“My House, My Life” Brazil Continues to Bring Very Little Positive Change

POSTED BY Ruban Selvanayagam, October 10th 2012

A post written for the Next Billion Brazil blog exploring the true impacts of “My House, My Life” (Minha Casa, Minha Vida) base of the pyramid focused housing initiative, including some broad suggestions of how its management could be moved in the right direction – the original (in Portuguese) can be read by clicking here.

Confronting the housing deficit is no easy task for the Brazilian government.  Whilst attempts are being made to achieve a level of sustained development, the reality remains that very little progress is being achieved in resolving the fact that the large majority of the base of the pyramid population still resides in relatively low quality living conditions.

As was indeed demonstrated in the recent municipal elections, proposals to “eliminate sub-standard housing” in councillor and mayoral campaigning were (and will continue to be) empty objectives rarely supported by reforms that truly function in practice.  Already 3 and a half years after its launch, the Minha Casa, Minha Vida (“My House, My Life”) continues to be based on this form of “populist marketing” – essentially lacking the support of convincing housing policy.  Whilst the government continues to announce “successful” launches of developments under the programme, it is quite easily perceived that projects have been inefficiently executed, are distant from urban centres and clearly do not consider fundamental long term necessities of this wide demographic.

It is worth looking at some recent examples of changes within the scope of the programme that which, at first sight, appear to bring a certain benefit to the population.  Firstly, from the consumer perspective – under the decree that allocates a 95% financial subsidy for families earning up to R$ 1,600 – the minimum monthly instalment has shifted from 10% to 5% of monthly income, with the due payment moving from R$ 50 to R$ 25.  From a certain perspective, it is obvious that this adjustment brings financial viability to the housing sector that never existed previously whilst also complementing the exemplary initiatives that have emerged in Brazil over the last decade such as the Bolsa Família (“Family Grant”) and Fome Zero (“Zero Hungry”).  Nonetheless, it is important to raise questions as to whether this particular alteration will genuinely benefit those that live in urbanised Brazil (i.e. the majority) – considering the intense deficits contrasted with a paradoxically low level of construction activity to cater to the demand.

Secondly, conceding to private sector pressure, the government authorised an increase in the values paid to construction companies – aimed at encouraging more activity in the sector (theoretically enabling a wider profit margin to be achieved).  However, a simple analysis of the facts also demonstrates that very little is likely to change.  For example; in the state of Rio de Janeiro (where our interests are predominantly focused and a region which has the highest proportion of the deficit in the country); we see that the costs under the most commonly referred to indices (namely the SINAPI and the Basic Unit Cost measurement) have continued to rise, despite what has been a slowdown in the Brazilian property market – as shown in the graph below:

If we specifically look at the SINAPI measure (also the most commonly used reference by administrators of the Minha Casa, Minha Vida, Caixa Econômica Federal) – applying the costs of conventional construction methodologies in Rio de Janeiro  (adding essential values such as land, administration and public services) – a new acquisition value of R$ 69,000 still remains lower than what is necessary to achieve a financially acceptable level of profit (today, the real cost of a 45m² apartment in the state of Rio is, at a minimum, R$ 56,969 based on this index).  Furthermore, taking into account the ongoing inflationary pressures in addition to other legal and regulatory changes, there exists very little incentive for construction companies to involve themselves in this area of real estate development.

In truth, it is impossible to hide from the failures within the framework of the programme under these existing formulations and strategies.  Without change, we are likely to continue to see notable wastage of capital from the public coffers and other practical difficulties.  Below are some suggestions for reform:

(i) Truly analyse market behaviour: understanding real needs of the Brazilian low income population and not solely the profit achievable from each project.  Normally, due to a lack of financial benefit in centrally urbanised regions, constructors are forced to search for areas where there is little opportunity to develop genuinely sustainable development objectives specifically for this demographic segment.  Such projects need to be fundamentally located in urban centres of the country where there is employment, social services, transport and other essential services;

(ii) Segments need to unite more closely: the polarisation between informal communities and those of the middle classes and above remains a very noticeable stain of Brazilian capital cities.  Whilst there are incentives such as Morar Carioca (in Rio de Janeiro) and some progress being witnessed in the regulation of land (such as via the Special Zones of Social Interest), integration largely continues to be considered an impossibility by the powers of decision.  There is much need, therefore, for a change of attitude from the top down;

(iii) The fight against excessive bureaucracy: much of the reluctance of construction companies to enter the segment and operate under Minha Casa, Minha Vida is fuelled by the administrative bottlenecks often confronted at the Caixa Econômica Federal such as approval delays, a lack of clarity and other misunderstandings in relation to physical-financial realities of construction in Brazil.  It is essential for there to be clearer communicative convergence between all stakeholders;

(iv) Post-conclusion housing development management: principally in the components of the programme where units are allocated to families without any form of control once units are delivered – such as via the Residential Leasing Fund (Fundo de Arrendamento Residencial, FAR).  Problems that have arisen include the invasions of developments by Brazilians not officially registered under the programme, overcrowding and other forms of degradation.  It is necessary for there to be better forms of management in the form of ongoing maintenance instead of hoping that everything will turn out okay without proper supervision and commitment to creating simple communities with genuinely affordable condominium costs.  With the right business models in place, it is entirely possible to bring in facilities such as monitoring, 24 hour CCTV, common area maintenance and other installations that promote clean, safe and healthy environments;

(v) Perhaps most important is the understanding that existing construction systems must be abandoned – a lack of analysis of business-economic viability at the core of the programme and the ignorance of innovative methodologies continue to threaten the future of the sector.  It is necessary to establish quality control levels that not only fit comfortably into existing norms and regulations, but also are not simply a “second best solution.”

There has been some notable progress recently seen such as the Ministry of Cities announcement of capital allocation to improve sanitation systems – yet, with the very apparent failure to develop a sustainable strategy, there remains a great risk of the appearance of unexpected problems that could emerge in the future, which may be difficult to deal with, thereby fuelling the already widening vicious circle.

Nevertheless, it would not be fair to solely blame the Brazilian government.  The existence of a capital reserve specifically to confront this situation demonstrates an unprecedented level of willpower that never existed previously.  The fundamental questions lie in the simple fact there needs to be a clear awareness that the practices and policies that govern the Brazilian low income housing sector simply do not work.  Progress will only be truly achieved when there is a profound clean up and reformulation of policy making in line with the ever-rising demand.  In other words, these problems can simply no longer be brushed under the carpet.

Categories: Base of the Pyramid Housing, Bottom of the Pyramid Housing, Fez Tá Pronto Construction System - Luxury Low Income Housing, Global Affordable Housing, Impact Investment Housing, Low Income Housing

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  1. […] Tweet On the back of a post written by Ruban Selvanayagam for the Next Billion site (“My House, My Life Brazil Continues to Bring Very Little Positive Change”), recent statistics released by the Ministry of Cities have indicated the true extent of the lagged […]

  2. […] the back of a post written by Ruban Selvanayagam for the Next Billion site (“My House, My Life Brazil Continues to Bring Very Little Positive Change”), recent statistics released by the Ministry of Cities have indicated the true extent of the lagged […]

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