Land Costs, Financing Challenges for Sheinbaum’s Housing Program

The Mexican government has unveiled the Housing and Regularization Program, with plans to construct 1 million homes and invest over MX$600 billion (US$30.3 billion) during Claudia Sheinbaum’s administration. While the program could have a significant impact on housing availability, it faces challenges such as high land costs and budgetary constraints, according to a report from Moody's Local.

Moody’s Local notes that while the operational mechanisms of the program have yet to be fully disclosed, it is expected to provide significant opportunities for private developers with resources and experience in large-scale construction projects, such as Javer, Vinte, Ara, Cadu, and Ruba. The program may also lead to higher land prices due to the need for large areas for implementation and could exert downward pressure on housing prices due to the expected increase in supply.

Half of the 1 million homes will be allocated to beneficiaries of INFONAVIT, and the other half will be distributed through the National Commission on Housing (CONAVI) to vulnerable groups, including female heads of households, indigenous populations, and senior citizens. The program also considers 10% of the homes to be rented to young citizens from 18 to 30 years old. 

The homes will be available through INFONAVIT’s financing plans or a subsidized financing scheme with an interest rate as low as 0%. Beneficiaries would pay a monthly fee not exceeding 30% of their income for up to 30 years. These homes will cover approximately 60m² and range in price from MX$700,000 to MX$1.1 million.

Moody’s Report notes that a key aspect of the program is the creation of a government-owned construction company responsible for overseeing home construction. While the structure and responsibilities of this entity are still under development, its role may vary from handling all stages of the construction process to managing design, material procurement, and administrative functions while coordinating with private companies, the report details.

According to Moody’s the successful implementation of this program could address Mexico’s significant housing deficit. According to a 2020 INEGI report, there is a quantitative deficit of 8.2 million homes nationwide, while CONAVI estimated that 8.9 million homes were affected by housing deficiencies, such as poor materials and limited access to basic services in 2022.

Despite its significant potential benefits, the program’s successful execution faces several challenges, details Moody’s. Establishing a new company with the necessary resources and trained personnel to manage a project of this scale, and developing efficient and transparent processes to ensure effective and low-cost operations, including land acquisition, material procurement, and the adoption of modern construction methods, are just a few of the hurdles. 

A self-sustaining funding model for the project must be created to ensure continuity across administrations, allowing for new homes to be built and maintained as credit payments are received. Securing land at reasonable prices, especially in urban areas with essential services, remains a critical challenge, though the government plans to use state and federal land reserves initially.