# _Supply-Driven Subsidies:_

# <u>Land Subsidies for State-Owned Companies.</u>

As mentioned above, this corresponds to public land given or sold at below-market prices to State companies (the PPH). The amount of these subsidies was estimated at MDH 636 million in 1995. Due to the discretionary nature of land transfers to the PPH, this subsidy was not transparent. The illusion of "free" land implied that the amount of these subsidies was not computed by the State. Transparency was again very low. This type of subsidy, similar to a manna for the PPH, did not generate incentives to lower costs or to produce housing units meeting the market demand.

The subsidy was also badly targeted, both from a spatial point of view and from a redistribution perspective. From a spatial point of view, it has been noted above that reserves of public land, while still abundant around small cities, were already greatly reduced around Rabat-Salé and Casablanca, where demand was the highest, creating a problem of sustainability for this type of subsidy. Thus, the PPH had an incentive to construct most in places where the demand for their product was lowest. The result of this disconnect between supply and demand was the servicing of land parcels and construction of housing units in remote areas, which made them difficult to sell and eventually constrained the PPH to sell them below cost. This problem has persisted until now. From a redistribution point of view, the _péréquation_ system of cross-subsidies described above resulted in a waste of land given away by the State, since for any given number of low-cost units built for low-income households, two or three times as many medium or high-end units had to be constructed and sold to medium or high-income households. The PLURAM-ALGOEPROMOCONSULT estimated that only MDH 150 million of the land subsidies (24%) effectively reached households in the three lowest deciles of the income distribution, through serviced land parcels.

This type of subsidy was not efficient. As noted above, disconnects between supply and demand were exacerbated by the lack of reserves of public land in areas where housing demand was the highest. There exists no study on the efficiency of the PPH as producers of housing units, making it difficult to assess which portion of land subsidies were merely captured instead of being transferred to consumers. However, an indirect efficiency indicator is given by the performance of the PPH. Is spite of benefiting from large subsidies, some PPHs were heavily indebted, and had to rely on yearly subsidies by Ministry of Housing to balance current operating costs.Also important was the unfair competition subsidies created for private developers who could not benefit from them. As mentioned above, this deterred the creation of a strong private construction industry, and thus led to monopoly and housing shortage.

# <u>Direct Investment by the Ministry of Housing via the PPH</u>

This type of investment comprised all programs managed by the Ministry of Housing using its own budget, which amounted to MDH 144 million in 1995. This included slum upgrading programs in a broad sense, including: _Recasement_ (giving former slum dwellers serviced land plots on which they can build their homes), _relogement_ (moving former slum dwellers into finished housing units), and _prévention_ (building housing units aimed at providing low-income households an alternative to informal solutions). These programs have been characterized by a mix of construction styles, with cross-subsidization of land plots and housing units aimed at lowincome households for other types of units.

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