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This blog explores insights for multinational corporations, NGOs, academics, social entrepreneurs and others working at the Base of the Pyramid.

Monday, February 13, 2012

NexThought Monday, Guest Post: Facing the Challenges of BoP Housing in Brazil

By Ruban Selvanayagam

Among all the economic enthusiasm that has emerged in recent years, it takes a short trip to any of Brazil’s prominent metropolitan regions to witness the realities of the country´s housing situation: favela communities in sharp contrast with the hugely speculative construction projects focused on what is falsely deemed as the target market.  

Despite a commendable 50 percent reduction in extreme poverty levels since 2003; infrastructure that is slowly but surely improving; pacification programs and a rising impetus on the part of the government to focus further on serving the demographic – a cohesive low income housing strategy to eliminate an officially defined deficit of 6.7 million (according to the Getúlio Vargas Foundation) is severely lagging.

In fact, conditions are far worse than often publicized; many of the units classified as “housing”, for instance, have been built informally with little or no adherence to recognized building standards including durability, resistance, fire / water proofing and adequate utility installations – meaning that the true affordable housing demand can strongly be argued at being up to 30 million units. 

Furthermore, the real estate boom seen in recent years has only served to weaken and ostracize the country’s BoP – accompanied by construction procedural mechanisms that possess a number of inherent fragilities such as a lack of regulatory control, weighty bureaucracy and unscrupulous mismanagement at all levels of government.  2012 alone has seen the mass eviction of a 6,000+ populated favela in Pinheirinho in São Paulo state (who, whilst being offered compensation, have been presented with no viable housing alternatives) as well as evidence on the 1 year Rio de Janeiro flood anniversary of misappropriated funding previously allocated for infrastructure and habitation.

 

A Flawed National BoP Housing Model

To the outside observer, the 2009 launch of the Minha Casa, Minha Vida (“My House, My Life”) government initiative – offering housing purchase subsidies and low interest rates – would have seemed the perfect solution.  However, the reality of the programme´s real-time application has resulted in a comprehensive failure to reach envisioned objectives of building acceptably standard homes at a cost that will bring both a healthy developer return whilst concurrently ensuring that contracted prices are within the realms of affordability. 

The main factors that have led to a now well-established industry resistance are price pressures on core materials (which have increased by a minimum of 15.1 percent since its launch), land (currently a hugely speculative market) and labor (Brazilian low income housing developers are notorious at paying absurdly low wages and subject construction workers to unsafe working conditions).

Indeed, many developers who have entered the sector since the launch of Minha Casa, Minha Vida have suffered huge financial losses.  One notable recent example was Tenda where analysts have recently indicated that of the 32,908 clients that signed purchase contracts; just 16 percent are truly able to afford the over-priced units, as reported by Brazil’s Exame magazine in December.  Combined with a number of structural issues within the developments themselves, over 11,000 units are impending cancellation and will be either put back on the market or, more probably, completely abandoned (effectively losing capital invested).

As the sector seeks to develop strategies that move beyond inefficient, archaic and inflation-prone methodologies (predominantly based on brick and cement), rising experimentation of materials such as reinforced woods, aluminum, PVC and environmental waste has therefore come to the forefront.  Whilst each product possesses certain advantages and may ease budgetary pressures somewhat, most are invariably attached with a number of practical downsides such as the requirement of specialized labor, technical non-compliance, production complications, an inability to construct multi-story apartments and a lack streamlined processes to be able to build efficiently at scale.

Objectively examining the government plans to donate housing to those in “high risk” areas (often located in distant and unappealing peripheral regions with poor infrastructure) as well as the favela reform projects which have barely got off the ground, it is abundantly clear that BoP housing progress in Brazil remains at a virtual standstill.  Yet, rather than seek genuine solutions, the government in the last year has caved in to private sector pressures and not only raised the maximum prices even further out of reach of the demographic but also extended the tax break remits – fuelling what is already an over-inflated market place.

 

The Fez Tá Pronto Construction System

Developed, patented and copyrighted over the last seven years – the Fez Tá Pronto Construction System presents what we can confidently state is the only viable model that evidentially overcomes the core issues above while also presenting a genuine triple bottom line and value based BoP construction and investment strategy. (I know that’s quite a definitive statement to make on NextBillion, but we stand by it, as I’ll explain). With previous projects financially and technically approved by the country´s leading home lenders – the Caixa Econômica Federal and the Banco do Brasil – the model uses a specifically formed gypsum plaster block to construct units at up to 5 times faster than what is conventional in Brazil at the highest standard (all materials used are normally reserved for luxury home building). 

As aggregated construction costs are a minimum of 40 percent less than standard business models in Brazil, we are uniquely able to tailor the sales value of our units to very comfortably fit within income levels of our exclusively BoP clients. We can also demonstrate that the maximum monthly mortgage installment levels (via the Caixa Econômica Federal) of our 47.7m² multi-story apartment units located in non-peripheral regions with full infrastructure are less than the rent of what is currently paid for favela accommodation.   As well as bringing environmental benefits, solar panels and a dual-network water recycling system provide further client savings. Paying our block mounters two to three times the standard wage for construction workers in Brazil, our simple on-site procedures require no qualification and we also actively encouraging women to be part of our projects.

While primarily focused in Brazil, we strongly believe Fez Tá Pronto Construction System presents a genuine and very necessary globally applicable paradigm shift among an unfortunately growing consensus that slum and other insalubrious forms of accommodation are inevitably part of our future. 

Ruban Selvanayagam manages the blog, Habitation for the Planet, which explores a wide range of issues related to global BoP housing development.

 

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