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By Karla Jacobs, January 21st 2010
On January 14th Daniel Ortega's government officially launched the new Social Housing Program which will be carried out in collaboration with Nicaragua's private sector. The project is the result of over six months of talks between relevant public institutions, representatives of Nicaragua's private banks and the construction and urban development sectors.
According to Presidential Economic Adviser, Bayardo Arce, the Social Housing Program goes a long way towards tackling the financial, legal and administrative obstacles which have for years prevented a significant dent being made in the country's shockingly high housing deficit.
Nicaragua's precarious housing situation
The 2005 Housing Census carried out during former president Enrique Bolaños' administration established the number of existing housing units in Nicaragua to be close to 1 million and identified a housing deficit of approximately 400,000. This figure was established mainly by taking into account cases of severe overcrowding and houses located in high risk areas.
At the time NGOs specializing in housing issues in Nicaragua questioned the housing census results and methodology claiming the extent of housing related problems in the country had been underestimated given that housing units in need of major infrastructural repairs and improvements (for example houses made from inadequate construction materials like plastic sheeting and bamboo), and therefore unfit for human occupation, were included within the number of existing houses rather than being taken into when calculating the housing deficit.
Additionally, according to the same organizations the overall housing deficit grows by between 15,000 and 20,000 housing units each year.
Judith Silva, current President of the Public Housing Institute, INVUR (the organization which is responsible for coordinating the recently announced Social Housing Program) estimates the national housing deficit at a little over 900,000. That figure, she says, is made up of over 400,000 new housing units and roughly 500,000 existing housing units in need of major infrastructural improvements.
New legislation creates foundation for national housing plan
After initially establishing the need to prioritize the reduction of the country's housing deficit via the mass construction of social housing, President Ortega's administration began work on the Social Housing Law. This legislation, which was passed by the National Assembly in April 2009, set the legal and practical foundations for the development and implementation of a national social housing plan.
For example, among many other measures, the law created a publicly owned land bank requiring local governments to identify areas suitable for social housing developments which would be added to the national land bank and designated exclusively for the development of social housing projects.
Also as part of the Social Housing Law a body called the National Social Housing Council was created which was assigned the task to overcoming the administrative, financial and other obstacles preventing private sector investment in social housing. This council, presided by INVUR's Judith Silva, is made up of the heads of seven different state institutions and six different private sector associations.
During a TV interview on January 13th, Roberto López, President of the Social Security Institute (INSS) and key member of the National Social Housing Council, spoke at length about the details of government's Social Housing Project and the obstacles the authorities have had to overcome to make the recent announcement possible.
This government has had to persuade the banks to make significant changes
When the FSLN took power in 2007 "approximately 5% of the bank's credit portfolio was set aside for mortgages. ... And the vast majority of those mortgages were available only for houses worth more than US$70,000," said López. He goes on to explain that up until now the sort of mortgages offered by Nicaraguan banks have pay back periods of ten or fifteen years and annual interest rates of 14 - 16%. Monthly payments on this sort of mortgage are around US$500 or US$600 making them completely inaccessible for the vast majority of Nicaraguan families.
Therefore the challenge for this government has been not only to persuade banks to increase the percentage of loan portfolios set aside for mortgages, reduce interest rates and increase payback periods, but also to create the conditions so that banks are willing to provide mortgages for social housing. (INVUR's definition of social housing units measure between 36 and 60 square meters, include access to running water and electricity, and have a value of US$30,000 or less).
In order to get the banks to agree to these sort of conditions it has been necessary for the INSS to take back a certain amount of control over its own financial reserves (which are invested within the national banking system). As part of an agreement between INSS and the four main Nicaraguan banks (BDF, Bancentro, BAC and Banpro), INSS will invest US$45 million (roughly 10% of the institute's financial reserves) in the banks under the specific condition that the funds be made available for social housing mortgages.
López describes this new arrangement vis-a-vis INSS investments as representing "a radical change. ... Previously INSS deposited the money in the national banking system but had no control over how the bank managed that investment."
Now banks will provide worker friendly mortgages
The mortgages made available as part of this agreement will be exclusively available for social housing and should be paid back over a 20 year period at 8% annual interest. The borrowers of this sort of mortgage will be required to make monthly payments of roughly US$100.
Additionally, the government has committed to subsidizing the interest rate on mortgages of less than US$20,000 which means the less financially able families involved in the housing program will end up paying interest rates as low as 5.5%. For this type of mortgage, monthly payments will be reduced to US$70 or less, according to López.
Those likely to be most benefited by the Social Housing Project are precisely the INSS affiliated workers whose monthly social security payments create and maintain the Institute's financial reserves in the first place given that these workers will have greater ease persuading the banks of their pay back ability.
A long term solution which will also help the national economy
All the different sectors represented on the National Social Housing Council appear to agree that the Social Housing Project will contribute significantly to the Nicaraguan economy's predicted recovery during 2010. José Adán Aguerrí, president of the most influential private sector organization, COSEP, confirmed this opinion pointing out that construction, which fell by 20% in 2009, is one of the most important sectors in the Nicaraguan economy, especially from the point of view of generating employment.
Like so many of the FSLN government's positive social and economic policy reforms during the last three years, the Social Housing Project is not the result of a noteworthy increase in available resources but the application of political will inspired by a commitment to change. By no means would it have been impossible for INSS authorities under previous administrations to invest 10% of the institution's financial reserves in a similar housing program, but presumably the former authorities had no interest in doing so.
Of course, the concrete plans announced last week would have to constitute only the beginning of a far reaching national housing plan in order to come anywhere close to solving Nicaragua's housing problems. The US$45 million put up by INSS would only cover 2250 mortgages for houses worth US$20,000. The banks have committed to matching INSS' initial investment once the program gets going. But many more resources will have to be found over the coming years to ensure the continuity and expansion of the program. If those resources are found, the project could well represent a feasible long term solution to the lack of access to adequate housing for Nicaraguan workers.