NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Brazil’s Minha Casa, Minha Vida (“My House, My Life) program lauched in 2009. The government effort was promoted as a way of bringing large numbers of formerly excluded families into the formal housing market – supported by more efficient financing mechanisms. And, according to media reports, the government plans to embark on what will be phase three of the program in June.

Unfortunately, in spite of the R$ 134 billion allocated by Brazil´s government to Minha Casa, Minha Vida, there is very little conclusive data that enables us to examine the real social impact of the housing projects under its umbrella. And as I wrote in a previous post on my blog and NextBillion Brasil, despite this high level of public investment, the necessary results to genuinely confront Brazil’s core housing issues have been negligible.

Although it might appear to be unrealistic, Brazil desperately needs an ambitious vision to confront its housing disparity crisis. It takes only a brief glimpse at the social and environmental impacts that informal living continue to produce, as well as the “slumification” factor evidenced in many of the projects constructed since the program´s launch five years ago to see that an inherent transformation is necessary. What follows are some suggestions as to how such progress could be achieved

Speculation control

With many São Paulo real estate developers classifiying their $135,000 homes as “accessible” to low-middle income groups and plots of land in the so-called “Social Interest Zones” across the country trading at absurdly high levels, it remains clear that Brazil´s property market is in need of an urgent redefinition to firmly grasp the housing needs of all sections of society.

It is worth remembering that the actual building of a home is a merely a piece of the jigsaw – and cannot be thought about and conceived in an isolated manner. The abundance of public finance (via the Minha Casa, Minha Vida and other social initiatives developed in recent decades) need to be mobilised much more efficiently to take hold of the uncontrolled growth ocurring in urban peripheries, with the objective of creating more socially balanced city environments.

The theory is simple: undertaking improvements to transport mobility, educational and health infrastructure that encourages citizenship and subsequently in order to stimulate sustainable growth via the creation of employment, formal business and other opportunities. Obviously, this is not something achievable overnight, yet the recent demonstrations in São Paulo over the proposed revisions of the Master Plan (Plano Diretor) demonstrated that, without public involvement, the problems are only likely to exacerbate.

Improving segment competitivity and encouraging collaboration

The traditional and arguably archaic nature of methodologies used in the Brazilian construction industry, with their associated heavy costs, has resulted in most mainstream developers remaining at arm´s length of the low-income housing sector, with most prefering to work within the middle and upper classes. Yet as demand has droppoed, the future for many companies has become unclear; evidence of lower sales volumes, contract cancellations and complaints from buyers feel shortchanged with small but expensive housing units, have followed suit.
Nonetheless, the ferocious competition within the middle and upper income segments has resulted in companies searching to perfect their planning, execution and management disciplines – developing strategies that are now firmly integrated into developed world construction activity. Notable examples include the rationalisation and compatibilisation of on-site logistical processes (aimed at decreasing costs via better productivity) such as the use of “lean” and other industrialised construction methods as well as taking advantage of specific technologies via the adoption of Building Information Modelling (BIM).

The wide distinction between informal and formal living condition needs to be overcome via creating economic-financial viability within the base of the pyramid housing segment (Source Fonte: Flickr – Favela do Moinho)

Conversely, the low-income housing segments, despite their enormous demand, struggles to manage tight resources and move beyond the negligible margins offered when adopting these traditional methodologies. Such back-dated operational practices further impedes the growth of professionalism and efficiency in the execution of building projects.

For this reason, rather than maintaining this illogical “us versus them” scenario, clear synergies and knowledge-sharing partnerships across the whole industry should be created, ironing out the market disparities between catering to the lower and upper classes, increasing productivity and encouraging win-win business opportunities.

Healthy public-private relationships

Minimising the tensions that exist within public-private partnerships will involve much cooperative dialogue in addition to a mutual desire to establish and stick to clear long-term objectives. For instance, with more complementary assistance from the public powers in relation to project development, a significant level of progress could be achieved on an executive level.

To use a practical example, it is well known that fundamental geological and technical viability analyses are invariably expensive processes. With construction budgets remaining under significant pressures already, many low-income housing constructors continue to run the risk of engaging in these processes superfically with the aim of saving on overheads. However, as has been witnessed in several Minha Casa, Minha Vida projects in recent years, problems that have emerged as a result of such cost-cutting have meant that social housing projects have been halted and even abandoned, producing notable financial losses. Especially considering that governments possess detailed understanding of local conditions which could be relayed to developers working in this segment, it is clear that efficient mechanisms can be implemented at the early stages to overcome such relatively simple questions.

Technical and engineering assistance

In an attempt to raise the bar and move away from the highly informal nature of homebuilding, the Brazilian Association of Technical Norms – a body that regulates overall building standards – in July of last year updated its “performance” norm. While the new guidelines were welcome for creating a more professional and trustworthy marketplace, they also created a rise in gross construction costs (estimated at a minimum of 5 percent). In turn, this has led to further frustration among low-income housing developers, with several questioning their ability to continue operations.

As well as providing construction companies with a better understanding as to how to efficiently implement this norm, Brazilian housing policy makers need to embrace innovative constrution processes, systems and sub-systems that are genuinely able to meet the rigorous market demands without compromising financial viability.

While still in its infancy, the National Technical Evaluation System (SiNAT), set up by the Cities Ministry and other commissions to develop technical solutions to alleviate the national shortage, has nonetheless been an encouraging sign of progress.

A Brazil without favelas is possible

Perhaps one of the most important considerations when thinking about the future relates to how low-income groups, beyond the sporadic public hearings, can be brought into a discussion about how their communities will be realistically shaped. Although such discussions would also involve the pecularities of each state and municipality, a handful of questions that are in vital need of addressing include:

• How can the clear benefits of the Minha Casa, Minha Vida be implemented better into the marketplace, avoiding the inefficient public finance?
• How can a successful shared-management strategy between local communities and municipal governments be executed efficiently?
• How can the instruments already established in Brazilian urban legislation (social housing zoning, syndicated urban operations, compulsory infrastructure development during construction) be applied more affirmitively?
• How can formal business development be incentivised in the outer peripheries?
• How can stronger relationships be established with gas, electricity, water and waste management services to complement social housing initiatives in the peripheries?
• How can technology be used to overcome the well know bureaucratic delays that characterise project approval processes?

Never in Brazil´s history has the been so much opportunity for the housing market to grow. Minha Casa, Minha Vida’s future depends on the program´s capacity to truly embrace the socio-economic needs of the low-income population while remaining committed to taking on the challenges headfirst.

Prioritising quality standards may well reduce the number of units being delivered to the market in the short term, as the market restablishes itself – political suicide for many of those steering the destiny of the program. Yet, taking a few steps back to examine how the sector should develop is fundamental to reaching the goals of sustainably diminishing the housing shortage without simply churning out sub-standard homes. Any other direction is likely to encourage the slumification phenomena and a host of associated problems.

Ruban Selvanayagam is the partner-director at the Fez Tá Pronto Construction System a real estate development model focused on serving the base of the pyramid with affordable, high quality, technically adherent and ecologically friendly housing.