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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. BRAZILIAN CONTEXT : FEDERALISM AND INEQUALITIES. Brazil. 26 States and Federal District. 5.564 municipalities.

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Low Income Housing Finance: Brazilian Experience

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  1. Low Income Housing Finance: Brazilian Experience Júnia Santa Rosa Institutional Development and Technical Cooperation Department Ministry of Cities New Delhi, January 27, 2010

  2. 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

  3. 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.

  4. 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)

  5. NATIONAL HOUSING POLICIES IN BRAZIL: SYSTEM E FUNDINGS

  6. 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):

  7. 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.

  8. 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)

  9. 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

  10. 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.

  11. 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

  12. 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

  13. 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

  14. 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

  15. 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:

  16. 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

  17. 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

  18. 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

  19. 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

  20. 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

  21. 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

  22. 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

  23. 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

  24. 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

  25. 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

  26. 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 √

  27. 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

  28. 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

  29. Júnia Santa Rosa Institutional Development and Technical Cooperation Department Ministry of Cities New Delhi, January 27, 2010

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