Social Development and Public Governance > Social Development > Urban Development
Subsidies in Housing
By Stephen K. Mayo (06/99, SOC-112, En, Es)
In 1995 the Board of Executive Directors of the Inter American Development Bank approved an amendment to the Operational Policy for Urban Development (OP-751) lifting the restriction imposed on the Bank on housing financing. The amended policy indicates that the Bank will support borrowing countries' efforts to improve the living conditions of the low income population, encouraging governments to pursue policies to efficiently mobilize private and public resources to help households in solving their housing problems. Bank activities in housing will have the following objectives:
1. Support policies and sustainable programs and projects directed to improve housing conditions for low-income households.
2. Improve public sector effectiveness both as a facilitator of private sector initiatives and in the management of public resources allocated to the sector.
3. Promote sector-wide allocative efficiency of housing markets and related markets such as land, financing and construction materials and services.
The Policy considers the possibility of financing housing subsidies when they can be proved to be efficient mechanisms to reach the poor. The provision of subsidies is controversial. The impact of many past national schemes has been quite contrary to the public interest, poverty reduction and to principles of equal opportunity and allocative efficiency. Concerning subsidies, the Bank's Operational Guidelines for Housing, direct Project Teams to discuss key issues when conducting country sector studies and country programming activities. These include questions like. Are the proposed subsidies for housing justified in the context of the country's overall policies for social services and poverty alleviation? Specifically, are housing subsidies an appropriate use of public resources? Are subsidies justified and sustainable in the light of the government's fiscal position? Even if the use of subsidies can be justified, there is still controversy concerning the correct amount of the subsidies to accomplish the policy goals pursued by the Governments.
The present document, prepared for the Social Development Division of the Sustainable Development Department Dr. Steven Mayo, is intended to provide Bank specialists with comprehensive background information to address housing subsidy issues. It is complementary to the Operational Guidelines for Housing, and should be used together.
Last updated: 06/08/07
