Navigation

Low Cost Housing Facts

Background

Vivienda Housing and Mortgage Corp. (“Vivienda”) has identified the construction, sale and financing of affordable low cost housing for working families as a sound, commercially proven and profitable business, complemented by excellent humanitarian outcomes. Participation in affordable, low cost housing is based on the fact that demand will exceed supply for decades to come. While this is a worldwide phenomenon in developing countries, Vivienda's focus is on Central America and the Caribbean basin, with its first projects in Costa Rica. Click here for a video.

UN-Habitat, a United Nations agency, estimates that 3 billion people will require basic housing over the next 24 years. This means that in order to satisfy that demand 96,150 houses a day, or 4,006 houses per hour need to be completed. At present there are 1 billion slum dwellers in developing countries, with new slums happening all the time.

UN-Habitat estimates that 670 million people will be looking to leave slums for better housing over the next 24 years. Costa Rica's former Housing Minister Helio Fallas stated in 2004 that based on United Nations calculations, some 399 million people, representing 75.8% of the population of Latin America and the Caribbean, live in urban zones and that 32% of that urban population (128 million people) lack adequate housing. UN-Habitat states that 30.8% of the population of Latin America and the Caribbean basin live in slum dwellings.

UN-Habitat has come up with a 5-point slum housing definition that offers some insight into the problem. Inadequate housing in an urban area that lacks one or more of these elements tends to result in slums:

• Durable housing of a permanent nature that protects against extreme climate conditions
• Sufficient living space, meaning that not more than 3 people share the same room
• Easy access to safe water in sufficient amounts and at affordable rates
• Access to adequate sanitation in the form of private or public toilets shared by a reasonable number of people
• Security of tenure that prevents forced evictions

In Costa Rica, the government has identified affordable, low cost housing for working families as a national priority. One economic feasibility study suggests that there are at present some 287,000 families in Costa Rica alone who are employed and who could afford low cost homes if there were any available.

The numbers for other Central and South American jurisdictions are equally staggering. For instance, Nicaragua reports that it needs 519,000 housing units, the Dominican Republic some 623,000 units, while Guatemala has over 100,000 people living in tents, not counting its slum population.

Affordable, low cost housing for working families has been a victim of political ineptitude and ongoing systemic problems. There is overwhelming demand, with slum dwellers tending to be employed and paying high rents to slum landlords. Despite these facts, developers are reluctant to build affordable, low cost homes, because banks are not providing financing to potential buyers.

Banks are not financing projects or home sales, because working families in developing countries do not have credit ratings, and local banks are restricted from lending in the absence of credit ratings. The result is that in Latin America less than 30 per cent of houses are produced by the formal housing market.

Vivienda has identified the affordable, low cost housing market as a wide open niche with few competitors. Because of the staggering demand, many competitors end up working out joint venture relationships, because competition at present is simply not a factor in the economics of this opportunity.

Vivienda has established strong relationships with the CIDA funded Costa Rica - Canada Rural Housing Foundation, of San José, Costa Rica, the Chamber of Urban Builders (“CADUR”) of Managua, Nicaragua, the RPC International Trust Foundation of San José, Costa Rica, the Central Workers Union Movement (“CMTC”) of San José, Costa Rica, Gestores de Vivienda S.A., of Heredia, Costa Rica, the Fundación Promotora de Vivienda, of San José, Costa Rica, and others.

North Americans and Europeans often do not understand what constitutes affordable, low cost housing, because of false impressions created by government backed low income housing schemes in their own jurisdictions. As a result, a brief description of what constitutes affordable, low cost housing in developing countries is in order. It will also help to provide a clearer understanding of the unlimited opportunity that exists.

Vivienda (“Vivienda”) and its affiliates have adopted guidelines for affordable, low cost housing projects. Vivienda and its affiliates are not interested in building the slums of tomorrow. (See top of next column)

Vivienda Housing and Mortgage Corp.
affordable low cost home guidelines:
• Must be built on land or lots to which title can be conveyed to the purchaser;
• Must be built according to applicable building codes and seismic zone codes;
• Must be in keeping with local and cultural preferences and climatic conditions; and
• Must have good economic life and resale value.

The average 2 bedroom, low cost home is 484 sq. ft. (45 sq. m.) in size. The average 3 bedroom, low cost home is 581 sq. ft. (54 sq. m.) in size. Homes are built using concrete blocks and steel roofs, on defined lots. The buildings have indoor plumbing, municipal water, municipal sewer connections, sewage tanks or fields, electrical connections to local power supplies or optional solar power.

Each house has a front and back door, a kitchenette, a combined dining and living room, a three piece bathroom with shower, a built-in closet space in the bedrooms, louvered windows for air circulation, and a laundry sink at the back door. Floors consist of tiles, while ceilings and walls are made of drywall that is painted. The exteriors are finished with parging, stucco and exterior paint.

An average 2 bedroom 484 sq. ft. (45 sq. m.) house costs around $11,245 USD in materials and labor to build. A serviced lot costs some $8,800 USD. A profit margin of around 10% to 15% is common. A 3 bedroom house costs approximately $19,900 USD and a 2 bedroom house about $18,170 USD. With a $2,000 USD deposit, amortized over 20 to 25 years at a high risk rate of 15% per annum, a family would have mortgage payments of under $200 per month, less or equal to what they pay to slum landlords.

Vivienda is active on both ends of the affordable, low cost housing market. We finance the building and sale of affordable low cost homes, and we provide mortgage financing or lease to own financing to eligible families. Mortgage financing is available for up to a 2 year period, until a credit rating is established and the family can obtain bank or other financing. Vivienda’s foreign home purchasers are completely protected in this process, because Costa Rica has a National Registry (Registro Nacional) system for mortgages and land titles that is transparent and very functional.

The Vivienda approach to mortgage financing for affordable, low cost housing has to date resulted in a zero per cent foreclosure rate. The primary reason is that demand so exceeds supply that everyone knows there are tens of thousands of people only too happy to take over payments or to buy upon repossession. The alternative for a defaulting mortgagor is a return to the slums or a cardboard box on the sidewalk.

Vivienda works closely with local labor unions, employee associations and housing foundations, who act as collection agents on behalf of Vivienda, to make sure that mortgage payments are collected and remitted in a timely manner by their members. Once a family has made payments on their mortgage for a year or more, they have established a credit rating, and Vivienda can then sell the mortgage to a chartered bank or other institution, which generally results in a drop of the interest rate payable by the low income family.

On the construction side, Vivienda has the potential, with good financial resources, to employ every house purchase dollar at least twice in a year, and possibly as often as two and a half times per year. In other words, if it costs $18,170 USD to build and sell one house, then the same $18,170 USD purchase has the potential to build and sell at least 2 houses in a 12 month period, resulting in an excellent ROI. Because the housing demand always exceeds supply, houses can sell rapidly, even during otherwise poor economic conditions.

On the mortgage side, the low cost of each house means that syndicated mortgage participants are spreading their risk over numerous properties, making consistent returns a certainty. Foreign syndicated mortgage participants are able to rely upon registered security of title or mortgage instruments, enhanced by a virtually non-existent foreclosure rate. In addition, Vivienda’s affiliates are able to charge a high risk interest rate, because of the nature of the target market. All of these factors allow syndicated mortgage participants to enjoy an above average annual ROI.

On the humanitarian side, any activity that offers solutions or help in combating the international housing crisis attracts enormous amounts of good will. Vivienda wants foreign purchasers to visit an affordable, low cost housing project in Costa Rica, and meet the families whose lives have been changed thanks to that purchase.

Maybe most important of all, getting children out of the slums and into proper homes has a global impact, as the emphasis shifts from survival, drugs and gangs to healthy living, sanitation, safe water, secure tenure or title, asset building, community life and education. While this cannot be measured, it is an ROI that is by far the greatest feeling on Earth!