Where Can Latin America Find Money For Their Affordable Housing?
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.[1]
“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 billion.[2]
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.[3]
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.[4]

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.[5]
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.[6] 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%.[7] See Figure 2.
Figure 2: Sustainable Development Scenario (‘SDS’) relative to a Stated Policies Scenario (‘STEPS’)

In its 2018 report entitled “Regional Action Plan for the implementation of the New Urban Agenda in Latin America and the Caribbean,” the Economic Commission for Latin America and the Caribbean (ECLAC) recognized the need for novel and diverse types of financial instruments to increase access to adequate housing (see “Action Area 4: Urban economy and municipal finances”). These types included public money, private capital, and combinations therein.[8]
While there’s strong demand for new residential buildings throughout Latin America, progress on building energy codes lags as only about 6 out of 33 countries in Latin America and the Caribbean had mandatory or voluntary codes[9]. See Figure xx

In addition, governments still need to provide the financial resources necessary to meet the need, allocating on average just 0.61% of GDP to the housing sector, a figure lower than a decade ago.[10]
Figure 3: Building Codes in Latin America: 2017-2018

Where To Get That Money?
There is a vital role for policymakers, development banks, and investors in meeting the public’s need for adequate, affordable, and sustainable housing and addressing the climate emergency confronting the region. And while Latin American and Caribbean nations are necessarily diverse with distinct economic, political, and social realities, a general framework of actions can be molded to fit specific contexts.
Coordinated actions among policymakers, development and private banks, investors, and property owners to address the building sector include:
Create believable and transparent housing policies considering local, regional, and national stakeholders.
Develop environmentally ambitious pathways towards a net-zero, energy-efficient, cost-effective, and resilient building stock that should be developed through integrated action among national and municipal governments, urban planning bodies, the real estate construction and development sector, and the real estate finance sector.
Standardize and hasten the local approval procedure for initiatives to decarbonize the current housing stock and pass decarbonization-related building codes and energy laws.
Create non-collateral loan programs for builders who are constructing carbon-neutral structures.
Provide credit to builders, contractors, and producers of building supplies with a track record of supporting sustainable construction.
Create (or improve upon) certification guidelines for decarbonized structures with consistent measurements.
Private banks might use the seed money from development banks to issue "climate adaptation" or "decarbonization" loans with longer amortizations to building owners undertaking retrofits or achieving carbon neutrality.
Establish loan loss reserves and credit enhancement procedures to encourage renovating and investment in the current housing stock.
Loans to decarbonized buildings or projects that satisfy minimum energy performance standards or receive energy efficiency certificates should have sustainability-related pricing developed by private banks.
Government regulators should mandate that banks disclose the carbon emissions in their loan portfolios and securitized assets. In addition, report cards for lenders should subsequently be developed based on the carbon intensity of their loan portfolios.
Utilize the market for carbon offsets to add a new source of revenue.
Establish a public-private partnership (PPP) framework that offers mortgage financing to people of all income levels and supports creating diverse housing projects that bring together various societal sectors.
Authors are Steven Hyland, Ph.D., Gabriel Yin, and Gabriel Thoumi, CFA, FRM.
[1] Reuters, “Dozens dead in Brazil floods, Lula pledges safer housing.” February 20, 2023. Available here. [2] Inter-American Development Bank. Ciudades Sostenibles. “Can financial innovation reduce the housing deficit?” September 6, 2022. Available here. [3] “Urban” is a term of art without a single, standardized definition. See, for instance, a discussion of the many meanings of “urban” (here) and a proposal for a standardized definition based on contiguity and population density (here), both from the World Bank. The UN produced a list of the various national definitions of “urban” used in censuses (here). [4] Plataforma Urbana y de Ciudades de América Latina y el Caribe. Available here; World Bank Group. (2018). Data Bank. Latin America and the Caribbean. Available here. [5] See, for instance, the studies that focus on region as a whole (here), the Caribbean specifically (here), national-level studies (El Salvador, available here), and city-level (Buenos Aires, available here). Plataforma Urbana y de Ciudades de América Latina y el Caribe. Available here. [6] International Energy Agency. (2022). Stated Policy Scenarios. Available here; and Global Alliance for Buildings and Construction in Latin America. (2020). Global ABC Regional Roadmap for Buildings and Construction in Latin America 2020-2050: Towards a Zero-Emission, Efficient, and Resilient Buildings and Construction Sector. Available here. [7] Global Alliance for Buildings and Construction in Latin America. (2020). Global ABC Regional Roadmap for Buildings and Construction in Latin America 2020-2050: Towards a Zero-Emission, Efficient, and Resilient Buildings and Construction Sector. Available here. [8] UN ECLAC. (2018). Regional Action Plan for the implementation of the New Urban Agenda in Latin America and the Caribbean 2016-2036. Available here. [9] Global Alliance for Buildings and Construction in Latin America. (2020). Global ABC Regional Roadmap for Buildings and Construction in Latin America 2020-2050: Towards a Zero-Emission, Efficient, and Resilient Buildings and Construction Sector. Available here. [10] UN ECLAC. MINURVI. (December 5, 2022) Inauguración del trigésimo primer encuentro de la Asamblea General de MINURVI. Available here.