Housing Affordability Challenges: the Case of the Median Income Households in Cagayan de Oro City, Philippines

Introduction

Cagayan de Oro City, affectionately known as the "City of Golden Friendship," has long been a beacon of opportunity and growth in Northern Mindanao. Its vibrant economy, status as a regional center, and reputation for resilience have drawn thousands of new residents over the years, fueling a constant demand for housing. Yet, beneath this surface of progress lies a deepening and pervasive crisis: the severe and worsening challenge of housing affordability for the very people who form the city's backbone—its median income households.

This document presents a stark analysis of this crisis, moving beyond abstract economic indicators to reveal the real-life struggles of teachers, nurses, clerical workers, and skilled laborers who find themselves increasingly locked out of the dream of adequate and secure shelter.

The core of the problem is a fundamental and growing disconnect between what it costs to build and buy a home and what the average family in CDO can actually afford. This isn't just an issue for the poorest of the poor; it is a "middle-class squeeze" that threatens the city's social and economic stability. The research zeroes in on the "median income household"—a statistical representation of the typical family in the city, earning neither too much nor too little, but squarely in the middle. For this group, the conventional path to homeownership, often through formal bank financing, is becoming an impossible climb.

The Affordability Equation: A Story of Mismatched Numbers

At the heart of the analysis is a simple but powerful metric: the Housing Affordability Ratio. In essence, this measures the relationship between the price of a standard, decent housing unit and the annual income of a median household. An affordable ratio is generally considered to be around 3.0 to 4.0, meaning the house price is three to four times the annual income. When this ratio climbs higher, it signals that housing is becoming a significant financial burden.

The findings for Cagayan de Oro are alarming. The study calculates that for a median income household, the affordable housing price—the maximum they can realistically pay without becoming "shelter poor" (spending too much on housing at the expense of other basics like food and education)—is approximately PHP 1.2 million. This figure is derived from standard lending practices, where banks are typically reluctant to let a family's amortization payments exceed 30% of their gross monthly income over a 20- to 30-year loan period.

However, the reality of the housing market in CDO tells a completely different story. The study finds that the average market price for a new, decently located horizontal house (e.g., a single-detached or row house) with a minimum floor area of 24-30 square meters is significantly higher, often ranging from PHP 1.5 million to over PHP 2.0 million. This creates an immediate and substantial "housing affordability gap" of PHP 300,000 to PHP 800,000. In simple terms, the typical family in CDO would need to earn anywhere from 30% to 60% more than they currently do to afford the cheapest new formal housing units available on the market.

This gap is not a minor inconvenience; it is an impassable chasm. It means that even if a median household were to commit a dangerously high portion of their income to a mortgage, they would still not qualify for a bank loan to purchase a standard house. They are, in effect, disqualified from the formal housing market before they even begin.

Deconstructing the Crisis: The Key Drivers of Unaffordability

Why has this gap grown so wide? The research identifies several interconnected factors that conspire to push housing affordability prices beyond the reach of ordinary citizens.

1. The Relentless Climb of Land and Construction Costs: Land, as the old adage goes, is the one thing they are not making more of. In a growing urban center like CDO, the demand for well-located land—close to jobs, schools, and services—has skyrocketed. This speculative pressure and genuine demand have driven land prices to unprecedented levels. For developers, the high cost of land must be factored into the final price of each housing unit.

Compounding this is the constant increase in the cost of construction materials—cement, steel, lumber, and labor. Global supply chain issues, inflation, and the cost of fuel for transportation all contribute to making the physical act of building a home more expensive each year. Developers, operating as businesses, naturally pass these costs on to the homebuyer.

2. The Inadequacy of Current Financing Mechanisms: The primary tool for home acquisition, the bank mortgage, is failing the median income household. The conditions are simply too onerous. The high interest rates, often coupled with short loan tenors (rarely exceeding 20 years), result in monthly amortizations that are far beyond the 30% housing affordability threshold. For many, the required down payment—a large, upfront cash outlay—is itself an insurmountable barrier, depleting years of savings in one go. Furthermore, the stringent documentary requirements and credit checks of formal financial institutions often exclude those in the informal sector or with non-traditional employment, a significant portion of CDO's workforce.

While government housing programs, primarily through the Pag-IBIG Fund, offer some relief with slightly lower interest rates, they are often insufficient to bridge the massive affordability gap. The loanable amounts, while helpful, may still fall short of the total house price, leaving the buyer to scramble for additional financing.

3. The Limitations of the Developer-Led Model: The private sector is the main driver of housing production in CDO. However, its profit-driven model is inherently oriented towards the upper-middle and high-end markets, where profit margins are higher. Building affordable housing for the median market is perceived as less profitable and more risky. The high costs of compliance with government regulations, development standards, and land use laws further eat into margins, pushing developers to focus on more expensive projects to ensure a return on their investment. This creates a market failure where there is immense demand at the bottom and middle of the market, but supply is primarily concentrated at the top.

4. Stagnant Wages Against a Backdrop of Rising Living Costs: While the costs of housing and nearly everything else have been rising steadily, wages for the majority of workers in CDO have not kept pace. The median income is a static number in the affordability equation, while the variables on the housing cost side are all inflating rapidly. A teacher or a government clerk today does not earn proportionally more than they did a decade ago, but the price of a house has doubled or tripled.

This income stagnation, set against the vibrant economic growth of the city, means that the benefits of development are not being evenly distributed. Families are forced to make difficult trade-offs, sacrificing food quality, healthcare, or their children's education to keep a roof over their heads.

The Human Consequences: Beyond the Spreadsheet

The affordability gap is not just an economic statistic; it has profound and tangible consequences for the lives of Cagayan de Oro's residents.

The Proliferation of Informal Settlements: For many, the only alternative to unaffordable formal housing is to "informally" occupy land. The spread of informal settlements along riverbanks, danger zones, and other precarious locations is a direct symptom of the affordability crisis. These families are not there by choice but by necessity, living without security of tenure and in constant fear of eviction or natural disaster.

The Rise of the "Shelter Poor": Some families manage to enter the formal market by stretching their finances to the absolute limit. They become "shelter poor," spending 40%, 50%, or even more of their monthly income on housing amortizations. This leaves them critically vulnerable. A single financial shock—a medical emergency, the loss of a job, or a major vehicle repair—can be enough to cause them to default on their loan and lose their home entirely. This high-stress situation undermines their overall quality of life and financial resilience.

The Long-Distance Commute and Urban Sprawl: Another coping mechanism is to move further and further away from the city center where land is cheaper. This leads to urban sprawl, with new housing subdivisions emerging in outlying towns. While the house price may be lower, the hidden costs are enormous: long, expensive, and time-consuming commutes; increased transportation expenses; and less time for family and community life. This also places a strain on the city's infrastructure and contributes to traffic congestion and environmental pollution.

Intergenerational Poverty and Stunted Potential: When a family is forced to live in inadequate housing or spend the majority of its income on shelter, the negative effects ripple through generations. Children growing up in overcrowded or unstable environments face challenges in studying and healthy development. The lack of disposable income prevents families from investing in their children's education or starting small businesses, perpetuating a cycle of poverty and limiting human potential.

Charting a Path Forward: A Multi-Sectoral Approach to Solutions

Solving a crisis of this magnitude requires a concerted, collaborative effort that moves beyond business-as-usual. The research suggests that no single actor—government, private sector, or civil society—can solve it alone. The solution lies in a multi-pronged strategy:

1. For the Government: A Proactive and Enabling Role

• Strategic Land Banking and Development: The Local Government Unit (LGU) must take a more active role in securing land for socialized and economic housing. This could involve purchasing land at the urban fringe before its price skyrockets, and then making it available to developers or cooperatives at a lower cost, with the condition that it is used for affordable housing.

• Incentivize, Don't Just Mandate: While laws like the Urban Development and Housing Act (UDHA) require developers to produce a portion of socialized housing affordability, compliance can be low. The LGU can create more attractive incentives, such as density bonuses (allowing more units per plot), tax breaks, or faster permit processing for projects that genuinely cater to the low and median-income markets.

• Streamline the Bureaucracy: The complex, time-consuming, and often costly process of securing building permits and complying with regulations is a major contributor to high housing affordability costs. The LGU must aggressively streamline its approval processes to reduce "red tape cost" passed on to buyers.

• Promote Alternative Tenures and Housing Typologies: The focus should shift from solely promoting homeownership to supporting other forms of secure tenure, such as long-term leasing or rent-to-own schemes. Furthermore, promoting medium-density housing affordability like walk-up apartments and condominiums in suitable urban areas can maximize land use and offer more affordable options.

2. For the Financial Sector: Innovation in Lending

• Flexible and Creative Financing: Banks and Pag-IBIG need to develop more flexible loan products. This could include longer loan tenors (e.g., 30-35 years) to lower monthly payments, graduated payment schemes where payments start low and increase as income rises, and more nuanced risk assessment that considers a borrower's overall payment history, not just formal employment records.

• Bridging the Down Payment Gap: Creating financial products or partner programs that help families save for and cover the prohibitive down payment would unlock the market for thousands of potential homeowners.

3. For the Private Sector: Rethinking the Business Model

• Cost-Innovation, Not Just Cost-Cutting: Developers need to invest in research and development for cost-effective construction technologies, such as using alternative building materials and innovative designs that reduce the amount of expensive materials without compromising safety and quality.

• Embrace the Mass Market: There is a vast, untapped market at the median income level. Developers who can crack the code of producing decent, well-located housing affordability at the PHP 1.0 to 1.5 million price point would not only be performing a social good but also securing a profitable and sustainable business line.

4. For Communities and Households: Empowerment and Advocacy

• Strengthening Housing Cooperatives: There is a powerful model in community-based housing affordability cooperatives, where future residents pool their resources, have greater control over the design and construction process, and eliminate the developer's profit margin. The government and NGOs can play a key role in providing technical and financial support to such groups.

• Financial Literacy: Programs that educate families on saving, budgeting, and understanding the responsibilities of a mortgage can better prepare them for the home-buying journey and prevent defaults.

Conclusion: A Call for Collective Action

The housing affordability challenge in Cagayan de Oro is a complex tapestry woven from threads of economic pressure, market failure, policy gaps, and human need. It is a clear and present threat to the city's inclusive growth, social cohesion, and its very identity as the "City of Golden Friendship." The median income household, once a symbol of stability and progress, is now on the brink, struggling to achieve a fundamental aspect of a dignified life.

Addressing this crisis requires a fundamental shift in perspective—from viewing housing as a mere commodity to recognizing it as a social good and a foundational pillar of a thriving city. It demands bold leadership, innovative thinking, and a unwavering commitment to collaboration from all sectors. The time for isolated interventions is over. The future of Cagayan de Oro depends on its ability to come together and build not just houses, but an inclusive and affordable city for all its residents.