Housing deficit to narrow with low-income homes and increased access to credit in Colombia

With economic growth reducing poverty and increasing the size of Colombia’s middle class, government programmes are having a major impact in lowering the country’s housing deficit.

Programmes to allocate free homes to the lowest-income segments, reduce the costs of acquisition and ease access to banking credit for other segments of the population have absorbed a considerable amount of state resources. These schemes’ significant impact on the improvement of living conditions and the overall economy have so far made them immune to budget cuts that have affected other areas of government spending since the steep fall in oil prices began in 2014. “Social housing programmes are working well. They have a double effect: they create activity in the construction sector, but also allow people that never had a home to receive that additional contribution as a subsidy that makes home credit affordable,” Edwin Chirivi Bonilla, director for economic studies at the Colombian Chamber of Construction (Cámara Colombiana de la Construcción, CAMACOL), told OBG.

Investment

Of the COP60trn ($18bn) invested in real estate construction annually in Colombia, COP33trn ($9.9bn) goes towards residential real estate, through both the social housing segment and the higher segments of the market. According to CAMACOL, in 2016 a total of 178,300 homes were sold across the country, with a total surface area exceeding 12.3m sq metres.

The Colombian housing market is made up of two major segments: social housing, which is priced at 135 times the minimum salary and is generally supported by government programmes, and non-social housing above that price. According to CAMACOL, 25% or COP8trn ($2.4bn) of the value of total annual sales goes towards the acquisition of social housing, while the remaining 75% is invested in non-social homes.

In terms of housing units, however, social housing accounts for 40% of the market and non-social for 60%. The annual housing deficit is estimated at 55,000-60,000 units, because an average of 280,000 urban homes are needed each year, but the sector has the capacity to build between 220,000 and 225,000, according to CAMACOL data. The deficit is close to 800,000 units, mainly in the lower-income segment.

Housing Programmes

State investment in housing development programmes is currently allocated to various incentive schemes, including free housing, subsidies on entry payments and support to lower monthly interest rate payments. This approach has allowed state programmes to cater to the specific needs of different target segments. Now in its second phase, the Vivienda Gratuita, or Free Housing, initiative was inaugurated during the first term of President Juan Manuel Santos, with the aim of building 100,000 free homes for the poorest Colombians, using a government budget of COP4.4trn. ($1.3bn). By late 2015 more than 98% of the programme had been delivered.

Then, under the Second Plan for Productivity and Employment, a stimulus package launched in 2015 as a counter-cycle measure against the decrease in oil export earnings, authorities added an additional 30,000 homes to the programme, committing further investment of COP1.7trn ($510m) to the Free Housing programme. Focused on low-income families, the scheme allocates homes to Colombian households earning less than a minimum monthly salary – and with other vulnerabilities, such as extreme poverty or having been displaced by conflict – for homes costing up to a maximum of COP51.7m ($15,500), which is equivalent to 70 minimum salaries.

Housing programmes have been an important source of economic activity for the sector in Colombia (see overview), while helping to fulfil development goals and improving living conditions. According to CAMACOL, the sector is set to continue building more than 200,000 homes annually in the medium term. To overcome the housing deficit, however, a long-term commitment by future governments will also have to be established.