Tuesday
June 12
2012

Ruban Selvanayagam

Is Brazil Truly a Latin American Social Housing Leader?

A recent Inter-American Development Bank (IBD) study once again bought to attention the sheer magnitude and intensifying nature of the Latin American Base of the Pyramid housing deficit. Nicaragua, Bolivia, Guatemala, El Salvador, Honduras, and Ecuador were all indicated as having particularly acute slum problems characterized by small, haphazard and unsafely constructed building structures on land with little or no title among communities with hugely inadequate water, sewerage and other essential service supplies.

Yet while there is a wider acknowledgement of the problem by Latin American governments themselves – due to a range of inherent risks related to land, bureaucracy, corruption in addition to the highly capital intensive nature of the sector – the challenges moving forward are massive. More worryingly, within many regions the notion of complete slum elimination has become viewed as insurmountable with the increasing underlying consensus that this form of housing will have to be accepted as part of the future.

With 10 cities in the top 30 with the widest affordability gap (according to the IDB data) in the continent, Brazil’s growing economic performance and firmer position internationally has bought more pressure to rid the massive wealth divides reflected in its housing landscape and even show the rest of the continent “how it is done.”

In terms of progress, from a broader perspective, some aspects deserve congratulating: Extreme poverty levels have decreased by over 50 percent since 2003 as a result of initiatives such as the Bolsa Família (Family Grant), Zero Fome (Zero Hunger) and Brasil Sem Miseria (Brazil Without Misery). In recent years, the pacification and urbanization plans within Rio de Janeiro’s favelas also have served to highlight a priority to confront what is arguably one of the most important socio-economic issues the country is facing.

However, perhaps the most notable effort was the 2009 launch of the Minha Casa, Minha Vida (My House, My Life) – aimed at constructing new homes while simultaneously creating objectives to cease the presence of insalubrious living conditions that have long characterized the country. The program has subsequently grown to become commended by organizations such as UN-Habitat and is even being used as a template for progress in global BoP housing sector.

However, a closer look at the facts demonstrates another story…

Formed into two related schemes, the first is based on subsidies of up to R$ 23,000 (US$ 11,360) to facilitate the house buying process for Brazilians earning up to 10 times the national minimum wage or R$ 6,350 (US$ 3,110) – although weighted priority is given to the lower (one to three times minimum wage) bracket. The logic here makes sense: Encouraging the sustainable growth of the private sector by allowing those with little savings to become homeowners complemented by competitive interest rates sounds like a perfect recipe at face value. However, shortly after launch, as a result of the combination of inflationary pressures on the various construction inputs (namely land, labor and materials) among other practical difficulties, marketed units were pushed beyond the financial reach of the Brazilian base of the pyramid in order to achieve comfortable margins. For instance, a recent survey we conducted of 18 “low income” housing units in Rio de Janeiro – a region with the highest proportion of the housing deficit in the country – pointed to an average open market sales value of R$ 106,402 (US $52,126), significantly beyond what is affordable when looking at average salaries for the demographic. As a result of disastrous experiences of companies that have ventured into the sector – today, activity levels are so low that there have been no launches of units specifically for the minimum salary groups since 2010.

In an attempt to bring more order – under the second part of the program – projects are financed entirely by the government via strategic partnerships with states, municipalities, developers, and social movement organizations. With strict price ceilings and financing packages that are more in line with low-income earning Brazilians, these aspects of Minha Casa, Minha Vida have become more publicized as “progress” by the government.

Yet, while certain costs may be minimized as a result donated plots of land and other local benefits, a simple look at the numbers shows that profit margins are way too low and builders struggle to maintain dignified quality standards (with corner cutting and inferior material usage being commonplace). Furthermore, it has never been feasible to create these development projects in the already pressured land markets of metropolitan Brazil which, in turn, has led to more peripheral construction plans where infrastructure and other amenities are hugely inefficient – doing very little to address the problem of urban sprawl.

In its defense, the overall policy making behind the Minha Casa, Minha Vida has a number of very redeeming features, such as the diligent underwriting processes that have been built to cater to Brazil’s massive informal workforce, ensuring these groups are not ostracized from homeownership. However, the program has fallen into a trap of believing itself to be immune to market realities and today continues to develop stubbornly in the wrong direction.

Nevertheless, inefficient progress is better than no progress and the experiences of Brazil should be applauded for at least bringing very important reference points and lessons from which Latin America may learn. Firstly, an attitude of providing those at the BoP with “second best” housing solutions simply will not do – all Latin Americans must have access to good quality housing, located in serviced regions that are not segregated. With the current consensus among Latin American developers being that the affordable housing sector is not worth entering – the profits under conventional methodologies, as seen in Brazil, are dismal. In addition to the current incentives that enable all stakeholders to successfully participate, value (income) based directives which steer clear of the damage that inflation brings therefore need to be incorporated into business plans. Related to this is an understanding that there is a radical necessity to transform how housing is built – integrating more streamline methodologies and management systems as well as ensuring that developments are undertaken on serviced land (and not remote regions where there is low appeal).

Among the growing patterns of hugely disproportionate Latin American urban affordability gaps, attempts of similar housing initiatives such as Venezuela’s Gran Misión Vivienda and Mexico’s INFONAVIT have broadly echoed the Brazilian initatives highlighted above. Combined with the risks of real estate speculation, which make it difficult for even those in the Latin lower-middle classes to acquire a home (therefore leaving few options beyond slums), there has never been more need to improve the supply chain process at all levels.

Asserted political willpower and simply throwing money at the situation are simply not enough.

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