One step at a time: The market for low-income housing remains large

With a housing deficit of over 136,000 units and growing at around 15% per year, a huge market remains unsatisfied as few developers construct within the low-income segment. Government incentives, almost entirely restricted to assisting the consumer in purchasing a home, have fallen short of providing viable solutions on a large scale and attracting needed development. “Over the past two years, practically no homes under $40,000 have been built, which is concerning both for the industry and the population,” said Elisa Suárez de Gómez, the executive director of the National Board of Housing Developers (Consejo Nacional de Promotores de Vivienda, Convivienda). Suárez de Gómez has observed significant changes in the dynamics of residential construction in Panama. Of these, strict legal regulations across the board are some of the largest obstacles to increasing social housing units.

Regulations

Minimum standards of quality are not based on the value of properties, so regulations for low-income developments are often the same as those for middle- to upper-middle segments. “The cost of infrastructure for a home worth $40,000 can easily be the same as for a home valued at $400,000,” Suárez de Gómez told OBG. “This creates extremely tight margins for low-income housing and drives many companies to higher-end markets.” For example, every wall in a newly constructed home must contain a double socket plug and wire connections to the electricity grid must be made through a concrete tube, which is more expensive than flexible plastic alternatives. A new regulation set to be implemented in 2014 will obligate electric and telecommunications cables to run underground in specific districts of Panama City. Clearly aimed at improving safety and cutting back on visual pollution, the new measure may create new costs for developers and homeowners. As of March 2014 no further decision had been made. According to Raúl A Hernández Sosa, business manager of Provivienda, the cost of installing underground cabling for each home would range from $3000-5000. “This is a positive measure, but in order for it to work and keep developers interested in the market the government needs to ease up on other regulations for low-income housing,” he told OBG. Originally from Colombia, Provivienda has housing developments throughout Central America and Mexico, where Herná ndez said the company is able to construct homes with the same specifications and underground cabling for $25,000, nearly half the price as in Panama.

On The Boundaries

As land becomes scarce within Panama City, urban development is expanding towards peripheral areas, a trend that is not free of problems. According to Suárez de Gómez, current regulations force low-income housing developers to construct single-family homes rather than buildings for multiple families. She described this regulation as counterintuitive when trying to make the most of land. Furthermore, peripheral development distances people from their jobs, contributing to arduous commutes.

However, even more concerning is the issue of public services, such as potable water, wastewater and electricity, which are not easily connected to available plots of land on the outskirts of the city. For water services, developers are required to install and administer their own treatment plants, as opposed to the state assuming responsibility and expanding services through the National Institute of Aqueducts and Sewage System. Although this only creates additional costs for developers, Hernández said the government recently contracted US consulting firm Louis Berger Group to study the issue and possibly take over a portion of water treatment administration.

The conditions within the segment are reassuring, according to Luis Hurtado, general manager of Banco Hipotecario Nacional, a financial outfit dedicated to providing mortgages. “Low-cost housing is not just an opportunity, but a social obligation,” he said. “It is important that government incentives, the loans we provide and the housing created by the private sector come together to create a package that solves this need.”