Access to affordable housing in Latin America: Lessons from Argentina, Brazil and Mexico

10 October 2014

by Richard Forster

Latin American countries are the most urban in the developing world, have high homeownership rates, and boast above average household incomes based on developing world standards, yet over 30 percent of households are living in inadequate housing. Jonathan Ballantine examines the policies that have been developed to tackle the housing deficit.

During the last 50 years, Latin America has undergone rapid urbanisation, resulting in cities with high levels of income inequality and inadequate housing. With the regional urban population lying around 500 million people and projected to reach nearly 700 million by 2050, new policies and solutions are urgently needed to address the housing deficit.

“Although during the last decade countries such as Brazil, Chile and Mexico have developed policy instruments, injected public resources and engaged the private sector, which has contributed to the development of large-scale housing that have reduced housing defects, it remains an ongoing battle,” says Jesús Navarrete, Urban Development and Housing Specialist at the Inter-American Development Bank (IDB).

Housing deficit can refer to either a shortage in housing (quantitative) or inadequate housing, which can be defined as poor quality housing or paying excessive rents with respect to household income (qualitative). Determining the precise levels of housing deficits is difficult due to varying opinions on occupancy thresholds, social and economic trends, together with rapid urbanisation.

CONAVI uses three parameters for its calculations: living space; construction materials and utility installations,” explains Eduardo Torres Villanueva, Director of Housing and Sustainability at the Mexican National Housing Commission.

Reducing housing deficits requires a number of essential ingredients to be in place to ensure a well functioning housing finance system. This means achieving macroeconomic stability, effective legal and regulatory infrastructure, and ensuring appropriate levels of government intervention and support.

According to the World Bank report Housing Finance Policy for Emerging Markets, the aim of a housing finance system is to channel funds from savers to borrowers, so that builders have the capital to construct and owners have the credit to purchase.

“In countries with underdeveloped housing finance systems or systems that only provide access to finance for high-income households, it forces low-income households to self-build over long periods of time, or to settle for inadequate housing that does not comply with planning and building regulations,” says Anna Wellenstein, Program Manager for Latin America and the Caribbean at the World Bank.

Economic growth within urban regions is exacerbating the problem in Latin America, through increased land and construction costs, which make it harder for low-income households to purchase housing via the formal market. This is then amplified by the private sector which only cater for higher income households, thus leaving low-income households to self-construct. This explains why informal settlements (favelas) in Brazil have risen by 11 percent even while the economy has been growing by 10 percent.

Jesús Navarrete, Urban Development and Housing Specialist at the Inter-American Development Bank
Jesús Navarrete, Urban Development and Housing Specialist at the Inter-American Development Bank

According to a World Bank Report, there are several factors for failures of housing finance in Latin America with macroeconomic instability a prime cause (see box). Increasing macro- economic stability would enable a wider variety of housing finance instruments to become available such as fixed rate mortgages, which will not work in volatile macroeconomic environments such as in Argentina which is currently witnessing inflation rates of 30 percent.

“Over the last decade the number of mortgage loans to low-income households in Argentina has been low,” says Emilio Basavilbaso, President of the Instituto de Vivienda (the Housing Institute) in the City of Buenos Aires. “This is not related to any structural changes in the banking sector but due to a lack of macroeconomic stability which makes it difficult to lend in the medium-to-long term.”

According to a paper by the IDB, recurring macro volatility in Argentina is increasing demand for real estate as an investment, which in turn boosts housing prices and makes it more difficult for households to meet minimum income requirements for obtaining a mortgage.


Loic Chiquier, Director in the Financial and Capital Markets Practice of the World Bank has highlighted 10 key factors for housing deficits in Latin America:

Lack of macroeconomic stability for decades and therefore a lack of accessible long term funding • Unstable and weak financial sector (until recently)
• Large informal income economy without access to the financial sector
• Challenges with property registry in non-urban areas and length of foreclosure process
• For many countries a lack of oversight of appraisals
• Lack of credit information to assess credit risk capacity
• For many countries a lack of oversight of appraisals
• Urban planning and land management problems
• A lack of professional developers with enough scale and expertise
• No alternative instruments (e.g. rent or leasing) with right incentives (legal and financial) to facilitate access to affordable housing
•  A lack of holistic housing policy and finance strategies, differentiating initiatives and objectives by segments, and contemplating different instruments and institutions


Loic Chiquier, Director in the Financial and Capital Markets Practice of the World Bank
Loic Chiquier, Director in the Financial and Capital Markets Practice of the World Bank

In Mexico and Brazil provident, or pension, funds play an important role in housing finance but again not without problems. On the one hand, provident funds can be a great way to gather funds for much needed investment in housing in countries where the private sector is not willing to lend. However, as Paavo Monkkonen of UCLA Luskin School of Public Affairs, explains there are three problems with this type of financing.

“Firstly, mortgages tend to not follow market demand in the same way that bank lending does and can lead to high rates of default. Secondly, they are usually regressive because the higher-income members are more likely to receive loans than low-income members. And finally, there is an inherent conflict between the lending and borrowing functions of the fund; they are tempted to provide low-interest loans to members, but that is going to reduce the ultimate pensions received by all members.”

The World Bank supports the view of Monkkonen that provident funds should not be considered as a panacea. “Although Mexico has managed over the last decade to pursue some very positive reforms and has become by far the largest housing finance player, provident funds cannot serve informal workers, and in Brazil long term subsidised funds were not effectively channelled,” comments Chiquier.

Housing policy in Argentina, Brazil and Mexico

Given the deficit of housing and growing urban populations, governments have been introducing new programmes to tackle this. Previously, many countries focused on the construction of large-scale social housing, which brought further social problems to communities.

“This is certainly true for Buenos Aires where during the 1980s three major social housing blocks were constructed: Lugano I&II, Soldati, and Piedrabuena–totalling 9,000 units,” says Basavilbaso of the Buenos Aires Housing Institute. “These projects were not successful and created many social problems for both the citizens and the city of Buenos Aires. Following a review of policies from other Latin American countries [Chile and Costa Rica] who had successfully began to reduce housing deficits through mortgage loans, the city of Buenos Aires redesigned their approach to housing finance and policy.”

Examples of the new housing approach from the IVC are the new mortgage lines–Primera Casa Buenos Aires and Mi Casa Buenos Aires–which have focused on demand subsidy and an inflation prevention plan.

“The way of acquiring your first house is much more integrative now and allows people to choose where to live, and therefore avoids some of the problems related with large-scale concentrated social housing,” explains Basavilbaso. “Furthermore, it means we don’t have to construct mega projects which can be very costly in South America due to high construction costs and it enables people to buy existing housing which provides us with a quick response to deficit reduction.”

The My House, My Life Programme (Minha casa, Minha vida), in Brazil sets its foundation on a strong policy of upfront subsidies and increased housing credit, which has been possible because of Brazil’s consistent economic growth and well-focused social agenda over the last decade. The programme creates special mechanisms to mobilise private sector housing production and provides for innovative arrangements of subsidy and finance for a large range of income groups to acquire new homes.

New legal and institutional arrangements have also evolved and demonstrated the potential of public- private partnerships to produce social- interest housing. The My House, My Life Programme has ambitious targets. In the first phase between 2009 and 2010, the programme aimed to build 1 million new low-income housing units in urban and rural areas. To meet these goals, the Braziian government allocated BRL34 billion (US$18.4 billion), giving an important step in the enlargement of investments and subsidies for social housing. The programme surpassed the 1 million housing unit target in 2010. From the total, 571,332 catered for low- income households; 287,165 units for low-to-middle incomes; and 145,760 for middle-incomes groups.

According to statistics from the National Housing Commission, Mexico has 31.6 million households of which 9.7 million are in housing deficit. Over the last decade the percentage of households has fallen 6 percent.

“As the Federal Agency we are responsible for incentivising housing construction and for ensuring that federal housing policy goals and objectives are met,” says Eduardo Torres Villanueva, Director of Housing and Sustainability at Mexico’s National Housing Comission. The most important organisation in the Mexican housing finance system is INFONAVIT, a tripartite organisation which is governed by workers’ representatives, business, and government to provide housing for workers.

“After shifting to a purely financial role INFONAVIT was able to expand lending and promote low-cost housing units by facilitating access to loans for participating developers, offering construction loans connected to mortgages, and assisting builders with the state and local permitting process as well as land acquisition,” explains Monkkonen.

The cities of Mexico have been transformed by the expansion of the housing finance system that began in the early 1990s, although there are now concerns about vacant housing and urban sprawl.

“On the one hand the expansion of INFONAVIT and the housing transition in Mexico is a significant achievement as larger numbers of people in Mexican cities now live in adequate housing with access to basic services,” says Monkkonen. “Yet as the bulk of housing finance in Mexico is provided by provident funds, this restricts who has access to loans as mortgages from provident funds are available only to people with salaried employment.”

Moreover, the structure of the mortgage allocation system means that investment in housing is disproportionately directed toward places with larger shares of salaried employees– manufacturing centres in the north of Mexico–and this exacerbates regional inequalities by not directing funds toward the southern, poorer cities. Furthermore, it also precludes those who are not employed in the formal market and are the most in need of improved housing.

“To assist low-income households, the National Fund for Popular Housing is providing subsidised loans for low- income people, and the Secretariat of Social Development runs a programme to improve the housing conditions of low-income households, Piso Firme, which subsidises the installation of concrete floors,” adds Monkkonen.

Anna Wellenstein, Programme Manager for Latin America and the Caribbean, World Bank
Anna Wellenstein, Programme Manager for Latin America and the Caribbean, World Bank

Over the last 50 years, a number of Latin American countries have implemented a broad set of policies and housing programmes to address the effects of rapid urbanisation. Typically, these programmess were financially unsustainable and became a heavy burden on governments.

“In many cases subsidies were used in a disruptive way creating significant distortions in the market both for developers and for the private financial sector,” says Wellenstein.

Furthermore, many of these housing programmes did not benefit the households they were intended to serve. For example, in Argentina only 38 percent of the beneficiaries belong to the lowest income segment, whereas 18 percent of the beneficiaries were from the highest income quintile. Brazil has recognised this problem by establishing a threshold for beneficiary selection which goes up to 10 times the minimum wage, so the My House, My Life Programme enables coverage of different income ranges and housing provisions and benefits are tailored to serve three income groups.

The examples in the article show the work of three countries in Latin America to reduce housing deficits in their countries. The Brazilian experience may be a model for other countries in Latin America and emerging countries but the pace and scale of urbanisation is far outpacing the capacity of governments to respond effectively.

Reducing the housing deficit across Latin America requires a broader, multi-faceted approach to address the social, economic, political and cultural factors. A shift of focus towards scaling-up access rather than ownership through increasing housing production could have a more profound and sustainable impact on reducing housing deficits. Through the design and implementation of a series of non-conventional approaches such as re-examining cultural factors for home ownership; utilising vacant buildings in urban areas; mobilising sustainability- driven financial instruments such as microfinance or climate funds; and capacity building for community-based organisation to help professionalise self- construction. There is no silver bullet for reducing housing deficits but the design and implementation of top-down, housing policies working alongside these more lateral approaches will help increase the efficiency and equitability of housing programmes.

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