What Can We Learn From Today’s Housing Sector in Latin America and the Caribbean?
There are very few things that come to my mind for improving the people’s quality of life other than access to proper housing. Therefore, the housing sector is one of the six priority sectors for IDB Invest’s Manufacturing Unit, where we also focus our efforts on the cement, paper and cardboard, metal and mechanics, auto, and pharmaceutical sectors. In these sectors we propose both financial and non-financial product solutions.
The sectors were selected due to the major impact on development that may arise from our operations. To this end, we considered factors such as the companies’ ongoing investment needs, employment creation resulting from their growth, generation of foreign currency (both direct and indirect), innovation, gender opportunities, and benefits for a large chain of suppliers (out of which many of them are micro-, small-, and medium-sized enterprises). All of the above is aligned with the renewed private sector vision of the IDB Group.
Even though the housing sector is the one that could be deemed least related to the manufacturing sector, it is the one I chose to discuss upon celebrating World Habitat Day.
Better housing, better living conditions
Based on different studies, the countries in Latin America and the Caribbean show a great shortage of urban housing from 12 percent to 70 percent . I am making a point of urban areas since it is here that 80 percent of the people in the region live –a figure that is projected to increase to 90 percent by 2050.
Studies define two types of housing shortfalls in our region: quantitative and qualitative. Both cover people living in overcrowded or poor housing, or population out of a housing solution. As expected, most of these people come from low-income households or have informal jobs, making addressing the challenge more difficult.
Over the past few decades, the governments in the region have launched a series of programs and initiatives to fight this shortfall. However, owing to the tax issues in many of our countries, mass subsidy programs which could significantly impact on the housing shortfall are not feasible. Therefore, as with other challenges, private sector involvement both locally and internationally is paramount.
Where we are in the housing sector
To date, at IDB Invest we have made the financial solutions to housing developers in Mexico and Peru, and financing to banks and non-banking financial institutions across the region for home acquisition our priority.
One example is our support granted in late 2018 to Vinte Viviendas Integrales S.A.B. de C.V. in Mexico through a partial credit guarantee for the issuance of its Bono Sustentable Vinte 18X. Through this issuance, Vinte will develop a significant number of “green” housing.
During my trip to Peru early this year, I had the chance to see first-hand a very interesting solution with a sophisticated regulatory framework allowing low-income households to acquire a plot of land: “Habilitación Urbana.” This financial product is formed by a long-term sale of the plots of land without transferring the deed, thus positively impacting on the quality of financing portfolios. Through “Habilitación Urbana”, people are granted access to plots of land with all the infrastructure necessary to potentially turn them into homes while promoting financial inclusion. At present, we are assessing different transactions including one with Los Portales S.A.C. so that they may continue to grow their operations.
But there is still more we can do.
Building solutions in the housing sector requires different modalities, such as purchase, lease, refurbishing and self-construction, as well as access to financing in adequate terms for constructors and for the people acquiring their homes. As proven by international experience, there is a positive correlation between reducing housing shortfall in countries with more sophisticated housing financing and increased penetration of financing for housing in proportion to their GDP.
Thus, different players become necessary including commercial banking, specialized financial intermediaries, stock exchanges, credit insurers, pension funds, and local, bilateral and multilateral development banks, among others.
We need to find innovative solutions that will enable taking a step further. The cost per square meter increases on a daily basis making the issue more challenging, especially for the people at the base of the pyramid. This is why I am asking you to continue this discussion: only sharing our experiences and knowledge will we be able to find the long-term sustainable solutions that the housing sector in Latin America and the Caribbean expect.■