“No time to waste” in applying the lessons from Latin America’s 50 years of housing policies

Abstract

The United Nations’ New Urban Agenda (NUA) calls for housing to play a prominent role in achieving more inclusive, safe, resilient and sustainable cities. Latin America offers more than 50 years of experience with housing policies: some successful, others failures. This paper reviews the lessons from this experience that can be of use for the rapidly urbanizing countries of sub-Saharan Africa and East Asia, as well as for the Latin American countries that are lagging behind in improving the housing conditions of their populations or not dealing effectively with the urban effects of their housing policies.

I. The Opportunity

Urban housing has gained pre-eminence in recent international agreements related to social and economic development. The New Urban Agenda (NUA) places housing at the centre of national and local urban agendas to expand the urban economy and provide the population with access to sanitation, health, education, transportation, recreation, and cultural services.⁽¹⁾ These objectives are in line with Goal 11 of the 2030 Agenda for Sustainable Development of the United Nations, which commits governments to expand the productive capacity of cities in order to provide good-quality employment and to ensure good living conditions for residents.⁽²⁾ Rapidly urbanizing low-, lower- middle and middle-income countries of sub-Saharan Africa and East Asia will have to achieve these objectives under conditions similar to those faced by Latin American countries in the second half of the 20th century. The Latin American experience in improving the housing conditions of its rapidly growing urban population (which reached over 500 million in 2015)⁽³⁾ provides useful lessons on success factors and difficulties that can assist other countries. In particular, it can point to the missed opportunities for reducing inequalities in income and human development; the dead ends often encountered by countries in the region in their efforts to provide good housing to the population; and the mismanagement of the urban consequences of massive housing construction.

Knowledge about housing problems and solutions in Latin America increased significantly in the 2000s, the result of a renewed interest in studying the functioning of the housing sector and the government responses to housing issues. A review of over 1,000 publications on the subject by the Urban Institute identified research gaps and led to a recommendation for more detailed studies on 22 topics, but did not draw policy and programme lessons from the literature review.⁽⁴⁾ This disinclination to highlight lessons does not take full advantage of the wealth of information and conclusions available in the reviewed literature, which can in fact provide useful inputs to policymakers in need of guidance on the design and implementation of housing policies and programmes. This paper outlines the most salient lessons that can be drawn from studies dealing with the effects of housing policies on living conditions of the population and the evolution of cities. Countries differ greatly in their needs, institutional arrangements, history and traditions; and on many topics, authors are not always in agreement. Recognizing these facts, this analysis of the available literature provides lessons that can be of particular use for decisionmakers operating in rapidly urbanizing countries that have “no time to waste” in devising effective policies and programmes to confront the rapid growth of cities and the pressing demands for adequate housing.

In search of lessons, the paper focuses on studies published in the last two decades and discusses housing and urban development issues together. The rationale for this approach emerges from the often overlooked fact that more than half of the services provided to households by good housing are provided at the scale of the neighbourhood or the city and not directly of the dwellings.⁽⁵⁾

After outlining the recent evolution of housing conditions in the region and the most salient aspects of the policies and programmes pursued by governments, the paper discusses two groups of lessons: those concerning housing programmes and those related to the management of the urban consequences of expanding the supply of housing.

II. Progress in Urban Quality of Life: The Evolution of the Housing Sector in Latin America

In the period between 1995 and 2009, the housing situation of the urban population in Latin America improved. Estimates made in 2010 indicate that the percentage of urban households in need of a home (or the full replacement of their current shelter) decreased from 8 per cent in 1995 to 6 per cent in 2009. Similarly, the proportion of urban dwellers living in overcrowded homes or with deficient construction materials dropped from 12 per cent to 8.8 per cent. At the turn of the 21st century, the largest housing deficit was a lack of infrastructure, which affected 17 per cent of the urban population in 2009, down from 24 per cent in 1995. This trend was confirmed by estimates made for 2015.⁽⁶⁾ However, the region still faces significant challenges in housing: the most recent figures available indicate that in 2009 about 9 million households were in need of a new shelter; 13 million needed improvements in their houses due to poor construction materials or overcrowding; and lack of infrastructure affected almost 28 million households. The challenge of providing good housing to all those in need is compounded by the need to provide approximately 3 million new homes every year to accommodate new households.⁽⁷⁾ The quality of life varies significantly among cities and within cities in a given country, and national averages can mask harsh local realities. Unfortunately there is a paucity of studies comparing cities, so this study will focus mostly on the national level of analysis.

a. Economic development and expenditure in housing

The housing improvements reported in Latin America occurred in a period of economic growth with increases in per-capita income, albeit with growing income inequalities and persistent informality in employment.⁽⁸⁾ A cross-country analysis of housing shortages shows a strong negative relationship between per-capita income and the percentage of households living with housing deficits. The higher a country’s per-capita income, the better the general housing conditions of its population. The relationship is particularly strong for shortages related to a lack of infrastructure and poor quality of housing materials.⁽⁹⁾

Investment in housing varies with the level of development of a country, the level of urbanization, and the accumulated stock of houses. As a proportion of GDP, investment in housing tends to be high for recently urbanized upper-middle income countries,⁽¹⁰⁾ as income growth is associated with expanded demand for better and larger houses. In the 2000–2011 period, upper-middle income countries in Latin American (per-capita GDP of US$ 4,000–12,000) spent the equivalent of 10.3 per cent of GDP on housing, while the lower-middle income countries (US$ 1,000–4,000) spent the equivalent of 3.9 per cent of GDP. The figures for East Asia and sub-Saharan African countries indicate that they follow the same pattern of more expenditure on housing as income per capita increases.⁽¹¹⁾ How the countries spend their resources is determined by the characteristics of their housing markets and the types of policies they apply in response to the challenges of urbanization and the advantages offered by income growth. The Latin American experience indicates that government policies and programmes have an important effect on improving housing conditions. However, not all programmes are equally effective,⁽¹²⁾ and the urban impacts of rapidly expanding the housing supply can significantly affect the outcomes.

b. Public policies and progress in housing

In Latin America, public concern with urban housing issues began in earnest in the 1960s, along with the acceleration of the urbanization process and widespread informality in housing production. By the early 1970s, most countries had established the institutional capacity to deal with housing issues, including central government ministries, government-run housing banks, and central and local housing corporations in different combinations. In more decentralized countries, local and regional governments also developed the institutional capacity to implement housing programmes with their own resources or using transfers from the central government. These institutions implemented a vast array of housing policies and programmes.

Initially, governments tried to solve the housing deficit by directly producing subsidized housing and providing subsidized finance. These programmes had two major drawbacks: they proved difficult to sustain due to high volatility in the resources available to governments; and often they did not reach the poorest strata of the population. In countries adopting this type of programme, public housing production had recurrent bursts and declines, and quite often the highly subsidized houses produced by the public institutions ended up benefitting middle-income households (often public servants) that were not served by the private sector. To a great extent, these public housing production programmes represent a missed opportunity to improve the lives of the poor, reduce inequalities and promote social inclusiveness. While middle-income households benefitted greatly from public expenditure in housing, low-income households continued resorting to informal solutions, building their shelters incrementally in informal subdivisions or living in overcrowded inner-city informal settlements.⁽¹³⁾

In the 1970s, Chile and Costa Rica pioneered housing policy reforms geared to attract private resources to the housing sector, facilitating the functioning of the different housing markets and moving away from the direct production of houses and subsidized finance. Reforms included: promoting the private housing finance industry; eliminating regulations on land markets; and focusing government interventions on supporting the demand for privately produced houses for low- and middle-income households. These reforms were later framed as the “enabling markets approach to housing policy” advocated by international organizations⁽¹⁴⁾ and were adopted in the 1990s by several Latin American countries (including Colombia, Bolivia, Dominican Republic, Ecuador, El Salvador, Mexico, Panama and Peru).

The approach proved only partially successful. Some of the instruments did not work for all intended segments of the population: notably the direct one-off subsidies (housing vouchers) aimed at leveraging the households’ capacity to get private loans to finance part of the cost of the homes, as banks were reluctant to lend to some segments of the target population.⁽¹⁵⁾ Low-income households and those working in the informal sector were not eligible for loans by private banks and hence could not use the vouchers. This forced governments in Chile, Colombia, Ecuador and Panama to directly build highly subsidized houses for those households that remained underserved by the demand-side subsidies.⁽¹⁶⁾ Other countries never ceased their supply-oriented housing programmes based on the direct public production of houses and interest rate subsidies for moderately priced homes that were financed by below-market returns for workers’ retirement funds. The government involvement in housing production is significant. Estimates for 2010 indicate that government programmes were responsible for 64 per cent of all new formal houses built in Mexico, 52 per cent in Chile, 21 per cent in Argentina and 19 per cent in Colombia.⁽¹⁷⁾

Most housing policies focused on the production of owner-occupied new homes and many countries and cities retained tenant protection laws and statutes, greatly impairing the development of rental markets. Well-functioning housing markets need a sufficient supply of rental properties to satisfy the needs of households that do not need, do not want, or cannot afford to own a house. The balance between ownership and rental varies significantly among countries and between cities within a given country. However, in Latin America on average the proportion of those renting is consistently low: only one-fifth of the housing stock is rented, in contrast with countries in the global North, where on average one-third of the housing is for rent.⁽¹⁸⁾ Also notable in Latin America is the absence of programmes geared to improving the conditions of the existing housing stock, despite the significant deficits in quality of construction and overcrowding and the substantial contribution that home improvements can make to quality of life and the reduction of housing deficits.⁽¹⁹⁾

c. Housing finance and the affordability of homes

Private housing finance is still poorly developed in Latin America, even after more than two decades of macroeconomic stability. Most studies consider this to be a result of the multiple risks faced by lenders that are not eliminated by market developments or mitigated by government interventions. In Latin America, lenders face high “commercial risks” due to the low incomes of many of their potential clients, and the “guarantee risks” emerging from difficulties in enforcing contracts.⁽²⁰⁾ In 2011, Chile and Panama had the largest housing finance sectors, with a total debt equivalent to 20 per cent of GDP. In most countries it was much smaller: Mexico 9 per cent, Brazil 3 per cent, and Argentina 2 per cent of GDP. On average in the early 2010s, the Latin America region had a mortgage debt equivalent to 5.5 per cent of GDP, well below high-income countries, where the mortgage debt represented on average 60 per cent of GDP, and even Asia, where it was 12.4 per cent.⁽²¹⁾ With the exception of the government-managed provident funds that lend for housing with subsidies financed by below-market returns to workers’ savings (as in Argentina, Brazil and Mexico), the banking sector only lends to households with high and middle-high incomes.⁽²²⁾ The real promise for housing finance for the poor is emerging slowly through microfinance institutions for business and home improvements and improved access to affordable materials and technical assistance for incremental housing construction.⁽²³⁾

Minimum-size houses are quite unaffordable in Latin America. An analysis of housing affordability in 12 cities (affordability being determined by the cost of a basic house, the income of the population, and the local credit conditions) shows that the percentage of households that can pay for a minimum-cost house produced by the private sector under the prevailing private lending conditions varies significantly. There are cities where two-thirds of the households can theoretically afford to buy the minimum house (in Panama, Chile, Mexico, El Salvador and Ecuador), while in others only one-third can do so (in Brazil, Peru, Colombia and Honduras). And there are also cities where fewer than 10 per cent of the households can afford a minimum house (in Argentina and Venezuela).⁽²⁴⁾ All factors considered, and in the best of circumstances, privately produced and financed minimal housing is still quite unaffordable for at least half and up to two-thirds of households in Latin America.

d. Persistent informality in housing production and consumption

Households that are unable to access formal housing markets find solutions in the informal market, building their own shelters incrementally on plots in illegal subdivisions or invaded land with deficient infrastructure and almost no urban services. Between 30 and 60 per cent of the housing stock in Latin American cities is incrementally self-built by low-income households.⁽²⁵⁾ For decades the authorities considered informal housing a problem that would disappear once new house construction reached adequate levels to cover the deficit and satisfy the new demand. After limited and traumatic experiences relocating informal settlers in the 1970s, central governments and municipalities moved to squarely address the problems of informality with in-situ settlement upgrading projects. These were financed with municipal resources or with transfers from higher-tier government agencies.⁽²⁶⁾ Although most programmes focus on communal services (water, sewerage, roads and public spaces), there is evidence that with appropriate help (technical cooperation and micro financing), the energies and resources used by households to build their own shelters can be channelled to produce liveable homes.⁽²⁷⁾ Surprisingly, very few countries in Latin America have explicit government policies and effective programmes supporting incremental housing construction.⁽²⁸⁾ The gap is filled by nongovernmental organizations working with the communities to implement house improvement programmes.⁽²⁹⁾

e. Unanticipated urban impacts of rapid increases in the housing stock

In Latin American cities, the majority of new affordable houses – whether built by public housing entities, private developers or informal builders – are located in poorly served peripheries. This is the result of both the intention to minimize the cost of land and the ample availability of land for greenfield development or invasion. From 1990 to 2000, between 70 and 80 per cent of the total expansion of a selected group of Latin American cities occurred through occupation of surrounding undeveloped lands or leapfrogging to land further away from the city limits.⁽³⁰⁾ While this process is taking place, a large area of serviced land within the cities’ urbanized perimeter generally remains idle or grossly underused due to a combination of factors including: dated land-use regulations; difficulties in land consolidation due to multiple ownership; and inaction on the part of institutional owners.⁽³¹⁾ In the peripheral locations more frequently in use, households often lack many of the services required for a good quality of life, in particular easy access to employment centres, health and education services, and recreation facilities. The shortage of urban amenities forces households to pay more in transportation and face longer commuting times, and to deal with limited access to essential urban services.⁽³²⁾ Many households are abandoning their new houses as the effects of these location-related shortcomings become unbearable. It is estimated that in 2012, nearly 20 per cent of the housing stock in Mexico was underused, remaining empty or under temporary use.⁽³³⁾ Similar proportions of underused housing exist in Argentina, Chile and Colombia.⁽³⁴⁾

III. Housing Policy Matters, But Not All Policies or Programmes are Equally Effective

Attempts by Latin American countries to solve housing shortages through the direct provision of affordable houses by public entities proved inadequate when they represented the only strategy.⁽³⁵⁾ Even mobilizing resources from a variety of sources – the national budget; allocations from dedicated sources (for instance a percentage of the gas tax yield in Argentina); or workers’ savings in the social security system (Brazil and Mexico) – the housing institutions produced limited quantities of subsidized mortgages or new houses, often misallocated the resources, and never attained the scale and sustainability to fully address the housing problem created by rapid urbanization. Therefore, it is worrying that many rapidly urbanizing countries in sub-Saharan Africa are embarking on the same type of public programmes with borrowed resources (often using natural resource-backed financial deals) to build new homes (in Angola, the Democratic Republic of the Congo or Ethiopia) or establishing entire new cities to satisfy the growing demand (as in Ghana, Kenya, Nigeria or Rwanda). On the other hand, it is encouraging that other countries like South Africa have a more diversified set of programmes focusing on the integration of low-income households into cities. Thailand also works with communities to support a diversity of settlement and house improvement programmes.⁽³⁶⁾ The analysis of the literature suggests that the most effective solution to housing problems in low- and middle-income countries lies in the diversification of programmes and the adequate management of the urban impacts of housing production.

a. Isolated low-income housing programmes do not work

Just building more houses is not enough even when standards are reduced to a minimum, as was the case with sites-and-services programmes that provided lots with minimum infrastructure. In the 2010s, Latin American countries that learned from past experience were implementing a combination of “demand-oriented” programmes – supporting middle- and lower-middle income households in accessing housing supplied and financed by the private sector – and “supply- oriented” programmes focused on low-income households that could not afford privately produced homes.⁽³⁷⁾ The best-performing countries in Latin America have a diverse set of public programmes that complement each other: upfront subsidies assisting low-middle and middle-income households to access mortgages supplied by private banks; direct government provision of highly subsidized basic expandable houses to low-income households that cannot access mortgage financing for a finished house; microcredit and technical assistance for self-builders to incrementally complete and improve basic homes; and urban upgrading for substandard informal settlements.⁽³⁸⁾

However, most housing programmes are still conceived and implemented as part of social policies that create “individual household entitlements”. Only a handful of programmes focus on the “territory” where the dwellings are built, assisting municipalities to improve living conditions in their jurisdictional areas. Particularly lacking are programmes to: facilitate the production of affordable serviced urban land; redevelop or more efficiently use abandoned or underused inner-city areas; improve accessibility and urban amenities in underserved areas; and assist households to rehabilitate or improve their homes. Reforms and programmes geared to developing and diversifying housing finance systems are also not well developed. This is an area where progress requires high levels of coordination with macroeconomic and private financing development policies.

Rapidly urbanizing countries can benefit from the Latin American experience and ensure that their housing policies and programmes cater for the housing needs of all households – almost invariably requiring some form of direct production by the government. But also, housing policies need to go beyond the limited individual household entitlement approach, emphasizing programmes focused on the whole urbanized area, assisting local governments to improve services in informal settlements and substandard urban areas, and also seeking to redevelop underused inner-city areas.⁽³⁹⁾ Achieving this goal requires countries to promote what Buckley et.al. call “an ample social contract” for housing and city development where the needs of all parties are considered.⁽⁴⁰⁾

b. Governments alone cannot solve the problem

Public housing programmes that fully subsidize housing supply have proven incapable of achieving the scale needed to serve the whole population in need, partly due to shortages of resources but more significantly because they did not mobilize the beneficiaries’ full capacity to contribute to the solution of their housing problems. The countries that in the last 20 years have seen the largest reductions in their housing deficits (Chile, Colombia, Costa Rica, Mexico and Panama) share certain characteristics. Their housing policies and programmes address – in a coordinated manner – the needs not just of low-income households but also of the underserved, non-poor low-income, lower-middle- and middle-income households, assisting them to access private or government-sponsored financing for their homes through mechanisms that leverage their capacity to pay for the solution of their housing problems. The best designed programmes have mobilized the resources of the beneficiaries in proportion to their capacity to pay and have used a variety of financial mechanisms, including: repayment of mortgage-based loans to purchase finished houses (for middle-income households); incentives for regular savings to accumulate resources for partially financing the highly subsidized solutions they received from the governments; and microcredit for incremental construction and improvement of houses (for low-middle and low-income households).⁽⁴¹⁾ A significant contribution of the “enabling markets approach” to housing is the emphasis placed on targeting government assistance to those most in need and complementing their resources so that they become more self-reliant in solving their own housing problems. The mobilization of resources from those beneficiaries who can pay for at least part of the cost of a house reduces the burden on the government and allows public housing institutions to channel more funds to those in greater need.

Complementary reforms to financial policies and programmes towards a sustainable private housing finance system are needed. These would include promotion of long-term savings, the development of private mortgage financing, and microcredit for home construction and improvements.⁽⁴²⁾ The active mobilization of the resources of all actors – including the capacity of low-income families to self-build their houses and the participation of private capital for financing mortgages for households capable of servicing a debt – expands the volume of resources flowing to the housing sector, with positive effects on housing supply.

c. Incremental housing is part of the solution

One of the benefits of neighbourhood upgrading programmes – which bring basic infrastructure and services to informal settlements and provide security of tenure on the land – is that they promote household investment in expanding and improving the quality of their homes. Over time, the homes so built attain most of the attributes of a residence built by the formal sector, although the process forces families to go for a long time without services.⁽⁴³⁾ The absence – with a few exceptions – of programmes supporting incremental housing construction is one of the major shortcomings of the Latin American housing experience, and it represents a missed opportunity to assist households to play a larger role in solving their housing problems. Rapidly urbanizing countries must take into consideration the fact that the incremental house construction process can be greatly improved if adequate support exists, including: the provision of government-subsidized expandable core houses;⁽⁴⁴⁾ technical assistance to self-builders; microfinance to purchase adequate building materials and to contract specialized help; and the provision of secure land tenure for households living in informal settlements and on invaded land.⁽⁴⁵⁾

Through the few programmes that do address this issue, municipalities and local nongovernmental organizations are active in providing technical cooperation and assisting homebuilders to more effectively improve their homes. Most of these activities are small in scale and community-based, features that pose a challenge for central governments to help them with resources and technical support. Notwithstanding the challenges, Acevedo et al.⁽⁴⁶⁾ identified in Latin America programmes successfully helping self-builders to improve their shelters and gain secure tenure of the land. Examples of these decentralized efforts run by municipalities, nongovernmental organizations, or private sector suppliers of building materials include programmes like FUNDASAL, a Salvadorian foundation that provides technical assistance to low-income families;⁽⁴⁷⁾ Patrimonio Ya (“Today’s Assets”), a programme financed by CEMEX – Mexico’s largest cement production corporation – to supply materials under a microcredit scheme that also includes technical assistance managed by the company’s extensive network of retail distributors; and Habitat for Humanity’s support for self-builders accessing microcredit for home improvements in Paraguay.

The Piso Firme (“Solid Ground”) programme in Mexico, Argentina’s Vivir Mejor (“Living Better”), and Chile’s Fondo Solidario de Vivienda (“Shared Housing Fund”)⁽⁴⁸⁾ are among the few programmes financed and managed by central governments that support incremental building and improvement of self-built houses. Herzog reports that there are rapidly urbanizing countries in other regions that have moved in this direction.⁽⁴⁹⁾ They include the already mentioned case of Thailand, where there is a shift in government policy away from producing new houses to improving the living conditions of the low-income population through integrated territorial development programmes.⁽⁵⁰⁾

d. Rental markets play an important role in the housing sector and require development and diversification

In Latin America, most housing policies and programmes favour home ownership. Some countries overprotect tenants, distorting rental markets.⁽⁵¹⁾ These policies, together with the reluctance of governments to finance public rental housing due to negative experiences in high-income countries, reduce the role played by renting in the housing markets in Latin America. Rental markets are a poorly researched area of housing in most of the developing world; however, some key facts are known and are worth discussing. The formal rental markets in Latin America are dominated by individual property owners who keep the rental properties as a safe investment that provides a complementary income or as a form of retirement income. There is hardly any commercial residential renting in the region (of properties supplied by private for-profit corporations specialized in this market), possibly because the risk–return equation is not favourable. In many Latin American countries, residential renting is a risky business due to the time and resources needed to repossess properties in the case of no payment, a product of legislation that overprotects tenants and the slow-functioning judiciary systems. There is, however, a very dynamic informal rental market run by informal settlers who rent rooms or plots of land to other low-income households. In the inner-city areas of large and rapidly developing intermediate cities there is also a high incidence of subletting of deteriorated properties to recent migrants and very low-income households unable to find other types of housing. All these informal rental operations are almost completely unregulated. There are many negative consequences for tenants, including high rental prices, substandard services, and lack of protection from arbitrary eviction.

Rapidly urbanizing countries need to address the underdevelopment of residential rental markets. There is a need to support rental housing to cater to the needs of households that at different phases of their family cycle prefer renting to ownership. This support must also seek to make informal renting by low-income households more efficient and less onerous for the tenants. After reviewing the cases of 13 countries, including three from Latin America (Brazil, Mexico and Uruguay), Peppercorn and Taffin suggest several areas of improvement to make rental markets more efficient, inclusive and fair. These include landlord–tenant regulations; adjustments to the tax system; simplification of the process for registering multifamily properties; and adjustments of the overall system of housing subsidies.⁽⁵²⁾

IV. Building Cities, Not Just Houses

In Latin America, the improvement of housing conditions is broadly accepted as an area of public policy with social and economic impacts. However, the urban development implications of public intervention in housing are for the large part ignored by policymakers. Driven by the importance assigned to housing as a merit good (or even a basic right), governments endeavour to ensure that the population consumes a basic standard of housing services.⁽⁵³⁾ However, only rarely does the analysis of housing issues and the ensuing solutions include an urban development perspective, ignoring the fact that cities provide more than half of the services that urban households obtain from good housing.⁽⁵⁴⁾ This has proven to be a costly omission as it leads to an abnormally high percentage of abandoned houses in cities. This is another Latin American lesson that could help rapidly urbanizing countries avoid the urban problems that reduce the effectiveness of public spending in housing.

a. Coordinate the construction of new houses with the provision of urban services and amenities

Housing policies in Latin America focus on assisting individual households to access owner-occupied homes under the notion that homeownership will improve their quality of life. Commonly, this goal is only partially attained. Good homes alone do not provide all the services required by households from their shelters, and housing programmes conceived and implemented as individual entitlements cannot ensure that the rest of the urban services needed are available at the time the new homes are received by users. It is increasingly common that good homes located in underserved neighbourhoods lie empty as their occupants cannot satisfy all of their daily needs in these locations. This is one of the costliest lessons of the Latin American experience with housing: the failure to closely link home production with the provision of city and neighbourhood amenities, services and infrastructures required by households to have a good quality of life.⁽⁵⁵⁾ Rapidly urbanizing countries would do much better breaking away from the traditional sector-focused and individual entitlements bias of housing programmes, and closely linking the production of new homes with the provision of the complementary urban amenities needed by the population. They need to move to urban-focused policies and programmes aimed at improving the living conditions of the population in the cities’ urbanized territories.

There is no lack of planning and policy tools to promote the planning and implementation of integrated housing and urban services in cities. What is lacking are adequate programmes, institutional arrangements and human resources at the city level to put these tools to work; and resources for city governments to provide the required urban infrastructures, services and amenities. Addressing this challenge requires reforms in housing policies so that they contemplate funds for the urban investments needed to allow a new residence to provide all the services required by a household. The governance challenge is to ensure that these investments are implemented at the time and in the locations where they are needed. It is particularly challenging for highly centralized and sector-focused structures of governance to attain this outcome. Therefore greater decentralization in the provision of these services is needed, strengthening transparent and accountable local governments.⁽⁵⁶⁾

Cities will benefit more from housing programmes that include block grants from the central or regional governments to support local efforts to improve housing conditions in their areas of jurisdiction than from programmes supporting just the building of new homes. Block grants supporting city building activities by local governments would be a better approach to promote territorial coordination in supplying housing services to the population than the simple house construction approach commonly adopted.⁽⁵⁷⁾ Strengthening local governments and metropolitan coordination mechanisms can go a long way in attaining the kind of coordination of housing and urban development interventions required to improve quality of life.⁽⁵⁸⁾

b. It is cheaper to prepare for rapid urbanization than to retrofit informal settlements

With the exception of short-term and isolated periods of economic crisis, urban land prices increase over time, gradually making serviced land for residential uses unaffordable for large portions of the population. While higher-income households can afford the higher land prices, public entities catering for low-income households are forced to build houses on the periphery of cities⁽⁵⁹⁾ where raw land is cheap, albeit more expensive to service.⁽⁶⁰⁾ Furthermore, lack of access to quality housing produced by the formal sector drives large numbers of households to build their houses in informal settlements lacking basic services. Latin American countries have gained experience in upgrading these informal settlements, retrofitting them with basic infrastructure and urban services.⁽⁶¹⁾ However, experience shows that retrofitting is always more expensive and socially disruptive than planning and investing ahead of land occupation.⁽⁶²⁾

A more efficient strategy for dealing with the growing demand for residential land is preparing land before urbanization pressures materialize.⁽⁶³⁾ Preparing land with basic infrastructure for orderly occupation can significantly reduce the volume of resources needed to provide good living conditions for the population; the challenge is to do it at prices affordable to low-income households. One way of curbing land price increases is for governments to invest in trunk infrastructure to put more land into residential use.⁽⁶⁴⁾ However, this strategy requires complementary measures to: reduce land development costs generated by land-use regulations that promote low-density developments; speed up and reduce costs of land registration procedures; and prevent inefficient speculative behaviour by landowners that keeps developed land outside the market. Implementation of these measures requires promoting public–private cooperation in the development of residential areas, and facilitating the efficient use of underused land in inner cities. For example, this could be done through taxes that would enable governments to transfer to landowners part of the social costs of their decisions (like idle-land taxes to discourage owners from keeping land off the market for speculative purposes).⁽⁶⁵⁾

Latin America has had successful experiences in expanding the supply of affordable land. Colombia’s Macro-Proyectos (“Large-scale Projects”) is a government-sponsored land development scheme involving cross-subsidies from the sale of large lots to commercial developers to reduce the development cost of serviced lands for affordable housing in the same subdivision. Public–private cooperation is also possible, as successful land readjustment projects in Bogotá and other cities demonstrate.⁽⁶⁶⁾ Under the right political and institutional conditions, even informal land developers can be induced to cooperate in the construction of better cities. This was demonstrated by the Social Urbanizer scheme implemented by the municipality of Porto Alegre in Brazil, which encouraged illegal land developers to produce better-quality residential subdivisions.⁽⁶⁷⁾

c. The solution to housing problems is mostly a local challenge

In Latin America there are a few large and rich municipalities with active housing programmes (Buenos Aires, São Paulo and Medellín). But in most of the region only the central government is capable of commanding the large volume of resources needed by policies that involve a significant transfer of wealth within society. Consequently, housing policies in most Latin American countries are to a large extent designed, financed and implemented by central governments, and conceived mostly as social policies providing support to individual households. Additionally, in countries in the global South, municipalities rarely have the financial resources needed to supply all of the neighbourhood and urban services required by new developments, or at least to do it in time for the arrival of new populations.⁽⁶⁸⁾ The situation can vary significantly from country to country depending on their system of government (unitary or federal), territorial size, and history. Depending on the level of decentralization, city services are the responsibility of the local government, or of the national government with various roles played by states or provinces in federal countries.⁽⁶⁹⁾ Ensuring the provision of these services in the newly urbanized areas poses a complex coordination problem that is better solved by local governments that have the required responsibilities and resources.

Although there is still much room for improvement, the Latin American experience suggests that there are gains in transferring the responsibilities for implementing housing programmes to local governments. When the expanded responsibilities are accompanied by the necessary financing and technical support from the central or regional government, housing policies can directly contribute to “build cities”. Failure to design housing policies that attend to the larger urban context produces negative impacts on quality of life and, in extreme cases, the abandonment of the new homes, a common occurrence in countries in the region.

V. Final Remarks

In Latin America, only rarely do housing and urban development policies work together. This lack of coherence greatly diminishes the positive impact of good housing on a population’s quality of life and the reduction of social and economic inequalities, which are key objectives of the New Urban Agenda.

Achieving good-quality housing for all requires the mobilization of large volumes of resources that no government can afford alone. The countries that show the greatest advances have managed to expand formal housing production, promoting private sector participation in the production and financing of new homes and bringing into the sector resources from the households, communities, real estate developers and financial institutions. They have also made houses more affordable by investing in infrastructure, eliminating perverse incentives inducing landowners to keep residential land off the market, subsidizing low-income households, and making long-term housing finance more accessible. These housing policies aim at improving the functioning of the entire housing market, including the private, public and informal components, so that households in all income brackets find a housing solution and can contribute to the production and financing of their homes according to their capacity to pay.

The Latin American experience also shows that private sector-based solutions do not work for everybody; and that the best use of public resources is the provision of assistance to low-income households in their efforts to self-build their shelters. The best road to quality housing for them lies in the incremental expansion and improvement of highly subsidized core houses located in well-served neighbourhoods via the provision of microcredit and technical assistance.

The experience also highlights the significant problems created by not coordinating urban development with new housing construction. Housing policies conceived and implemented as social programmes benefitting individual households in need were not capable of ensuring that the residents of the new houses so delivered had access to all the services they needed from their homes. The lack of coordination in the provision of these services led to the construction of housing that ultimately did not help the beneficiaries. The abandonment of new houses, observed in many cities of Latin America, is a painful remainder of the cost of not caring for the needs of households in an integrated manner.

There is no simple solution to improving housing conditions for the population at large. This is a complex problem requiring time, perseverance, the growth of the economy, and political will to adopt an integrated policy approach that involves reforms to housing, finance, and urban development policies and institutions. It seems that with adequate technical support and financial resources, the government with direct jurisdiction for the management of the territory in question (regional or local governments) can better coordinate the use of resources to ensure that the new (or improved) homes promoted by housing policies are adequately served by the urban and community services needed by residents to have a good quality of life. Implementing this approach requires a drastic change in the implementation paradigm of housing policies: from sector-centred programmes, centrally managed and focused on individual entitlements, to integrated programmes, executed by empowered and capable local governments, that simultaneously address the construction and improvement of houses and the provision of the urban services required by households.