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Study: rentals could help alleviate housing deficit in Latin America and the Caribbean

New IDB report suggests alternative to traditional home ownership-based policies 

Governments traditionally have promoted ownership of newly built homes as a solution to the housing shortage in Latin America and the Caribbean. But a revealing new study highlights the key role rentals play in urban areas and their potential for serving the needs of a broad variety of growing population groups. 

According to Rental Housing Wanted, a new report by the Inter-American Development Bank (IDB), 1 in 5 Latin American households, or roughly 30 million families, are renters. This proportion has been on the rise since the 1990s in Argentina, Bolivia, Brazil, Chile, Colombia, Costa Rica, Dominican Republic, Mexico, Nicaragua, Peru, and Uruguay. Nevertheless, there is a large stock of unoccupied homes that could help ease the regional housing crunch.

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Nearly 54 million families, or 37 percent of the region's households, suffer housing problems such as overcrowding, insufficient access to basic services, shoddy construction or materials, or lacking a property title. What is more, some 9 million households are either homeless altogether, or live in substandard homes, or ones that are beyond repair. 

Colombia is the Latin American country where renting is the most common (38 percent of all households), while in the Dominican Republic the ratio is one in three households and in Honduras, Ecuador, Bolivia and Jamaica it is one in four. The five cities with the highest rates of rented homes are Bogota, Santo Domingo, Cali, Medellin and Quito, where it exceeds 35 percent of all households.

“Unlike in more developed regions, in Latin America renting is not something restricted to the poorest people,” said Andrés Blanco Blanco, IDB senior specialist and a co-author of the study. 

"In fact, in some countries in our region the trend toward renting rises as household income goes up, and in others rentals are concentrated among middle-income households. The reason for this is the high rate of informal housing, which lets low-income families own their houses, whatever their quality or location,” he added. 

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The study, which examined 19 metropolitan areas of Argentina, Brazil, Chile, Colombia, El Salvador, Jamaica, Mexico, Peru and Uruguay, debunks the myth that only the rich rent to the poor. Landlords vary widely in their socio-economic level, with just a minimal presence of major real estate investors and a supply spread out among many small-scale owners. For example, in Chile 80 percent of landlords own just a single rental home.  

The preference for renting is associated with certain social groups: the ones who rent most often are young people, divorced individuals and immigrants. The kind of household also matters. Extended families and widows rent less frequently than nuclear families, while single-people and unmarried couples usually are renters. There is a direct link between the age of the person and the likelihood that they rent. Depending on the country, a person between the ages of 25 and 34 is between three and eight times more likely to rent their home in comparison to an older person. And a young person aged 15 to 24 is five to 14 times more likely to do so than an older person.

Renting offers major advantages over homeownership for many people because it tends to be concentrated in areas that are more centrally located, more densely populated and more established neighborhoods. It is also better adapted to the preferences of certain social groups and works well in a labor market that demands that people be mobile. 

In light of these findings, the IDB is engaging in a dialogue with countries of the region to explore how a policy to promote rental markets could complement their broader housing policies, establishing incentives both for landlords and renters, updating regulations and linking housing issues with the tools of urban planning. 

“What this study proposes is to open up new, unexplored territory in housing policy,” said Vicente Fretes, chief of the IDB's Fiscal and Municipal Management Division and co-author of the report. “It's not a question of replacing the focus on home ownership but rather of complementing it. It's sound advice, taking into account the advantages for fiscal sustainability and for containing urban sprawl,” Fretes said. 

Some policies could be relatively simple, such as expediting home repossessions or creating a system of rental guarantees. This would help expand the supply of homes available for rent, creating incentives to add to the market at least part of the considerable stock of vacant homes, which in some countries represents as much as 20 percent of all homes.

Follow the conversation on Urban Development and Housing in our blog in Spanish Urbe & Orbe or in Twitter @BID_Urbano.

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