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Low Income Housing Finance: Brazilian Experience. Júnia Santa Rosa Institutional Development and Technical Cooperation Department Ministry of Cities New Delhi, January 27, 2010. BRAZILIAN CONTEXT : FEDERALISM AND INEQUALITIES. Brazil. 26 States and Federal District. 5.564 municipalities.

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Low income housing finance brazilian experience

Low Income Housing Finance: Brazilian Experience

Júnia Santa Rosa

Institutional Development and Technical Cooperation Department

Ministry of Cities

New Delhi, January 27, 2010


Low income housing finance brazilian experience

BRAZILIAN CONTEXT: FEDERALISM AND INEQUALITIES

Brazil

26 States and Federal District

5.564 municipalities

190 million inhabbitants(2008)

30% Metropolitan Regions

FEATURES:

Diversityand relevant inequalities spatial, social, economic, political and administrative among government spheres


Low income housing finance brazilian experience

BRAZILIAN CONTEXT: FEDERALISM AND INEQUALITIES

 This feature interferes direct on the response capacity from local and state governments capacity on responding the needs from the population

MUNICIPAL PROFILE ACCORDING POPULATION:

Approximately 90% of municipalities with less than 10.000 inhabitants depend almost fully on funds transfers from:

  • FPM ( National level -Fundo de Participação dos Municípios)

  • de ICMS ( states must transfer 25% of taxes on traded goods to municipalities)

Source: SOUZA, 2002 e IBGE, 2008.


Low income housing finance brazilian experience

BRAZILIAN CONTEXT:DESCENTRALIZATION OF PUBLIC POLICIES

  • Public policies until the 80’s

    • Decision making and financial centralization

    • Vertical standard of decisions and management

    • Exclusion of civil society on decision making processes

    • Absence of social control and evaluation

Federal constitutional of 1988:complexity on federal arrangements

  • Redefinition of competences and attributions of government spheres

  • Common, complementary and concurrent competences

  • Decentralization of social policies, specially for municipalities

  • Concurrent legislative attributions

90’s:strengthening of decentralization process of social policies (ex: health, education, social assistance, housing, sanitation)



Low income housing finance brazilian experience

MAIN PROGRESSES ON HOUSING POLICY DURING THE PERIOD 2003-2009

Integration of funding and actions to face the housing deficit

National Housing System and Fund (SNHIS/ FNHIS):

Measures on legal framework, trust deed, inductions for lower income loans, new guarantee instruments

Housing Markets (regulated and non regulated):

Historic benchmark on slum upgrading policies

Growth Acceleration Program (PAC):

Long term planning for housing, strong civil society

National Housing Plan (PlanHab):

Incentives for new housing construction, funding for the new subsidies and finance model for low income housing

My House My Life Program (MCMV):


Low income housing finance brazilian experience

CAIXA ECONÔMICA FEDERAL - CAIXA

  • Founded in 1861, main implementing agency of national public policies and 4th bank in terms of assets in Brazil

  • Since 1986 assumed operational functions of the National Housing Bank (BNH) :

    • Major housing finance agent and relevant role on finance urban development, specially basic sanitation.

  • Addicionally in 1986, CAIXA took over the role of operational agent of Fundo de Garantia do Tempo de Serviço – FGTS (unemployment provident fund), previously managed by the BNH.


Low income housing finance brazilian experience

Rent evolution on housing investments

*RES. 460/04 - a partir de 01jun05

SBPE - Fonte: ABECIP – Atualização: Outubro/ 2009

Fonte: Quadro Presi Outubro/2009 (não inclui PMCMV)


Low income housing finance brazilian experience

INVESTMENTS ON HOUSING

- Focus on low income brackets -

1 minimum wage (mw.) = US$ 300

OPERATIONS PER INCOME BRACKET (%)

Funding Sources: FGTS, FAR, FDS,OGU, FAT

Source: MCIDADES and CAIXA – Update: 30/10/2009


Low income housing finance brazilian experience

NEW CYCLY OF GROWTH IN THE HOUSING SECTOR

HOUSING UNITS FINANCE IN BRAZIL (1974-2008)

(average per period)

494.562

436.139

363.540

327.054

173.879

155.468

1974-78

1979-84

1985-89

1990-94

1995-02

2003-08

Source: Elaborated by CAIXA, based on Ministry of Finance data.


Low income housing finance brazilian experience

HOUSING FINANCE x PIB

HOUSING LOANS %PIB

TOTAL LOANS %PIB

EUA

ÍNDIA

CHILE

MÉXICO

BRASIL

IRLANDA

POLÔNIA

HUNGRIA

ESPANHA

HOLANDA

INGLATERRA

REP. TCHECA

ÁFRICA DO SUL

Source: Elaborated by CAIXA (SUPLA/Cenários), with data from: Global Property Guide, Central Banks, Ministry of Finance, jun/2009


Low income housing finance brazilian experience

INCOME BRACKETS:

DIMENSION OF HOUSING PROBLEM

Milhões de domicílios

11% of domiciles

Source: Elaborated fromFJP/CEI (2008) based on IBGE/Censo 2000 and MCidades/CEDEPLAR (2007).

FOCUS ON SOCIAL HOUSING:

Source: Elaborated fromFJP/CEI (2008) based on IBGE/Censo 2000 and MCidades/CEDEPLAR (2007).

Families with access to credit need for complementary subsidies

FUTURE DEMOGRAPHIC NEEDS:

HOUSING DEFICIT:

Families who couldn’t afford long term loans, need for subsidies and public programs

Families integrated of accumulated housing deficit


Low income housing finance brazilian experience

NATIONAL HOUSING PLAN: PLANHAB

Long term planning tool, to face the housing needs

  • Strategic axes of PlanHab:

  • Housing subsidies and finance model

  • Urban and land policies

  • Institutional arrangements

  • Civil construction chain


Low income housing finance brazilian experience

PREMISES – FINANCE AND SUBSIDIES

Menu of housing alternatives for different types of municipalities

Classification of families (deficit and future housing needs) under income groups

Recognition of different costs for housing alternatives on different states

Finance and subsidies model according to income brackets and type of municipalities

Scenarios of funding sources and possibilities

Government must be prepared to attend accumulated deficit and part of future housing needs


Low income housing finance brazilian experience

NEEDS BY INCOME BRACKETS

  • considering family income per capita, housing alternatives menu and types of municipalities

  • relates income brackets with adequate funding sources and programs, based on credit affordability

INCOME GROUPS:


Low income housing finance brazilian experience

DEFICIT AND FUTURE NEEDS

INCOME GROUPS - families

CONDIÇÕES DE ACESSO À MORADIA

FONTES DE RECURSOS

1

No access to credit

Need for subsidies

Government budget

2

Limited affordability for long term credit

Need for partial subsidies to leverage finance

National Gov budget/ FGTS

Affordability under special credit conditions

3

Need for special conditions and regulated market (SFH)

FGTS/ SBPE (regulated savings and loans system)

Market based access to housing

4

Free housing finance markets

Housing finance unregulated markets, finance by construction companies and family own resources

INCOME GROUPS AND FUNDINGS


Low income housing finance brazilian experience

STRATEGIES BASED ON INCOME

In order to expand access to housing for low income families, the My House, My Life Program, assumes that each income bracket needs a different strategy.

INCOME GROUPS

STRATEGIES

FGHAB + low cost insurance

US$ 3.000

Subsidy (↑ income ↓ subsidy) +RET

+FGHAB

+Lower cost insurance

+Lower interest rates

Up to US$1.800

Up to US$ 900

Emphasis on subsidies +RET +FGHAB

+Reduction/ insurance exemption + lower interest rates


Low income housing finance brazilian experience

PROGRAMS AND TOOLS OF PMCMV

  • Program of subsidies and finance with federal government funding: families with monthly income until US$ 900

  • FGTS finance+ subsidy mix : families with monthly income between US$ 900 and US$ 1.800

  • Guarantee Fund:refinance for income loss periods and lower insurance costs

  • PNHR – National Rural Program: family agricultures and rural workers with annual income until US$ 39.000

  • Community Based and Non Governmental Organizations Program: social movements and organizations, families with monthly income until US$ 900

  • Registry costs:lower costs and more agile process

  • Environmental licenses: faster and agile procedures

  • Finance for infrastructure:investments on infrastructure

  • Finance for industry construction chain:BNDES


Low income housing finance brazilian experience

REGIONAL DIVERSITY as a principle

TYPOLOGY OF MUNICIPALITIES

The municipalities typology consider the specificities of micro regions where cities are located, urban and socioeconomic indicators


Low income housing finance brazilian experience

DIVERSITY OF HOUSING ALTERNATIVES

  • New units: private and public sector, social movements and community based organizations

  • Requalification of buildings located in consolidated areas

  • Sites and services supply

  • Construction material kit + technical assistance

  • Social rental housing

  • Slum upgrading strategies


Low income housing finance brazilian experience

STRATEGIES

Eliminate the housing deficit and face partially the future needs for housing

OBJECTIVES

  • Expand housing finance for low income families, through:

  • proportional subsidies according to income

  • lower finance costs

  • diversification of housing alternatives

METAS


Low income housing finance brazilian experience

NEEDED INVESTMENTS ON HOUSING

FEDERAL, STATE AND MUNICIPAL BUDGETS:

2,63% of federal budget for housing and target of 1% of State and Municipal budgets (PEC – constitutional ammendment currently in the Congress)

FUNDO DE GARANTIA DO TEMPO DE SERVIÇO (FGTS):

Funding for finance+ increase of available funding for subsidies

SISTEMA BRASILEIRO DE POUPANÇA E EMPRÉSTIMO (SBPE):

Regulated savings and loans system, towards expansion of loans to low income brackets


Low income housing finance brazilian experience

NEEDED INVESTMENTS ON HOUSING

SUBSIDIES

Federal Budget: US$ 100 bilhões até 2023(for 2010 estimated budget of ca US$ 5,5 bi)

States and Municipal Budgets: US$ 50 billion until 2023

FGTS: US$ 43 billion until 2023 (average US$ 2,8 billion/ year)

FINANCE

FGTS: US$ 265 billion until 2023 (average US$ 18 billion/ year: loans to individuals + public

SBPE:US$ 43 billion until 2023(average R$ 13 billion/ year: individual and corporate loans)

It will be needed to attend the needs of 1 MILLION FAMILIES PER YEAR (income until US$ 1.800)from 2012

TO REACH THE OBJECTIVES


Low income housing finance brazilian experience

STAGES OF IMPLEMENTATION OF THE NEW SUBSIDIES MODEL

1st Stage (2009-11) Transition and implementation

2nd Stage (2012-15) Consolidation

3rd Stage (2016-23) Achievements and results


Low income housing finance brazilian experience

SUBSIDIES PROGRAM

ACTIONS, PROGRAMS AND PROJECTS

(2009-2011)

(2012-2015)

(2016-2019)

(2019-2023)

Promote slum upgrading

Implement a large scale housing program

Expand federal investments on housing

Increase limits and funding for subsidies

Implement a broader menu of housing alternatives

Housing loans guarantee fund – set up

  • Expand available FGTS funding for subsidies

  • Reduce funding costs for middle income brackets


Low income housing finance brazilian experience

FINANCE AND SUBSIDIES

ACTIONS, PROGRAMS AND PROJECTS

(2009-2011)

(2012-2015)

(2016-2019)

(2019-2023)

Improve legal and institutional framework for the housing loans guarantee fund

Implement measures to develop a mortgage insurance market

Expand private sector housing loans to low income groups

Expand down market regulated savings and loans system (SBPE)

Evaluate alternatives and programs already implemented

Design a social rental housing program

Design a program of sites and services emphasizing medium and smaller cities


Low income housing finance brazilian experience

  • CHALENGES

  • Strengthening the guarantee fund – legal and regulatory framework

  • Include the private banks in the subsidies system

  • Improve data base of beneficiaries and demand

  • Improve financial services and products for low income brackets

  • Expand financial participation at municipal and state levels

  • Introduce savings as criteria and financial counterpart of beneficiaries

  • Improve available products for low income within real estate markets

  • Expand housing markets to fit deficit and housing needs


Glossary
GLOSSARY

  • BNH – National Housing Bank

  • FGTS – Guarantee Fund for time of employment

  • FNHIS – National Housing Fund for Social Housing

  • IBGE – Brazilian Institute for Geography and Statistics

  • OGU – Federal Budget

  • PAC – Acceleration Growth Program

  • PEC – Constitution Amendment Proposal

  • PIB – GDP

  • PLANHAB – National Housing Plan

  • PLHIS – Local Government Plan for Social Housing

  • PMCMV – My House, My Life Program

  • PNH – National Housing Policy

  • PPA – Five years Budget

  • RM – Metropolitan Region

  • SBPE – Brazilian Savings and Loans System (regulated)

  • SFH – Housing Finance System

  • SM – Minimum Wage

  • SNH – National Secretary of Housing, Ministry of Cities

  • SNHIS – National System for Social Housing

  • SNHM – National System for Housing Markets


Low income housing finance brazilian experience

Júnia Santa Rosa

Institutional Development and Technical Cooperation Department

Ministry of Cities

New Delhi, January 27, 2010