Subsidies disbursed for new homes & home improvement
subsidies for reconstruction of flood-affected homes distributed
Neighborhoods upgraded with infrastructure and social services
Low-income Honduran families buy homes and upgrade neighborhoods
Nearly half of the 12,200 low-income families targeted to receive housing subsidies through an IDB-financed program in Honduras have received financial assistance to build or improve their homes. Additional funding is being provided to upgrade urban neighborhoods through the construction of water, sewage and street systems, and other infrastructure.
The Low-income Housing Program is financed by a $30 million loan provided by the Bank’s Fund for Special Operations approved in 2006.
Growing demand for urban housing
In recent decades, the population of Honduras has increased at a rate of 2.4 percent annually, one of the highest in Latin America. The country’s annual urban growth rate of 4 percent will double the current urban population in just 20 years.
These factors add up to a sharply rising demand for housing. However, most of the estimated 35,000 new urban households formed each year are poor, with 80 percent earning less than $200 a month. This means that their capacity to invest in housing is very low – approximately $122 a month or 30 percent of their income.
Honduras’ housing markets are experiencing serious problems. In the formal market, housing and mortgage loans are only accessible to some 20 percent of the population. The remaining households resort to the informal market to find low-cost alternatives and generally end up with homes that lack services, property titles, and have minimum quality standards. Approximately 50 percent of urban households are in poor neighborhoods of the two largest cities.
The formal sector has been building only about 7,000 homes per year, and with a cost of more than $15,000, they are affordable only to families in the country’s two highest income deciles. The nearly 25,000 new urban households per year with incomes of less than $700 per month can only afford formal housing produced by donor-supported programs, which totals approximately 3,000 homes per year. Otherwise, for the 40 percent of families below the fourth urban income decile, the cost of land with utility services is unaffordable, forcing families to either squat or buys lots illegally.
In general, the existing housing stock in Honduras is characterized by a lack of services, inadequate living area, and poor construction. More than 62 percent of existing homes have some degree of overcrowding, and in 10 percent of homes, six or more people live in a single room. Furthermore, 18 percent of homes do not have potable water service, and 32 percent lack adequate sanitation.
Current government policy in housing gives the public sector a role that facilitates supply without directly participating in construction and targets public spending at low- and moderate-income families while strengthening institutions in the sector. The objective is to increase the effectiveness of public spending on housing, improve access of poor families to decent living conditions, and spur economic activity in the sector.
The Department of Housing and Urban Development (DGVU) was created as the technical arm of the policy-making Ministry of Public Works, Transportation and Housing (SOPTRAVI), specializing in the implementation of housing and urban development programs. Although the creation of DGVU is an improvement over previous institutions operating in the sector, central government weaknesses remain, including scattered authority, duplication of functions and poor coordination among housing sector agencies. In addition, SOPTRAVI has a limited ability to coordinate central government and municipal policies, sources of funding, and private-sector operators due to a lack of technical staff, political authority, and financial resources.
The program in brief
The Low-income Housing Program is designed as a two-phase operation of five years for each phase. This strategy will enable public institutions to assume their new roles gradually, consolidating and performing their key responsibilities within the housing sector. In addition, the strategy recognizes that housing needs in Honduras are so great that a long-term effort will be required to make a substantial impact.
The program is supporting SOPTRAVI in designing new instruments for the housing sector and strengthening the sector’s institutional structure, with DGVU in the leading role. In this regard, SOPTRAVI is developing a new legal framework, innovative housing instruments and policies, and establishing a unit to monitor government and nongovernmental activities within the sector.
Program resources are also financing subsidies to enable low-income families to purchase a new home or improve an existing one. In both cases, the subsidies supplement family savings and leverage loan resources from financial institutions and donations from non-governmental organizations. Another modality supported by the program are collective subsidies provided to groups of families living in neighborhoods with high rates of poverty used to finance basic infrastructure such as potable water and sanitation, access roads and street systems, drainage, public lighting, and social services facilities.
Financing for program management includes strengthening the DGVU’s project execution capacity, particularly in managing the program’s subsidy distribution system, monitoring performance, and auditing services.
The IDB’s partners
The Honduran government encourages donors to collaborate in the secors in which they operate. Given its experience in the co-execution of an earlier post-emergency housing program, the Swedish International Development Cooperation Agency has participated in discussions about the government’s policy in the sector and has agreed to continue working with FUNDEVI as a partner in the implementation of this program’s direct subsidy system. In addition, the IDB is cooperating with the World Bank’s City-Neighborhood program through use of similar design and execution criteria for the collective subsidy component.
The program complements the Central American Bank for Economic Integration (CABEI) line of credit that provides financing to private financial intermediaries to make loans for moderate and low-income housing, and to developers.
Toward the future
The housing program has been successful in implementing a new approach to housing assistance for the poor in the country that improves significantly both the targeting and effectiveness of resources invested by the government. The direct subsidy approach, already used by several countries with support of the Bank (such as Ecuador and Colombia), also enables the leveraging of private resources for financing the housing needs of the lowest segment of the population. In addition, the strategy of supporting neighborhood upgrading has proven its ability for improving the living conditions of the urban poor. Therefore, the success of this program is a significant achievement in modernizing housing policies in the country. The Bank expects to continue to support these policies in the subsequent phases of the current program and in future initiatives in coordination with other donors.