Turning the Page on the Social Housing Sector

Political reforms and new financing opportunities are transitioning the housing industry from a focus on the mass affordable housing that pushed the market to bankruptcy three years ago to more carefully planned, designed and interconnected structures that can help Mexico manage its accelerating urbanization rates.

“We have emerged from an exhausted and numerical model that prevailed between the years 2000 to 2012 and which focused on goals without considering urban mobility, amenities or growth of cities,” says Fernando Abusaid, former President of the National Chamber of the Development and Promotion of Housing (CANADEVI). “With the new administration, we reinvented ourselves by making adjustments and mapping urban containment strategies.”

The construction boom, the expansion of housing finance and a lack of effective urban planning created an unfortunate and accelerated urban sprawl across the country. “One of the key challenges facing many Mexican cities has been the rapid and uncoordinated growth of urban footprints, characterized as distant, dispersed and disconnected,” says the World Bank in its 2016 Mexico Urbanization Review. “The way Mexican cities grew in the past means their potential to boost economic growth and foster social inclusion is limited.”

According to the Latin American headquarters for Habitat International Coalition, in 2013 the country found itself with unused housing units due to structural failures, unaffordable mortgage rates, the placement of projects in environmentally risky areas, insecurity and poor planning that caused long commutes. The situation caused developers, the public sector and international organizations to take another look at the country’s urban planning. They found that more integrated structures in urban areas were needed to avoid similar mistakes.

With the entrance of a new administration in 2012, policies were refocused to push for more vertical housing in urban areas. President Enrique Peña Nieto turned a new page for the housing agenda with the National Urban Development Program 2014-2018 (NUDP). The plan seeks to control urban expansion, promote a sustainable mobility policy, avoid human settlements in unsafe areas and strengthen local capacity, among other elements.

“INFONAVIT is starting to pay more attention to how a project is developed in terms of infrastructure,” says Juan Carlos Braniff, Director General of Casas GEO. “The projects that were outside the cities often needed new infrastructure financed by the government or developers to continue.”

Although the change of policy is a good first step, Mexico’s housing industry still has many hurdles to jump. The government must deal with the former housing developments and projects that continue to be built away from city centers. The Housing Research and Documentation Center (CIDOC) said in its “Mexico’s Current Housing State 2015” report that one of the biggest challenges of the market are developments that are being built far away from basic infrastructure. There is also a lack of coordination between urban design and planning, the housing industry and governmental agencies.

QUANTITY OVER QUALITY

In its 2015 Urban Policy Reviews: Mexico – Transforming Urban Policy and Housing Finance, the OECD says that between 2000 and 2010 the city center of many metro zones experienced an average population decrease of 7.5 percent while the rates of areas more than 10km from the center increased by 6.8 percent. OECD data also shows that “in 46 of 59 metropolitan zones, more than 70 percent of homes registered in the new housing registry between 2006 and 2013 were built either on the outskirts or the periphery” of cities. Mortgage and housing subsidies and a thirst for cheaper land compounded the situation.

In response to the growing demand for housing, President Felipe Calderón unveiled the National Housing Plan 2007- 2012 to promote the increase of financial resources for housing and to mitigate barriers to home ownership. The reform strengthened INFONAVIT and FOVISSTE, the two main public institutions responsible for financing formal housing for marginalized communities.

Although the federal plan made a dent in its goal to reduce the housing deficit, it created other problems that continue to plague the country. “Progress toward decreasing the housing deficit was achieved but the model was unsustainable. People moved away from centralized areas with jobs and services, increasing traffic, reducing productivity and overall quality of living,” says Rosario Robles, Minister of SEDATU, in an interview with Forbes. “Urban stains were created and we now need to fix the scars of abandoned properties and social segregation.”

The states that were most affected by abandoned houses were Chihuahua, with 9,000, Tamaulipas and Jalisco with 5,000 each, the State of Mexico with over 4,500 and Coahuila with almost 4,000, according to the report. CIDOC concludes that many of these houses were built with inadequate infrastructure, without transportation and far from job sources, which in the end were the root causes for the abandonment.

BANKRUPTCIES

With the Peña Nieto plan, the rug was pulled from under social housing developers. The new plan shifted the focus of subsidies to concentrate on urban areas and verticalization. Coupled with people leaving their homes on the outskirts and moving back to the city, this left many of the Calderón-era developers out in the cold.

Many of Mexico’s largest social housing developers filed for bankruptcy in 2013. On their website, Rothschild & Co explains that Casas GEO, Mexico’s largest housing developer at the time and one of the biggest in the world, ended up with a liquidity crisis that pushed the company into bankruptcy. Rothschild was one of the financial advisors that guided GEO’s capital restructuring. “The company filed for bankruptcy two years ago with a debt of US$2.5 billion,” says Braniff of Casas GEO. “We worked along with Banorte, one of our main creditors, to restructure all of the bank debt and bonds. At the end, we only had about US$3 million in debt, and accomplished a capital infusion.” 

Researchers from the Harvard Graduate School of Design’s ReShim (Rethinking Social Housing in Mexico) project point out that urban expansion and sprawl create a disproportionate amount of costs for residents and local governments and this is usually caused by inefficient policies and subsidies. It also gathers disadvantaged communities on the urban fringe, creates traffic congestion, environmental issues and the loss of space for agriculture – precisely what happened under Calderón. The report suggests that Mexico needs to deal with its sprawling development pattern by densifying the existing built-up areas and creating structures closer to where people work. This is what the Peña Nieto’s plan is trying to achieve.

ON THE REBOUND

Mexico is entering a new phase as companies like Casas GEO are starting to get back on their feet. The company has restructured and plans to finally deliver houses to families that have been waiting about two and half years for it to finish the projects, according to Rothschild.

Verticalization is a growing trend in Mexico, particularly in heavily populated areas such as Mexico City. So far in 2016, vertical structures represent 29.4 percent of registered buildings in the country, according to data from CONAVI. That is up from the 2015 total at 28.6 percent.

But the government should not simply target vertical building within urbanized areas. It needs to have a completely integrated plan. The ReShim report says that increasing density is more than merely multiplying the quantity of units or people but that it should also encompass an integrated design and planning scheme, elements that were missing from the previous administration’s plans. Urban planning thrives on density requirements, metropolitan planning, taxation reforms and governmental promotion of infill development, the report concludes.

Adequate planning and interconnected government agencies are necessary considering global urbanization rates are quickly increasing. The UN World Urbanization Prospects 2014 estimates that by 2050, 70 percent of the world will be urbanized. “Land is the treasure of the 21st century as it becomes scarcer each passing year,” says Victor Legorreta, Partner, Managing & Design Director of one of Mexico's leading design firms LEGORRETA®. “Rising concerns have led to a more compact and horizontal infrastructure.”

The World Bank in its 2016 Review says, “Economic innovation and productivity in firms often grow most easily in dense and connected urban environments, where labor, knowledge and new ideas are just a few minutes away.” The private sector is often responsible for creating sustainable projects while the public sector is tasked with creating incentives and establishing effective regulations to promote proper and interconnected developments. A more sustainable residential sector in Mexico is intrinsically linked to development, as it can positively impact the country’s economy and improve the quality of life among its citizens.