Building a roof for all: Demand drives construction of massive social housing projects

Low-income housing has long been stigmatised by false conceptions of small profit margins and unattractive architecture. However, Colombia’s large unsatisfied demand for homes has encouraged the public and private sectors to shift attention towards this segment with innovative project proposals that aim to bypass common setbacks within the sector.

GOVERNMENT PROGRAMMES: Prospects for social housing rely heavily on state policies, which have proven successful in channelling resources set in place from previous governments. Upon assuming office in 2010, President Juan Manuel Santos vowed to construct 1m homes during his term, a promise that has already seen the fruits of several programmes. One initiative is the move to build 100,000 free homes for the country’s poorest, categorised under the Priority Interest Housing (Vivienda de Interés Prioritario, VIP) segment, which receives full subsidies.

Public investment for this programme amounts to COP4.2bn ($2.52m) and to date more than 2000 families are already living in newly constructed homes. Work continues on 310 projects throughout 223 municipalities, predominantly in urban areas, according to the Ministry of Housing, Cities and Territory ( Ministerio de Vivienda, Ciudades y Territorio, MVCT). Though property values for VIP units do not surpass $18,000, construction has propelled the sector both in terms of activity and in output.

MUCH POTENTIAL: The social importance of such initiatives clearly surmounts the commercial value since developers do not directly profit from the sales of homes, but rather through state financing and tax incentives. Nonetheless, for sector specialists such as Jorge Luis López Esguerra, the president of developer Apiros, this programme demonstrates the ability of the private sector to construct quality homes in large volume over a short period of time. “Construction companies have the tools and technology but require government cooperation outside of specific programmes to facilitate the supply,” López told OBG.

Although this initial programme has yet to be fully completed, in mid-April 2013 the government unveiled a similar initiative to construct another 100,000 homes of slightly higher value, known as the Social Interest Housing (Vivienda de Interés Social, VIS), segment. VIS housing covers families earning a total income of up to four minimum wages ($1360). Beneficiaries of this system will receive direct government subsidies of between COP13m ($7800) and COP14.7m ($8820) and enter a credit scheme to pay off the rest of the property through monthly instalments that do not exceed 30% of family income. Home values range from COP40m to COP50m ($24,000-30,000), adding more dynamic commercial incentives for developers. Of the conceived homes, 86,000 are destined for cities while 14,000 will be built in rural areas, where property values and incomes are significantly lower.

An additional programme to construct 100,000 free homes in 2013, administered by the Ministry of Environment and Sustainable Development (Ministerio de Ambiente y Desarrollo Sostenible, MADS), has been designed to address rural housing needs. According to MADS, more than 34,000 homes in line with this initiative had been handed over to families as of May 2013. Housing construction in rural zones is completed much faster than in urban areas since land is neither scarce nor costly, two issues that are hindering the development of the segment and construction across the board in Colombian cities.

MACRO PROJECTS: Difficult access to urbanised land has been a persistent hindrance to the sector and a significant factor for lowered activity in 2012. The main challenges are municipal land restrictions, installation of public services and increasing prices, especially in Bogotá. However, the central government’s efforts to close the gap have borne fruit not only by generating demand, but also sidestepping fundamental problems on the supply end, mainly via the creation of the National Social Housing Macro projects (Macroproyectos de Interés Social Nacional, MISN).

Employing a public-private partnership (PPP) model, these projects bring developers and municipal representatives to work together to override traditional restrictions on land by simplifying bureaucratic procedures for plot acquisition and preparation. Much like the name suggests, macro projects tend to cover large plots, not only for a large concentration of homes but also commercial establishments, public infrastructure, such as hospitals and schools, cultural centres and other community-oriented amenities.

Though the MISN initiative began legislative procedures in 2007, progress has increased considerably during the current administration since it provides a platform for both VIP and VIS social housing segments. In 2011 the World Bank lent Colombia $40m to assist in the development of these projects, of which there are currently 12 throughout the country, covering a net area of some 1700 ha. Nearly 30 additional sites have been identified for possible development, with hotspots including the Valle del Cauca and Cundinamarca regions, whose capital cities are Cali and Bogotá (within the Capital District), respectively. According to MVCT, progress on these initiatives has already benefitted more than 15,000 families.

NEW CITIES: Possibly the most emblematic of the macro projects due to its size and success is Ciudad Verde, located west of Bogotá in the municipality of Soacha. Covering a total of 328 ha with a strong emphasis on public space, the project will consist of 42,000 homes once fully completed in 2016, although properties will be sold in different stages. Developed by a group of companies led by Amarilo, Ciudad Verde has come to symbolise what macro projects can achieve in terms of public and private cooperation, laying the groundwork for similar projects to follow. One such initiative includes the Altos de Santa Elena project, located in Cali, which Mexican cement producer CEMEX drew attention to in 2011 for its innovative use of space and the architectural design of social housing components. Other notable macro projects are currently under construction in the northern cities of Barranquilla and Cartagena, along the Atlantic coast and in Medellín.

While these programmes have been successful in generating demand and supply, they also appear to highlight fundamental problems with conflicts over access to land. “Macro projects are circumstantial solutions rather than a structural change. If we do not manage to synthesise the options for generating urban land at the level of local authorities, the housing gap will continue to grow and bottlenecks will begin to appear,” López told OBG. He further believes the government should focus efforts on long-term solutions to implement new legislation for urban development. “Municipalities are not doing an efficient job in land management and their autonomous power is creating problems for the sector,” he said.

Although López recognised the importance and positive contribution of macro projects, he does not see them as the only way to enter the segment. Setting an example, Apiros has begun construction on a major project called Hogares Soacha, adjacent to Ciudad Verde and about 70% its size. Hogares Soacha is referred to as a mega project as opposed to a macro project since it does not use the PPP model, instead going through traditional procedures to access land. So close to the capital, both Ciudad Verde and Hogares Soacha are examples of projects aiming to provide viable housing solutions to residents of Bogotá.

OPPORTUNITIES: While macro projects have successfully provided schemes that combine public and private financing, obtaining credit for completely private initiatives can be difficult. According to López, many companies face problems purchasing largescale plots. The local banking system offers credit for contractors, but due to complicated and time-consuming procedures for land permits, banks can grow wary of lending money for major developments outside the macro project scheme. In light of this, López told OBG that private and real estate funds are beginning to appear as viable credit institutions.

As a company invested in the social housing segment, Apiros has recognised the potential that exists due to continuously strong demand unlikely to diminish any time soon. However, any foreign firm wishing to enter the segment would have to plan in volume to make up for small margins on property sales. According to López, the success of foreign companies so far has relied heavily on partnerships with local players that know the rigidities of the terrain, especially when dealing with municipalities for access to land.

With new housing projects in the pipeline, opportunities in this segment could be promising either through a PPP model or through entirely private initiatives. Companies looking to participate in PPPs should have solid credentials since these housing programmes are strict in their selection of participants. The government has demonstrated its determination to close the housing gap. Pushing structural changes to improve land access would be helpful, creating dynamic options and increasing future potential.

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The Report: Colombia 2013

Construction & Real Estate chapter from The Report: Colombia 2013

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