Pablo López
Especialista de desarrollo urbano, CAF - banco de desarrollo de América Latina y el Caribe -
Of the approximately 600 million inhabitants living in Latin America and the Caribbean, around 120 million live in settlements with inadequate and informal housing: an average of 23 people per 100.
This reality is part of a broader context in which housing affordability is increasingly difficult to achieve for an increasing number of people. According to CAF's 2017 Economy and Development Report (RED 2017), assuming that Latin American households allocate 30% of their income to the consumption of housing services, they would need more than 30 years of savings to acquire a 60 m2 medium-priced home. In this context, the proliferation of precarious settlements in the region is an extreme expression of the housing market problems as a response to this deficit. So a structural solution demands a much broader view than focused improvement interventions in those areas or than provision of new housing, which requires a more effective partnership between the state and the market.
There is extensive experience of housing policies in Latin America that have had greater or lesser success as regard this deficit, although none of them has been able to close it definitively and in many instances have been unsuccessful in preventing its growth. In general terms, housing policies in the region have covered a broad spectrum, ranging from the role of the state as a builder and generator of new housing supply to facilitating the markets themselves.
Solving access to housing in Latin America, and especially that of the poorest populations, demands a systemic housing policy, which seeks to unlock supply in this market and improve people’s incomes, mainly in the most disadvantaged socioeconomic strata. Two examples serve to illustrate why we need to think broadly and complementarily about possible solutions to achieve greater effectiveness and scope for housing programs. The first of these has to do with developing mortgage credit and the second is social renting, which has been applied to a lesser degree in the region as a solution to housing services.
Development of mortgage credit. From the point of view of demand, the main obstacle to the effective consumption of housing services has to do with financing. As housing is an expensive asset, the vast majority of families require access to long-term credit to finance their purchase. Mortgage credit may therefore be a strategic ally of housing policy. Without a sustainable financing market, middle and lower-middle-income households are excluded from access to housing. The combination of savings, credit and state subsidy (which can be total if warranted) can multiply the resources allocated to subsidies by 4 or 5 times, depending on the amount of assistance. However, programs that rely on access to mortgage credit require certain conditions to be successful. On the one hand, a flowing housing market for sales, with available units and low transaction costs, and on the other, financing at a reasonable interest rate and with appropriate repayment terms. If there is no supply of available real estate, an increase in demand from households will basically have the effect of making prices rise, further restricting access. For this reason it is necessary that housing costs (of land plus construction) and those associated with real estate transactions, including taxes, stay low and that the supply of new units be elastic in relation to prices (for example, that the costs and regulations for the construction of new homes are not an impediment).
Social Rental Drive. In general terms, alternative forms of tenure such as the rental market for low-income families have not been fully developed in Latin America. For example, Europe applies different models where the state offers benefits (soft loans, subsidies, tax exemptions, concessions on built surfaces, etc.) to various associations and private companies created for this purpose, with the commitment to rent homes at below-market values for low-income families. A social rental policy that can be applied in a generalized manner requires a long-term commitment from the state to the private sector. In Germany for example, the government grants firms subsidies in the form of fund transfers, loans at below-market rates, preferential tax treatment, in exchange for placing low-cost rental units on the market for middle and lower-middle-income families. In reality, these prerogatives seek to lower supply costs rather than improve the ability of families to pay. On the other hand, providing subsidies to families contributes to efficiency, since it allows for better choice of homes according to needs and encourages competition around available housing. If there were no possibility of this demand subsidy, providers would have no incentive to improve the conditions of units to attract "their customers".
While there are no universal solutions to the problem of access to housing and these are always linked to the specific context, housing programs must identify the best ways to harness market forces to increase supply and the impact of these programs. Public investments alone are not enough to reverse the rate of decline in this housing deficit, which as noted, is critical for Latin America and the Caribbean.
