Where Can Latin America Find Money For Their Affordable Housing?
By Steven Hyland, Ph.D., Ted Kronmiller, Gabriel Yin, and Gabriel Thoumi, CFA, FRM
March 7, 2023
After considering the economic and demographic disequilibrium along with the climate-related challenges facing the Latin American housing sector, we considered pathways to addressing key gaps in the sustainability and adequacy of the built environment in Latin America.
We find there are pathways to decarbonizing the built environment that support economic growth, e.g., a positive relationship between building-related emissions reductions and GDP growth.
This past February, the heavy rainfall in São Paulo state killed more than 50 Brazilians, washing away countless homes and upending the lives of hundreds of Brazilian families. As Brazil’s President Lula da Silva visited the badly damaged areas, he pledged that homes in Brazil should no longer be built in areas with a risk of heavy rainfall or landslides.
“Minha Casa Minha Vida” (My Home My Life) is Brazil’s affordable housing plan, a signature project in Lula’s previous administrations. After winning the election this time, Lula vowed to make homes affordable again. Yet, as Brazil’s inflation and interest rates kept rising, it became questionable whether the houses would be genuinely affordable, even for the government.
Latin America Has A $310 Billion Problem
Access to sustainable, affordable, and adequate housing is a fundamental human right and the bedrock of protecting human dignity and developing healthy, inclusive communities. It is also central to achieving inclusive, safe, resilient, and sustainable cities and settlements. Societies will be measured by reducing the “proportion of the urban population living in slums, informal settlements or inadequate housing.”
Such housing is also a frontline in the battle to arrest climate change, reduce poverty, and gain access to clean, reliable energy services. Yet, a dearth of such housing stock exists in emerging markets, particularly Latin America and the Caribbean.
Meeting the region’s current housing gap will require $310 billion, or 5.7% of the region’s GDP. Meeting future housing demand needs annual investments of $70 million.
The scale of the challenge is significant, but it also presents a clear opportunity for development banks and private investors to help communities and countries meet SDG targets and provide services to their constituents.
The Problem Is Not Just About The Houses
Latin America and the Caribbean is the planet’s most urbanized region, with 81.2% of its 660 million population living in urban areas.
Estimates suggest that this percentage will rise to 89.0% by 2050. Within the region, a sizeable population also resides in megacities, with 14.2% living in six cities with 10 million or more inhabitants.
Latin American and Caribbean officials, urban planners, and builders have struggled to meet the demand for housing, as nearly one-third live in overcrowded households and one-fifth in informal settlements. Given this current reality and that population increase will peak in the 2050s, communities across the region will need to build housing to meet the demand of its members.
The urgency of sustainable and affordable housing is further accelerated by the greenhouse gas (GhG) emissions produced by existing buildings and the construction of new building stock. They combined for 36.0% of final energy use and 39.0% of energy and process-related carbon dioxide (CO2) emissions globally in 2018.
In Central and South America, the International Energy Agency (‘IEA’) indicates that buildings alone accounted for 24.0% of final energy use and 21.0% of process-related CO2 emissions. The latter does not include emissions from carbon-intensive manufacturing of building materials and products such as cement, glass, and steel. Refer to Figure 1.
Figure 1: Building Energy and Emission Profile:
A Sustainable Development Scenario (‘SDS’) for buildings could reduce emissions by 54.0% or by 136 million tons of CO2 by 2040 in Central and South America relative to a Stated Policies Scenario (‘STEPS’) while supporting GDP growth of over 60.0% and floor area increases close to 70.0%. See Figure 2.