Brick by brick: Will new government housing strategies and more attractive financing plans be enough to meet the country's burgeoning demand? (Spotlight).

The landscape on the outskirts of major Mexican cities exposes the state of the nation's housing industry. Families put up makeshift walls however they can afford to do so, laying sheets of tin for a roof and hanging curtains over the windows instead of glass.

With demand already topping 5 million homes each year, compared to the 300,000 lower-income homes built by government-funded institutions, Mexico's housing shortage has long been a battle-cry of politicians. During last year's presidential campaign, candidates made lofty promises concerning housing. While many middle-class families build their homes little by little as their savings allow, hundreds of thousands of poor families erect shaky structures in areas without running water or adequate drainage.

The Fox administration has initiated 30-odd new programs and reforms, including the creation of the Housing Council that brings together all parties involved in building low-income housing.

"The first priority of the current government's social and human development policy is attending to the basic necessities of food, housing and education," states the presidential platform.

Government planners have already given housing ample attention, designing an ambitious growth strategy for federal housing institutions. The new programs aim to gradually increase the number of houses being built so that by 2006, the country will have, as promised, 750,000 new homes and apartments on the market every year.

INNOVATION AT INFONAVIT?

But whatever the intentions, age-old obstacles still burden the federal institutions that process worker mortgages and approve construction companies' housing developments. The largest of these, Infonavit (the National Workers' Housing Fund) channels mortgages for over half of all new low-income housing. Yet Infonavit is mired in inefficiencies and alleged corruption--construction companies have lengthy processes to complete before their housing developments are deemed acceptable for Infonavit loans, workers who qualify for loans must patiently wait their turn for several months, while Infonavit has few legal resources to counter abundant loan defaults.

In the midst of these problems, President Vicente Fox gave Infonavit a mandate to raise its mortgage portfolio from 205,000 this year to 375,000 by 2006, and Victor Manuel Borras, Infonavit's director, claims he's up to the challenge.

"In order to realize our goal, Infonavit has to undergo a transformation," he told local press. "Our fundamental goal is to make it an efficient and transparently run institution, financially solid and strong."

To do so, he has outlined the following four-point reform plan:

* Lower non-performing loans from 22% to 5%

* Promote workers' savings programs to develop a greater capital pool

* Increase private-sector funds for financing construction

* Allow mortgage portfolios onto the secondary market

The last of these points is essential if Mexico hopes to offer workers more long-term home loans, according to Sidney Weintraub, a political economist at the Center for Strategic and International Studies in Washington D.C. The secondary mortgage market is the buying, selling and trading of existing mortgage loans and mortgage-backed securities. Participating in a secondary market would allow Infonavit to build up its liquidity and increase lending.

"Mexico's inflation rate is coming down, which will make (increasing the number of mortgages) possible if the trend continues until 2006. A secondary mortgage market is necessary to do this, as it has been in the United States," says Weintraub.

In April, a new Infonavit program was announced that incorporates private-sector firms into mortgage lending, called Apoyo Infonavit. The program allows workers earning four to 10 minimum wages (roughly US$400 to US$1000 each month) access to mortgages for low-income housing from banks or credit societies (Sofoles).

By law, a small percentage of a worker's wage--and a small employer contribution--is allocated to a retirement fund, as well as to an Infonavit fund. Under Apoyo Infonavit, the retirement fund sum also serves as mortgage collateral, and will be used as payment if a worker can no longer make loan payments.

About 15% or 1.9 million Infonavit members (workers paying into the housing fund) are eligible for the new program. Infonavit hopes that as private companies pick up the higher-earning workers needing mortgages, it can address the housing needs of those earning under US$400 per month.

THE IMPORTANCE OF HOME

Home construction, in Mexico and around the world, plays a vital economic role. Last year, the construction industry in Mexico was worth 67 billion pesos, or about US$7 billion dollars, and employed over 250,000 people. Equally important is that Mexico needs organized urbanization to reduce irregular settlement sprawls.

The local construction industry association (CMIC) works to promote home-builders' needs with the powers that be, such as congressional housing commissions, Infonavit and banks, pressing them for more and cheaper financing, easier access to tracts of land, and less red tape for building permits. Now lobbying also includes the issue of the secondary mortgage market--according to Infonavit, a secondary market could begin operating by 2002.

Of all the hurdles facing the industry, none is as problematic as financing. Mexico has only a handful of large- and medium-sized housing developers that can put up the kind of collateral development banks demand for loans. Many small developers might be able to afford land, but often need bridge loans to build the homes or apartments.

"Since developers own their land, and partial payments from a loan are used to purchase construction materials, the project should be enough to back the loan. (Local development bank) Banobras should focus more on the project and on the experience and credit history of the developer than on its capital," says Pedro Loperena, vice-president of Urban Development and Housing at CMIC.

This is true for construction company Carsa (Construcciones Araiza, S.A de C.V.)

"Loans are available, as long as you can satisfy all of the bank's requirements--and that is hard to do. You have to already have your tract of land, your project approved by Infonavit, your water permits, which are very expensive, and some local government permits," says Moises Araiza, administrative director at Carsa.

According to Infonavit's Borras, the "news" Infonavit is committed to assisting builders like Carsa as much as possible.

"Another goal of our administration is to build up trust with housing builders ... We will be more accessible to these builders, using technology such as the Internet to post our programs, information, and even paperwork for permits will be done on the Internet," he told local press.

Mirroring the plight of companies, individuals also suffer from the credit crunch--although they may qualify for a home loan, banks do not yet offer attractive interest rates. Infonavit and similar institutions grant the majority of home loans; yet according to some economists, 65% of the "economically active" population lacks access to any type of mortgage because organizations like Infonavit only grant loans to workers earning at least three minimum wages (about US$300 dollars a month).

THE OUTLOOK

Many industry insiders believe the new financing plans could successfully provide the boost the housing industry needs.

"Fox's team has shown initiative, creative strategies, intuition and imagination (in designing these financing options)," says one Infonavit employee, adding that the promise of having 750,000 new homes built in 2006 might not be unrealistic after all.

And construction companies are eager to undertake more developments. About one-third of Mexico's 10,000 construction companies work mainly or solely on housing, 95% of which are small- or micro-businesses. CMIC's Urban Development and Housing department believes that these smaller companies are the ones that will satisfy the demand for low-income housing across the country.

Carsa, currently building 500 homes in Queretaro and Guadalajara, has found that since new state and national politicians came into office, credits can be approved faster but bureaucratic paper-pushing is slower than before.

"The future looks good with the new government, but unfortunately they let corrupt government employees stay in their jobs. We are seeing a little less corruption, but it's still around. The worst part is that if you report corruption, they find ways to freeze your projects," explained Carsa's Araiza.

Corruption or no corruption, the industry is expecting lending to rise. And while better times may indeed lie ahead, few significant gains are likely to happen until next year.

Jenny Rymer is a Mexico City-based freelance writer.