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Private funding for low-cost housing

The countries of Latin America and the Caribbean are increasingly investing in housing programs with multiple goals: direct assistance to potential low- and low-middle income homeowners, inducements for greater private sector investment and achievement of greater efficiency. This approach may result in savings that can free up government resources for other kinds of housing assistance, such as the upgrading of squatter settlements and neighborhoods and improvements of core housing units of the poor.

Individual countries are constantly updating, refining and modifying their housing policies according to an accumulated experience spanning decades. Until recent years, many countries in the region favored subsidizing housing by offering below-market interest rates through government-owned housing banks. More often than not, the loans went uncollected and were frequently poorly targeted, benefiting the upper middle class instead of the poor. The loan losses represented an unsustainable, expanding liability that also distorted financial markets.

Under a new policy now being widely applied, the government withdraws from its former role as a microlender and business operator to that of a promoter and facilitator. The government encourages increased private sector investment and participation in the housing market for the benefit of all income strata, but in particular those sectors of the market previously excluded. Subsidies may still be required in this kind of system to attend to the needs of the very poor and the lower end of the home ownership market, but this assistance is designed in such a way so as to both benefit the neediest families and to stimulate the overall housing market.

Bolivia, Chile, Colombia, Costa Rica, Ecuador, Guatemala, Mexico, Nicaragua, Panama, Peru, Trinidad and Tobago and Uruguay that have also undertaken integrated housing reforms to various degrees. The IDB has been active in providing financial and technical assistance in the housing sector to all of these countries in different stages. The programs have had different levels of success, and some are either in the early stages or incipient. Yet the overall results and trends are encouraging.

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