Page 1 PROGRAM INFORMATION DOCUMENT (PID) APPRAISAL STAGE Report No.: AB1360 Operation Name Morocco - Housing Sector Development Policy Loan (HSDPL) Region MIDDLE EAST AND NORTH AFRICA Sector Housing Project ID P083746 Borrower(s) KINGDOM OF MOROCCO Implementing Agency Ministère des Finances et de la Privatisation Avenue Mohamed V Quartier Administratif Rabat, Royaume du Maroc Tel. : (212-37) 76 31 71 ; 76 38 47 Fax : (212-37) 76 15 75 Ministère délégué auprès du Premier Ministre chargé de l’Habitat et de l’Urbanisme Quartier Hay Ryad Rabat, Royaume du Maroc Tel. : (212-37) 57 72 50 Fax : (212-37) 57 72 36 Date PID Prepared January 31, 2005 Date of Appraisal Authorization February 16, 2005 Date of Board Approval June 30, 2005 Background Morocco has tripled its population since Independence, which has reached 28m in 2000 against the 12m of 1960. This demographic growth has been accompanied by a strong process of urbanization, whereby 55 percent of the population resided in urban centers in 2000, against only 29 percent in 1960. These two trends have created significant pressure on cities to provide access to infrastructure, basic services, and shelter, in addition to economic opportunities and welfare, to rural migrants and to the other urban poor. In the absence of adequate policies and investments, sub-standard housing has sprawled in the form of squatter settlements and informal neighborhoods, mostly concentrated in the agglomeration of the Casablanca-Rabat- Kenitra urban continuum (where 55 percent of all slum households are living) and in the Tangiers-Tetouan area, but are present throughout Morocco’s main cities and towns. Meanwhile, the historic housing stock of the ancient medinas, unattended and impoverished, has rapidly decayed. The number of slum households has increased from 160,000 in 1992 to over 260,000 in 2001, and substandard housing represents 18 percent of the stock, with an average yearly growth of 4 percent. The latest housing stock census calculated at 430,000 the number of households living in informal neighborhoods, and at 90,000 the number of households living in housing stock threatening collapse. The constraints facing the supply side of the housing market have been identified for a while, and concern both institutional features impeding the development of the primary market (cumbersome land titling procedures, inadequate urban planning and zoning framework, laws defining the relations between landlords and tenants, etc.). These factors fuel the growth of informal housing. Page 2 The constraints on demand include the lack of well-targeted instruments to improve the financing capacity of the poor, as well as a low penetration of housing finance, especially in the poorest segments of the population. Although outstanding housing loans, estimated at 13 percent of total credits, are growing rapidly - with a 30 percent rise in the number of loans granted in 2001 - banks finance only 20% of the value of total housing construction. Eighty percent of all housing activity are the result of self-financing. The rental market remains severely underdeveloped. Finally, the organization of the State interventions in social housing, mainly via State-owned companies doing both infrastructure building and construction in a non-competitive environment, has resulted in the crowding out of the private sector in construction, the inefficiency of some of the State companies in producing dwellings that meet the demand, and the poor targeting of large implicit subsidies distributed to the beneficiaries of the State programs. Since its nomination in November 2002, the present Government has given significant attention to the housing sector, and to the plight of slum dwellers in particular. In September 2003 the Government has initiated a process of reform of the housing sector, characterized by the following primary objectives: (i) strengthen the institutional, regulatory and fiscal environment for a well-functioning housing market and for the emergence of market- based solutions to the country’s housing sector constraints and needs; and (ii) increase the access of low income and severely disadvantaged households to more affordable and higher quality housing. To achieve the first objective, GOM has embarked on a program of reforms to: (a) modernize urban planning standards and regulations; (b) restructure public sector housing agencies and enterprises in charge of the delivery of public housing programs; and (c) rationalize and simplify real estate taxes and subsidies. To achieve the second objective, it plans to introduce reforms to: (a) expand urban slum upgrading and social housing programs through market-friendly approaches; (b) improve the efficiency of the residential rental market; and (c) expand the access of informal sector and low-income households to market-based housing finance. By reducing current market distortions and promoting greater private sector provision of housing products and services, these reforms are expected to lead to a positive market supply response, more efficient allocation and use of scarce government resources in the housing sector, and more and better housing opportunities for low income and severely disadvantaged households. Project development objective and description The proposed Housing Sector Development Policy Loan (HSDPL) has been requested by GOM as a support to the implementation of its policy reforms and programs in the housing sector. The proposed loan thus seeks to assist the Government in the design and implementation of the reforms in order to enhance their potential benefits. The Loan thus seeks to assist the Government with the improvement of the overall functionality of the housing sector, reducing the current market distortions and enabling private sector companies to participate more fully to the production and commercialization of housing goods. At the same time, the Loan seeks to assist the Government with the definition and implementation of specific policies and programs targeted to the urban poor, and especially the slum-dwellers, that would continue to benefit from public subsidies. An overall agreement has been reached with the Government on the scope of the reforms supported under the proposed operation. The reforms supported by the Loan are the following ones: Page 3 a) Strengthening the institutional, regulatory and fiscal environment of the housing sector · Modernize urban planning standards and regulations · Restructure and refocus public sector housing agencies and enterprises · Rationalize and simplify real estate taxes and subsidies b) Increase access of low income households to more affordable and higher quality housing · Expand urban slum upgrading and social housing programs · Improve the efficiency of the residential rental market · Expand access of informal sector and low-income households to housing finance Rationale for Bank involvement Rationale . At this juncture, Bank support is critically needed to help the Government guide the process of reforming the enabling environment for the housing sector and significantly expanding the access of the urban poor to decent housing. It would continue and build upon the policy dialogue and advisory role the Bank has played in the housing sector over the past two decades. Of particular relevance is the long-term involvement of the Bank in the sector, which materialized by lending and advisory activities in the 1980s, and the comprehensiveness of the Bank’s approach to the housing sector in Morocco. The Bank would bring best practice expertise and world-wide experience in housing sector policies and programs and alternative housing finance systems to the design and implementation of the reform program, and also provide a strong confidence-building signal to the housing and financial markets that should help to assuage risks and enhance the willingness of stakeholders and the donor community to support the reform program. Link with the CAS . The proposed operation supports the second strategic objective of the Morocco CAS for FY 2006-2009 of providing improved access to quality services for the poorest and most marginalized parts of the population. It directly supports the CAS specific goal, under the second strategic objective, of reducing slums and increasing access to affordable housing for the poorest segments of the population. The CAS recognizes the threat to social stability represented by marginalized and vulnerable communities, such as slum dwellers, and endorses the Government's priorities in this respect. Project benefits and potential risks The overall benefits expected from this operation are related to: a) the improved living conditions of the urban poor which would result from the progressive elimination of the existing slums and from the increased supply of low-cost housing; b) a more efficient use of public resources allocated to the public housing programs; c) an enhanced access to housing finance for the urban poor via the adapted mechanisms of the Guarantee Funds and the creation of the housing saving schemes; d) the reduced cost of land resulting from more cost effective planning regulations; e) better targeted public subsidies to the housing sector; and f) job creation resulting from increased construction activity. A general risk is that social and political opposition may weaken the Government’s resolve to pursue the macroeconomic reform program. To mitigate this risk, the macroeconomic program will be monitored closely and the Government and the Bank will consult on further actions if required to maintain the economy on a sustainable path. Moreover, the implementation of the HSDPL reforms is not expected to be critically dependant on macroeconomic stability in the next few years. Most components of the reform program are centered on changes in the legal and regulatory framework and do not require heavy public investments. Public investments required for the implementation of the Government’s new social housing strategy have been allocated sufficient, stable and dedicated tax resources and are thus well protected from macroeconomic shocks. Page 4 Other risks relate directly to the reform program, namely: (i) coordination among responsible institutions; (ii) possible delays in the implementation of the VSB program ; (iii) a possible resistance to the adoption of the new legislation on urban planning, residential housing, and real estate taxes and subsidies; (iv) challenges and risks related to the restructuring of the public sector housing agencies; and (v) the absence of the land titling reform from the program. Mitigation of those risks include : (i) technical assistance to the MHU and the MFP for the implementation of the VSB program and of the parastatal restructuring; (ii) a program of active consensus building around the benefits of the legislative and regulatory reforms supported by the Government; (iii) the involvement of relevant stakeholders at early stages of the definition of new housing finance instruments; and (iv) progress in the preparation of the land titling reform by the ad-hoc Government agency. Contact information Task Team Leader Anthony G. Bigio Senior Urban Specialist MNSIF Tel: (202) 473-6304 Fax: (202) 477-1998 e-mail: Abigio@worldbank.org For more information contact: The InfoShop The World Bank 1818 H Street, NW Washington, D.C. 20433 Telephone: (202) 458-5454 Fax: (202) 522-1500 Web: http://www.worldbank.org/infoshop