled sector belong to the 10th decile...Evidently, there is a large gap between housing units available to the poor, and low-income households, and rental housing occupied by the high-income group. M
These households occupy larger spaces. They have water facilities that are mainly for their own use and sourced from faucets. Around 67.7 percent occupy single houses. Eighty-nine percent of housing units in the uncontrolled sector are located in the inner core of NCR (Manila, Makati, Quezon City, Pasig, etc.).
from poor families (first to fourth deciles) while 67 percent of households in the uncontrolled sector belong to the 10th decile (richest decile). Evidently, there is a large gap between housing units available to the poor, and low-income households, and rental housing occupied by the highincome group. This implies a distinct difference in demand and investment conditions between the two rental markets.
With regards to income, Table 4 shows that about 44 percent of the households in the rent-controlled sector are
Who benefits from rent control? Given the abovementioned profile and the results of the calculation of ben-
M
M On the other hand, renters in the uncontrolled sector have the following characteristics: M
M
Households are mainly highincome families with an average annual income of P1.17 million. They are shown to have better housing facilities.
May - June 2002
M
Table 4. Distribution of Renter Household by Income Decile and by Rent Controlled
Uncontrolled
Ave. Actual
% of Renter-
Ave. Actual
% of Renter-
Monthly Rent
Households
Monthly Rent
Households
454.39
10.5
-
-
Second Decile
540.29
12.8
-
-
Third Decile
734.21
11.7
-
-
Fourth Decile
846.35
9.2
-
-
Fifth Decile
1,000.65
10.9
Sixth Decile
1,185.06
10.2
Seventh Decile
1,208.85
10.2
Income Decile
First Decile
7,500.00 -
1.3 -
5,409.89
5.1
Eighth Decile
1,547.97
9.3
5,596.04
16.7
Ninth Decile
1,856.33
9.6
6,160.85
9.6
Tenth Decile
2,316.49
5.5
15,664.37
67.3
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DEVELOPMENT RESEARCH NEWS
efits in both controlled and uncontrolled units, the question is: Who benefits? And to what extent? On the average, tenants occupying rent-controlled units receive positive annual net benefits ranging from P249 to P5,300 per unit. In terms of the proportion of said benefits to household income, tenants are able to increase their household income by 0.33 to 0.70 percent due to the savings from rent control. As income increases, however, benefits from rent control decreases. In other words, in the rent-controlled sector, benefits are strongly and negatively correlated with household income. Thus, poorer families receive larger benefits than richer families. Apparently, then, the rent control law is targeting the poor (Table 5). The study also shows that households in the 9th and 10th deciles (rich deciles) are subsidizing those in the lower income deciles. This is because starting
May - June 2002
from the 4th decile, net benefits decline at an increasing rate, with households in the 9th and 10th deciles experiencing losses. Thus, while rent control may have provided lower rental prices to low-income households, it is possible that it has also resulted in higher priced housing units for middle and high-income households than what would have occurred in the absence of rent control.3 Meanwhile, has there been an effect on the distribution of income? The results of the study indicate that there have been no significant improvements in the distribution of incomes specifically among the lowest income groups. For instance, the cumulative distribution of incomes for households with annual incomes less than P40,000 rarely differed under the benefit-adjusted income. And beyond that income level, while the cumulative distribution of incomes has improved, the difference was not significant.
On the whole, this suggests that there have not been any major transfers of income from landlords to tenants. Supply of rental units: Whatâ&#x20AC;&#x2122;s up? From the other side of the fence, it is important to look at the effects of the Philippine rent control law on those who provide the housing units, the investors. Although the law provides relatively moderate controls as shown earlier, its strict ejectment provisions can dissuade many owners from renting out their properties. Judicial proceedings as the means for settlement increases the transation costs of evicting tenants. This has encouraged practices that are not beneficial to tenants. For instance, although payment of initial rent is regulated, many landlords still require
The pressure brought about by rent control can impact on the uncontrolled sector through higher prices (Fallis and Smith 1985). 3
Table 5. Benefit by Income Decile P1*
P2* Mean Benefit
Income Decile
Mean Benefit
Share in Family
Mean Benefit Mean Benefit
Income (%)
Share in Family
Households
Income (%)
in Controlled Sector
First Decile
776.92
1.5
485.19
0.9
11.1
Second Decile
900.89
1.2
558.59
0.7
13.21
Third Decile
877.10
0.9
504.81
0.5
11.6
Fourth Decile
908.12
0.8
504.45
0.4
9.7
Fifth Decile
875.63
0.6
444.36
0.3
11.7
Sixth Decile
858.07
0.5
407.42
0.2
10.2
Seventh Decile
934.43
0.4
462.44
0.2
10.2
Eight Decile
739.72
0.3
245.86
0.1
8.9
Ninth Decile
462.87
0.1
(36.33)
(0.0)
8.8
Tenth Decile
(898.30)
(0.0)
(1,084.64)
(0.1)
4.7
739.70
0.7
Average *
% of Renter
343.15
Refers to two estimated market prices for controlled and uncontrolled sectors.
0.4
100.0
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DEVELOPMENT RESEARCH NEWS
May - June 2002
trols to be effective. However, such system may be costly to set up due to present institutional weakness in the country.
r o f ts t i n U ren
advance rents and deposits beyond what the law requires.
ized. Monitoring of this activity is poor and can work to the disadvantage of both landlords and tenants.
Landlords assume that this practice somehow solves moral hazard problems in the market in terms of determining potentially "bad" clients given that it is quite difficult and costly to eject bad tenants. However, this practice can screen out the poor and lowincome families who are unable to make the advance payments required.
In more developed countries, a rent control board exists that helps to resolve complaints or grievances between lessor and lessee. Such setup, however, is nonexistent in the country. Given the different dimensions of second-generation rent, an efficient monitoring system is necessary for con-
Moreover, the eviction provision that requires the sitting tenant to have first preference to lease the same premises, in case of improvements, discourages maintenance. Maintenance is largely the responsibility of the landlord. But with the limited allowable rent increases, the landlord is encouraged only to provide for minor repairs. There is no incentive for him to put in improvements in the housing. And while the Philippine Civil Code permits the landlord to share the cost of improvements with tenants or adjust rents based on the costs of repairs, it is not clear how these can be real-
In other wordsâ&#x20AC;Ś Results of the study reveal that the net benefits from rent control are positive and are targeted to reach low-income groups. However, said benefits are, on the whole, negligible and have no significant effect on incomes. Moreover, inspite of these benefits, the potential regressive impact of rent control on rental investments erodes the gains obtained by the poor. Specifically, the limited supply of low-income rental housing resulting from the lack of interest of investors to put in funding for the construction of such (subject to rent control) structures, excludes a significant number of low-income families from housing. Competition for low-priced rental housing also becomes stiff. In the absence of other low-cost housing alternatives, these families tend to obtain housing in informal settlements (as renters or illegal owners). The expanding coverage of the law suggests that such problems are also evident in middle-income rental housing. The increase in the number of middle-income families in informal
...The potential regressive impact of rent control on rental investments erodes the gains obtained by the poor. Specifically, the limited supply of low-income rental housing resulting from the lack of interest of investors to put in funding for the construction of such (subject to rent control) structures, excludes a significant number of low-income families from housing.
DEVELOPMENT RESEARCH NEWS
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May - June 2002
"In the absence of low-cost housing alternatives, families tend to obtain housing through informal arrangements such as squatting." - M. Ballesteros
housing settlements may be due to the absence of reasonably priced rental housing in the market (Ballesteros 2001). Moreover, the disincentives provided by rent control on investments in low-cost rental housing imply that investors will find opportunities in high-income rental housing where demand is largely dependent on the international market. Thus, rent control also leads to misallocation of resources because resources are poured into high-risk investments. The disincentives on supply could also result in a declining quality of housing for the poor. Based on observations, the quality of housing in the rent-controlled sector is significantly lower than those in the uncontrolled sector and there is a growing gap in the supply of available housing between the low-income sector and those who are able to rent apartments and houses. Thereforeâ&#x20AC;Ś The government may consider other forms of assistance to rental housing with less regressive effects. One scheme found to be effective in other countries is the provision of rental allowances to the poor (Malpezzi and Ball 1991). Rental supplements may be provided to poor households who opt to rent. In this regard, the government
should adopt a balanced view with regard to ownership and rental tenure. Another scheme is to offer financial incentives to rental investors through low-cost development financing. Although there is still no accurate data on investors in low-cost rental housing in the country, the pattern found in many third world countries could also hold true for the Philippines. Most landlords in other countries operate in a small scale but the few ones who operate in a large scale target the middle- and high-income sectors. Smallscale landlords are interested in generating some income but a few are profit maximizers (UNCHS 1993) who do not keep books to record their outgoings nor calculate the return on their investments. If this pattern is true in the local scene, then rental housing supply can be stimulated by providing low-cost financing to smallscale landowners who may not have sufficient capital to go into rental housing.
lords due to the absence of information. To offset this lack of data, it is recommended that the government monitors the rental housing market in the same manner that it monitors investments for housing ownership.DRN References NSO (National Statistics Office). 1998. Annual Poverty Incidence Survey (APIS). Makati City: NSO. Ballesteros, M. 2001. The Dynamics of Housing Demand in the Philippines: Income and Lifecycle Effects. PIDS Discussion Paper Series No. 2001-15. Makati City, Philippines: Philippine Institute for Development Studies. Fallis, G. and L. Smith. 1985. Price Effects of Rent Control on Controlled and Uncontrolled Rental Housing in Toronto: a hedonic index approach.
Canadian Journal of Economics 18(3). NEDA (National Economic and Development Athority). 1997. Comments on Rental Housing submitted to Congress. Pasig City: NEDA. Malpezzi, S. and G. Ball. 1991. Rent Control in Developing Countries. World Bank Discussion Paper No. 129. Washington: The World Bank. UNCHS (United Nations Centre for Human Settle-
Finally... This study has not been able to directly measure the perceived losses of land-
ments). 1993. Support Measures to Promote
Rental Housing for Low Income Groups . UNCHS: Nairobi.
DEVELOPMENT RESEARCH NEWS
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May - June 2002
O
nly the elite institutions and students from high-income families are in the best position to participate and benefit from the globalization of higher education.
International higher education: Only for the rich?
This was one of the major findings of Dr. Allan Bernardo, professor at the College of Education, De La Salle University, in a study entitled “International Higher Education: Models, Conditions and Issues.” The study is part of a Philippine APEC Study Center Network (PASCN) project. The author argued that given the high cost of studying abroad, this option would be limited to those who can afford it.
The Philippine response to international education The continued globalization of economies has compelled higher education institutions (HEIs) to produce professionals for an internationalized economy. Thus, several models of international education have emerged. Bernardo stressed that the ability of institutions to participate in or adopt to these new modes and forms of training students will be dependent on their fiscal resources and how developed their faculty and other educational resources are.
“Thus, only the high-end institutions are in a better position to participate in the various types of international programs. The low-end institutions, on the other hand, might not be affected by the internationalization of higher education. The latter will continue to service and may even thrive by catering to students from low- and middleincome families that generally cannot afford transnational education programs,” he explained. With regards to the ability of HEIs to develop truly international programs, he noted that universities with large financial endowments are the only ones capable of doing this because of the cost related to the hiring of appropriately trained faculty members and the setting up of adequate library and research facilities, among others.
Bernardo also pointed out the inability of most HEIs to introduce an international dimension in their curricular offerings. This is in view of the fact that the Commission on Higher Education‘s (CHED) various technical panels effectively standardize curricular offerings in various fields of study. Under CHED’s guidelines, only institutions with Level III accreditation and state colleges and universities can experiment with the features of their curricula. “Likewise, universities should also develop a more ‘international faculty,’ that is, faculty members who have a good understanding of globalization and internationalization as these relate to the issues and methodologies in the various disciplines and areas of study,” Bernardo further stated.
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DEVELOPMENT RESEARCH NEWS
Thus, participation in international quality assurance systems is likely to be limited to the elite institutions because the resources that are required for this purpose are largely unavailable for most low-end and middle-level institutions. In terms of research collaboration and networking, elite universities are also in the best position to participate because international networks typically have certain quality and efficiency requirements that participating institutions should meet. Twinning and articulation programs, wherein students are allowed to obtain credentials from a foreign university,
higher educational options will even have a wider range of options available. But such options will still be out of reach for the majority of students from low- and middle-income families. The lowest quality institutions will continue to cater to the lowest income groups, offering the narrowest range of inexpensive degree programs, all of which have extremely poor quality,â&#x20AC;? Bernardo stressed. However, Bernardo noted that there are also positive consequences of internationalizing higher education. It is also possible that international education activities will motivate middlelevel institutions to improve so they will be able to benefit from these activities.
...Bernardo maintained that Philippine higher education could still benefit from international education activities, particularly in terms of improving the quality of programs and resources.
may be quite attractive to many Filipino students. Again, the author suggested that the market for such programs may be small because of the cost of these programs. The consequences of internationalizing higher education in RP Since participation in international higher education is generally determined by the fiscal resources of HEIs, Bernardo cautioned that the globalization of higher education might exacerbate the existing inequities, weaknesses and inefficiencies of Philippine higher education. â&#x20AC;&#x153;Students from high income families who have already the widest range of
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neering programs that seek to supply human resources for the international market. How will Philippine HEIs benefit from globalization? In conclusion, Bernardo maintained that Philippine higher education could still benefit from international education activities, particularly in terms of improving the quality of programs and resources. To make HEIs less vulnerable to the possible negative effects of international competition, he recommended that the government should pursue its initiatives to reform the financial systems and improve the quality of higher education. He particularly mentioned the need to establish an equitable and efficient loan program, voucher system and other competitive scholarships and financial assistance for poor but deserving students. Likewise, quality assurance systems, teacher development and selective deregulation of HEIs should also be pursued to motivate institutions to improve their outputs.
He argued that even if these institutions are not actually able to meet international standards, their attempt to assess their present system and outputs and to reform and improve their operations will somehow bring improvements to the system.
Government agencies should also ensure that the external environment for higher education institutions is more conducive for internationalization programs. There should be an increased deregulation of curriculum for accredited and high-performing institutions so as to encourage further innovation and experimentations.
To benefit from the globalization of higher education, middle-level institutions should find a clear niche to establish their viability and impact. He cited how the maritime schools in the Philippines, with the assistance of CHED, were all forced to upgrade their curricula and instruction systems to comply with international standards. He suggested that a similar development could happen in certain engi-
The CHED should also take a more proactive stance in forging cooperative links in strategic areas of research and networking. The appropriate agencies should also study the immigration policies, particularly those that govern the entry of students, scholars and other educational practitioners and remove all disincentives for foreign individuals to enter the country to work in HEIs. DRN
12
DEVELOPMENT RESEARCH NEWS
May - June 2002
Opening doors to foreign professionals
W
ith the forthcoming discussions on the General Agreement on Trade in Services (GATS), the Philippines will really have to review its competitive edge in the professional and educational services. On one hand, there is stimulus from regional organizations; on the other hand, ASEAN countries have started to liberalize their trading environment by opening up these sectors to international competition. In the field of education, while other countries view the entry of foreign schools as a way to augment their limited number of colleges and universities, lower the cost of overseas education and improve the quality of domestic higher education, the more than 1,000 institutions of higher learning in the Philippines view the entry of foreign players as potential threats to their market shares. In light of these developments and perceptions, it is important to evaluate whether the existing policies of the Commission on Higher Education (CHED) and the Professional Regulatory Commission (PRC) are antidevelopmental or counterproductive in these services. According to Dr. Tereso Tullao,1 a professor at the College of Business and Economics of the De la Salle University– Manila, aside from pursuing legitimate domestic regulatory objectives, these agencies “should promote the improvement of higher education, and at the same time contribute in the production of competent Filipino professionals
1 This is based on Dr. Tullao’s study titled “Domestic Regulation and the Trade in Services: The Role of the Commission on Higher Education (CHED) and the Professional Regulation Commission (PRC),” which is part of a Philippine APEC Study Center Network (PASCN) project on Education and Globalization.
ready to compete with foreign counterparts domestically and internationally.” While domestic regulations are allowed for the promotion of some socially acceptable goals in a liberalized trading environment, these may be abused in practice and go beyond what is mandated by GATS. Some rules and policies for licensing and technical standards promote public interest from an economic perspective but they often limit the number of firms and the number of people employed, among others, especially on the entry of foreign professionals. This condition suggests a dampening in foreign investments to a certain extent as well as a restriction in the advancement of Filipino professionals. Restrictions in the entry of foreign professionals may be viewed on the basis of public interest or the country’s economic philosophy. However, the first basis is justifiable and applicable only to foreign professionals from countries with whom the country is at war. On the other hand, the second basis regarding economic philosophy does not only cover economic enterprises but more so the practice of various professions. But the value of patronizing the services of local professionals to assist in the development of local professionals and at the same time save on foreign currency has the effect of promoting protectionism and hinders the development of professions in the country as well as the quality of service. Tullao suggests that unless our country has a superior technology over other
nations, the use of nationality differences to determine the quality of service delivery remains questionable. Tullao sees the labor market test, which allows the hiring of foreign professionals only in the absence of qualified Filipino professionals, as particularly restrictive on the education sector and may, to some extent, contribute to the deterioration in the quality of Philippine education. He maintains that allowing foreign professors to teach in the country should be looked upon as an opportunity rather than as a disadvantage in that their expertise may be tapped in the development of graduate education as well as the expansion of research activities in many educational institutions. The good side to the labor market test, however, is that it is seen as a proactive measure toward the development of Filipino professionals. In conclusion, Tullao recommends a review of the rule on the entry of foreign professionals because a more liberal rule on the entry of professors is a contribution toward the development of research culture and graduate education in the country’s higher educational institutions. Related to this is a review of the rules on the entry of foreign students who are seen as a stimulus in the development of private schools by being a source of foreign exchange. DRN