Low Income Housing Finance: Low Income Housing Finance: Brazilian ExperienceBrazilian Experience

Júnia Santa RosaInstitutional Development and Technical Cooperation Department

Ministry of Cities

New Delhi, January 27, 2010

Brazil

26 States and Federal District

5.564 municipalities

BRAZILIAN CONTEXTBRAZILIAN CONTEXT: FEDERALISM AND INEQUALITIES

FEATURES:

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

190 million inhabbitants(2008) 30% Metropolitan Regions

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

BRAZILIAN CONTEXTBRAZILIAN CONTEXT: FEDERALISM AND INEQUALITIES

MUNICÍPIOS COM POP. < 20 HAB.

MUNICÍPIOS COM POP. > 100 MIL

HAB.

MUNICÍPIOS COM POP. ENTRE 20 MIL

E 100 MIL HAB.

Source: SOUZA, 2002 e IBGE, 2008.

MUNICIPAL PROFILE ACCORDING POPULATION:

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

BRAZILIAN CONTEXT:BRAZILIAN CONTEXT: DESCENTRALIZATION OF PUBLIC POLICIES

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

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

NATIONAL HOUSING POLICIES IN BRAZILNATIONAL HOUSING POLICIES IN BRAZIL: SYSTEM E FUNDINGS

1964 National Housing Policy (SFH e BNH)Decision making centralization by a national agency ( National Housing Bank - BNH)

1967 FGTS e SBPE (regulatory savings and loans system)

1986 End of BNH, different Ministries in charge of housing policies until the 90’s

1988 (CF) Housing: concurrent attributions among federal, state and municipal levelsLack o federal policies, spread initiatives by states adn municipalities

1997 SFI (secondary market for mortgages)

2001 Statute of the Cities approval (Law 10.257/01)

2003 Ministry of Cities

2004 National Housing Policy (PNH) and National Cities Council

2005 National Social Housing System and Fund - SNHIS and FNHIS (Law 11.124/05)

2007 Growth Acceleration Program (PAC)

2008 National Housing Plan (PlanHab)

2009 My House My Life Program (PMCMV)

National Housing System and Fund (SNHIS/ FNHIS):

MAIN PROGRESSES MAIN PROGRESSES ON HOUSING POLICY DURING THE PERIOD 2003-2009

Housing Markets (regulated and non regulated):

My House My Life Program (MCMV):

National Housing Plan (PlanHab):

Growth Acceleration Program (PAC):

Integration of funding and actions to face the housing deficit

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

guarantee instruments

Long term planning for housing, strong civil society

Historic benchmark on slum upgrading policies

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

income housing

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.

CAIXA ECONÔMICA FEDERAL - CAIXA CAIXA

Rent evolution on housing investmentsRent evolution on housing investments

*RES. 460/04 - a partir de 01jun05SBPE - Fonte: ABECIP – Atualização: Outubro/ 2009

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

Goal: 22,50

3,93 4,44 5,12

7,74

11,49

17,06

24,20

19,31

0,00

5,00

10,00

15,00

20,00

25,00

30,00

2002 2003 2004 2005 2006 2007 2008 2009

- FGTS, FAR, FDS, OGU, CAIXA, FAR, SBPE and FGTS (subsidy) -

US$ bilions

Funding Sources: FGTS, FAR, FDS,OGU, FATSource: MCIDADES and CAIXA – Update: 30/10/2009

INVESTMENTS ON HOUSINGINVESTMENTS ON HOUSING

- Focus on low income brackets -

3226

44 46

65

77

64 63

25 41

26 25

21

14

19 2143

33 30 29

149

17 16

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2002 2003 2004 2005 2006 2007 2008 2009

up to 3 mw over 3 up to 5 mw over 5 mw

OPERATIONS PER INCOME BRACKET (%)

1 minimum wage (mw.) = US$ 300

NEW CYCLY OF GROWTH NEW CYCLY OF GROWTH IN THE HOUSING SECTOR

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

HOUSING UNITS FINANCE IN BRAZIL (1974-2008)(average per period)

363.540

436.139

155.468173.879

327.054

494.562

1974-78 1979-84 1985-89 1990-94 1995-02 2003-08

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

HO

LAN

DA

EUA

ING

LATE

RR

A

IRLA

ND

A

ESPA

NH

A

ÁFR

ICA

DO

SU

L

CH

ILE

HU

NG

RIA

MÉX

ICO

REP

. TC

HEC

A

POLÔ

NIA

ÍND

IA

BR

ASI

L

HOUSING LOANS %PIB

TOTAL LOANS %PIB

HOUSING FINANCE x PIBHOUSING FINANCE x PIB

Housing Deficit (2007) 6,3

Future Housing Needs (2008-2023) 25,0

TOTAL HOUSING NEEDS 31,3

Milhões de domicílios

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

DEFICIT FOR SLUM UPGRADING 3,2

DIMENSIONDIMENSION OF HOUSING PROBLEM

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

INCOME BRACKETS: 6 a 10 sm

2% 3 a 6 sm 7%

Até 3 sm 91%

HOUSING DEFICIT: FUTURE DEMOGRAPHIC NEEDS:Families with access to credit need for

complementary subsidies

Families who couldn’t afford long term loans,

need for subsidies and public programs

FOCUS ON SOCIAL FOCUS ON SOCIAL HOUSING:HOUSING:

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1

Families integrated of accumulated housing deficit

11% of domiciles

NATIONAL HOUSING PLAN: PLANHABPLANHAB

Long term planning tool, to face the housing needs

Strategic axes of PlanHab:

1. Housing subsidies and finance model

2. Urban and land policies

3. Institutional arrangements

4. Civil construction chain

1) Menu of housing alternatives for different types of municipalities2) Classification of families (deficit and future housing needs) under

income groups3) Recognition of different costs for housing alternatives on different

states4) Finance and subsidies model according to income brackets and

type of municipalities5) Scenarios of funding sources and possibilities6) Government must be prepared to attend accumulated deficit and

part of future housing needs

PREMISES – FINANCE AND SUBSIDIESFINANCE AND SUBSIDIES

INCOME GROUPS:

NEEDS BY NEEDS BY INCOME BRACKETSINCOME 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 AND INCOME GROUPS AND FUNDINGSFUNDINGS

Free housing finance markets

Need for special conditions and regulated market (SFH)

Need for partial subsidies to leverage finance

Need for subsidies

CONDIÇÕES DE ACESSO À MORADIA

DEFICIT AND FUTURE NEEDSINCOME GROUPS - families

FONTES DE RECURSOS

1 No access to credit Government budget

2Limited affordability for long term credit

National Gov budget/ FGTS

3Affordability under special credit conditions FGTS/ SBPE (regulated

savings and loans system)

4Market based access to housing

Housing finance unregulated markets, finance by

construction companies and family own resources

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.

Up to US$ 900

Up to US$1.800

US$ 3.000

STRATEGIESINCOME GROUPS

Emphasis on subsidies +RET +FGHAB

+Reduction/ insurance exemption + lower interest

rates

Subsidy (↑ income ↓ subsidy) +RET

+FGHAB+Lower cost insurance+Lower interest rates

FGHAB + low cost insurance

STRATEGIES BASED ON INCOME

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

PROGRAMS AND TOOLS OF PMCMVPMCMV

TYPOLOGY OF MUNICIPALITIESTYPOLOGY OF MUNICIPALITIES

REGIONAL DIVERSITY as a principle

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

DIVERSITY OF HOUSING ALTERNATIVESHOUSING 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

STRATEGIESSTRATEGIES

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

Expand housing finance for low income families, through:→ proportional subsidies according to income→ lower finance costs→ diversification of housing alternatives

OBJECTIVES OBJECTIVES

METAS METAS

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

NEEDED INVESTMENTS ON HOUSING

SISTEMA BRASILEIRO DE POUPANÇA E EMPRÉSTIMO (SBPE):Regulated savings and loans system, towards expansion of loans to low income brackets

SUBSIDIESSUBSIDIES

It will be needed to attend the needs of 1 MILLION FAMILIES PER YEAR

(income until US$ 1.800) from 2012

TO REACH THE TO REACH THE OBJECTIVESOBJECTIVES

NEEDED INVESTMENTS ON HOUSING

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)

FINANCEFINANCE

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)

STAGES OF IMPLEMENTATION OF THE NEW SUBSIDIES MODELSTAGES 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

Implement a large scale housing program

Promote slum upgrading

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

(2009-2011) (2012-2015) (2016-2019) (2019-2023)

SUBSIDIES PROGRAMSUBSIDIES PROGRAM

Reduce funding costs for middle income brackets

ACTIONS, PROGRAMS AND PROJECTS

√√

√√

√√

√√

√√

√√

√√

√√

(2009-2011) (2012-2015) (2016-2019) (2019-2023)

FINANCE AND SUBSIDIESFINANCE AND SUBSIDIES

Improve legal and institutional framework for the housing loans guarantee fund

Implement measures to develop a mortgage insurance market

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

ACTIONS, PROGRAMS AND PROJECTS

√√

√√

Expand private sector housing loans to low income groups √√

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

GLOSSARYGLOSSARY

• 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

Júnia Santa RosaInstitutional Development and Technical Cooperation Department

Ministry of Cities

New Delhi, January 27, 2010