Public Housing Policies in Colombia

SOCIAL HOUSING system and policies

IC Social Policies: Social Housing Antonio Tosi

SOCIAL HOUSING system and policies in Colombia MarĂ­a Clara Restrepo Tirado February 12, 2010

Architecture and Society Faculty Politecnico di Milano 2010

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SOCIAL HOUSING system and policies

Index I.

Introduction

II. General overview III. History and legislation IV. Actual housing system V. Conclusions VI. Annexes VII. Bibliography

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SOCIAL HOUSING system and policies

I. INTRODUCTION The housing sphere, and the treatment of public policies determine the definition of the life quality of a community. From the levels of housing quality it’s possible to deduce the public investment, the presence of the state in the territory and the social cohesion, by not mentioning the success in the global scale.

In Colombia, a country that 50 years ago was mainly rural and in the last decades and due to the policies made in the economy and socially, 60% of the population lives in urban areas by now, the housing quality still is one very sector, not only in the rural but also in the urban life.

The hard environment conditions, for populations living in the middle of a armed conflict, rurally and urbanely, leads to a complicated housing situation. The processes of competing in the globalized economy, as an emerging nation, pressures the national economy and specially the state policies to create the basic atmosphere, and infrastructure, not only to help the poorest and eradicate low life quality, but also to help and improve the conditions for international investment, and a competitive business class.

The condition of being supported, even managed, by a “strong market ruled society” as the north American one, but in a context which doesn’t presents the same characteristics of such a basic “richness” or stability, takes a complete slice of the population of Colombia in a sort of limbo: because the market is too tough and expensive, and the state can’t provide for all the lacks.

The housing situation in Colombia, even with a system regulated and structurally complete, still leaves a big portion of the population outside of the borders what about single person credit or subside for a house?

Subsides for not traditional families?

What about real incentives for independent workers?

What about the 50% of population under the poverty line?

What about the 10%, or more, unemployed?

All this questions are made every day to the systems, and still have no answer, but the processes are undergoing and maybe one day the housing system will make a real change in the life quality or the entire system for a country like Colombia.

The poorness situation, and the difficult big gaps in the society, getting every time more apart the rich from the poor, the educated from the uneducated, the healthy from the unhealthy, makes the policy making much more complicated. The solutions for one group, are not right for the other group and so on. The solutions found must privilege the biggest portions of communities, so the sustainable development stops being an abstract concept and starts getting real, in all Latin America.

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SOCIAL HOUSING system and policies

II. GENERAL OVERVIEW “Colombia was one of the three countries that emerged from the collapse of Gran Colombia in 1830 (the others are Ecuador and Venezuela). A four-decade long conflict between government forces and antigovernment insurgent groups, principally the Revolutionary Armed Forces of Colombia (FARC) heavily funded by the drug trade, escalated during the 1990s. The insurgents lack the military and popular support necessary to overthrow the government and violence has been decreasing since about 2002, but insurgents continue attacks against civilians and large areas of the countryside are under guerrilla influence or are contested by security forces. More than 31,000 former paramilitaries had demobilized by the end of 2006 and the United Self Defense Forces of Colombia (AUC) as a formal organization had ceased to function. In the wake of the paramilitary demobilization, emerging criminal groups arose, whose members include some former paramilitaries. The Colombian Government has stepped up efforts to reassert government control throughout the country, and now has a presence in every one of its administrative departments. However, neighboring countries worry about the violence spilling over their borders.�

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*Colombia on the maps. * The CIA Factbook, 2010, Colombia.

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SOCIAL HOUSING system and policies

Inadequate housing and shortage Colombia's housing shortage is largely a result of the rapid growth of the urban population. With the annual urban population growth rate at over 5%, the housing deficit was estimated to be around 800,000 units in the early 1980s and is expanding annually. Total housing units numbered approximately seven million in the mid-1990s. At last estimate, more than 85% of all housing units were detached houses, ranches, and huts; less than 15% were apartments, and the remainder were mobile units, natural shelters, and nonresidential housing. Roughly 70% were owner occupied, and 25% were rented. Three-fourths of all dwellings were made of bricks, adobe, mud or stone; nearly 15% had external walls of wattle or daub; 7% were wood; and 3% were mostly cane.

Overcrowding and insufficient utilities such as water and sanitation are also contributors to the housing problem. More than 11.5 million homes do not satisfactorily meet the basic necessities of the families that live in them. More than 40 percent of that figure represents inadequate housing and overcrowding, while another 20 percent demonstrates problems with public utilities. Likewise, 9.8 percent of the families suffering from poverty find themselves in this situation due to inadequate housing, and 10.6 percent due to inadequate utilities.

The housing shortage prevents adequate sanitary conditions for many low-income families, so they erect “cambuches,” or tin huts, without public services. This promotes disease, such as dengue, which arises from stagnant water due to a lack of sewers. Inadequate housing also affects children’s education; many cannot go to school because they lack a home that provides them with the stability required to enter an educational center. In addition, many school-age children are forced to work, in order to contribute something to the family’s income.

The rural housing deficit has increased in recent years, due to a lack of new programs. Colombia’s qualitative housing deficit (that is, houses that exist but are inadequate in their conditions) is currently in the vicinity of 900,000 units, out of which 200,000 are located in rural zones. That deficit has increased in the last five years, since the financing of possible solutions has become so difficult through typical lending institutions.

The housing problems in Colombia are dealt with primarily by the Credit Bank for Agriculture, Industry, and Mining, and by the Colombian Institute of Agrarian Reform. Until 2001, public resources were channeled into urban housing through the Central Mortgage Bank, whose mortgages, because of interest rates, down-payment requirements, and repayment terms, were usually accessible to low and middle income groups; and the savings and loan corporations, whose interest rates were pegged to inflation through daily monetary correction factors known as units of constant purchasing power value (UPACs). In addition, through AID, substantial private funds from investors have been used for various housing programs.

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III. HISTORY AND LEGISLATION 1932: creation of the Central Mortgage Bank (BCH) “Roof for the Poorest” Policy. Subsides for housing, with land entitlement and housing improvements. The finance was made by the BCH with the emission of special bonds called “Cédulas de BCH”.

1939: creation of the ICT (Instituto de Credito Territorial : territorial credit institute) This governmental entity was in charge of building and giving credits for housing. It was directly financed by the national budget and external contributions. ICT also took part in the first urban development projects, provision of common amenities and housing improvement. During the 60’s the ICT programs were also subsidized by the Alliance for the Progress a United State’s initiative to invest in Latin America.

1971: the process of decentralization of the government starts, and even of the housing credits, and the 15 years loans where implemented for the first time.

1968: creation of the National Savings Fund (Fondo Nacional del Ahorro - FNA) only for state-employees.

1972: creation of CAV (Corporaciones de Ahorro y Vivienda: Savings and Housing Corporations), FAVI (Fondo de Ahorro y Vivienda : Saving and Housing Fond) and UPAC (Unidad de Poder Adquisitivo Corriente: Constant Purchasing Power Unit) system.

All this was made to promote private saving and channeling it into the construction sector within a new “constant value system”.

1991: Enactment of the actual constitution. Creation of the first National System of Social Interest Housing (Sistema de Vivienda de Interes Social – VIS). Modification of ICT into INURBE, and the CAVs into Family Compensation Fund (Cajas de Compensación Familiar, CCF). * The CCF are private entities, who manage the contributions of employees to ensure housing for their families. They manage the subsides, the contributions of the workers and also build VIS. * INURBE was the public entity in charge of managing the subsides for families of scarce resources for improvement, construction and acquisition of housing. Were also part of its functions the regulation of procedures to select the beneficiaries and select the architectural projects. It should also serve as a technical advisor of the local municipalities and the OPVs. * The Popular Housing Organizations (Organizaciones Populares de Vivienda- OPV) were entities that during this period of strong urbanization processes in the whole national territory, became pioneers in the development of urban housing (building even entire urban areas, including basic services and infrastructure) with self-financing, self-management projects and communitarian work.

1994: liberalization of the national economy, opening of the market. Creation of the promoter military housing fund (Caja Promotora de Vivienda Militar- CPVM), to promote the housing specially for the families of the military forces.

1997: mayor economical and financial crisis.(unemployment over 25%). Crisis and liquidation of the CAVs, changing into commercial banks. The crisis was created by the opening of the markets, because the systems were not designed for this kind of economies, but a more concentrated in the interior development than competing in the global market.

1998: Change in the FNA: from serving only statal employees to all private workers.

1999: Enactment of the Housing Law. Replacement of the UPAC**2 system for the UVR**2 one.

Creation of the Agrarian bank.

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*2 UPAC system: Called also the Index-linked housing finance system. Was born as a “monetary correction”, as a response to the accumulation crisis and to the incapacity of economic authorities to impulse development within an increasing inflation atmosphere. “ Therefore, the original vision behind the creation of the index-linked housing finance system (UPAC) was to convert housing into a significant “leading sector” as part of an overall development strategy designed to accelerate Colombia’s urbanization and industrialization, and to promote the mobility of labor from low-paying activities (including agriculture) toward higher paying activities (employment in housing and related industries) where the potential, or latent, demand was very great and which could be stimulated via the way in which index-linked mortgages could overcome the front-end loading problem for borrowers while at the same time increasing the flow of savings to the sector. (Currie, 1974).

Despite the fact that by the mid seventies the country had a serious housing shortage, the policy stated by the new government, more than a sector program to close the gap, was a macroeconomic strategy, some sort of a development paradigm. This is important to understand why this sector received such a high priority within the country’s economy during the following decades, as well as to understand the type of actions the government was prepared to do in order to finance the scheme.” *3

*2 UVR system: The UVR was developed inside the Ministry of Finance (Ministerio de Hacienda) with the purpose of issuing long-term bonds of public debt that protected the holder against variations in the price level of the economy and allowed it to ensure a positive real rate above inflation. However, months later the new Law of Housing adopted the UVR as the base for the new housing finance system. (Corfivalle, 2002).

2000: liquidation of the BCH. The bank went into bankrupt after a long period of declaring losses, ascribed to unbalances in the national economy, lack of well managed systems and confirmed big cases of corruption with the funds. All the accounts and credit bills where transferred to other public banks such as Granahorrar and Bancafe.

2002: election of the actual government, followed by a remarkable raising of the economical indicators and general mood.

2003: creation of FONVIVIENDA. BASIC LEGISLATION

* Conpes documents: Are the product of the reunion of the National Council of Socio Economical Policies, in the head of the president of the republic and the ministers council.

- Conpes 3121, June 2001: Contract of a loan with FMI to finance the Housing Policy.

- Conpes 3200, September 2002: Bases of housing policies 2002-2006: Adjustment to the Family Housing Subside Program and incentives to the offer and demand of credits in UVRs. - Conpes 3269, February 2004: Improvement of the Family Housing Subside Program and the offer and demand credits in UVRs. - Conpes 3287, May 2004: Family Housing Subside Program in-kind in national terrains.

- Conpes 3403, December 2005: Strategic importance of the Family Housing Subside Program.

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* Main national laws: Law 56, 1985 Urban housing rental.

Law 9, 1989 Urban Reform Chapter VI. Social Interest Housing (VIS) Law 49, 1990 Chapter XI. Financing of VIS by the Compensation Family Banks (CCF).

Law 3, 1991 Creation of the National System of Social Interest Housing, the Family Housing Subside Program and INURBE. Law 388, 1997 Territorial development. Chapter X: Social Interest Housing Law 400, 1997 Norms about seismic- resistant building.

Law 432, 1998 Restructuration of National Savings Fond.

Law 546, 1999 Housing Financing (Housing law, Ley de Vivienda) Law 633, 2000 Tributary Reform: incentives for the social housing developments.

Law 675, 2001 Real estate market regulations.

Law 708, 2001 Regulation of in-kind subsidies for housing: national land transference.

Law 795, 2003 Financial reform: Housing, against inflation, pro housing microcredit.

Law 812, 2003 National Development Plan - Hacia un estado comunitario: towards a communitary stateNational Housing Policy 2002-2006.

Law 820, 2003 Renting regulations.

“ Colombia experienced accelerating growth between 2002 and 2007, chiefly due to advancements in domestic security, to rising commodity prices, and to President URIBE's promarket economic policies. Colombia's sustained growth helped reduce poverty by 20% and cut unemployment by 25% since 2002.

Additionally, investor friendly reforms to Colombia's hydrocarbon sector and the US-Colombia Trade Promotion Agreement (CTPA) negotiations attracted record levels of foreign investment. Inequality, underemployment and narcotrafficking remain significant challenges, and Colombia's infrastructure requires significant updating in order to sustain expansion. Economic growth slipped in 2008, and turned negative in 2009, as a result of the global financial crisis and weakening demand for Colombia's exports, despite aggressive measures by the Central Bank to lower interest rates. In response, URIBE's administration has cut capital controls, arranged for emergency credit lines from multilateral institutions, and promoted investment incentives such as Colombia's modernized free trade zone mechanism, legal stability contracts, and new bilateral investment treaties and trade agreements. The government has also encouraged exporters to diversify their customer base away from the United States and Venezuela, Colombia's largest trading partners, although China surpassed Venezuela as Colombia's number two export destination in late 2009. Nevertheless, the business sector continues to be concerned about the impact of a global recession on Colombia's economy, an appreciating domestic currency, as well as the approval of the CTPA, which is stalled in the US Congress.�

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IV. ACTUAL HOUSING SYSTEM

VICE – MINISTERY OF HOUSING AND TERRITORIAL DEVELOPMENT The political constitution of Colombia of 1991 establishes that housing is a right of all citizen, and the state must provide and fix all necessary conditions for it. The housing quality is one of the pillars for the of poorness and low life quality. The construction sector, and therefore the housing sector, has always been one of the most important one for the economical development in Colombia, because of the use of two very important Colombian resources: low skilled workers and national row materials.

The National Development Plan, as the highest law for development in the nation, requires each territorial entity (municipality) to set an portion of its land for VIS and VIP development projects.

The Access to housing in Colombia nowadays, can be made through self-financed acquisition (using savings or other credits), private and special credits or public subsides. The actual National Housing Law establishes the parameters for the individual housing financing in a long term to facilitate the housing access and the conditions for the credits and subsides for social interest housing or public housing.

The specialized system in housing financing provides for the citizen, the special conditions for credit, as a fixed rate, 30 years deadlines, forbidden capitalization of interests, prepayment or partial payment without sanctions. It also keeps the relationship stable between the quotas and the payment capacity, updating it with the inflation rates.

The public housing, called social interest housing, is divided into 2 types: VIS: social interest housing. The type of house whose maximum value is 135 minimum monthly salaries (MMS), which means 62'302.500 pesos ( € 20.000 approx.)

(VIP): priority social interest housing. The type of house whose maximum value is 70 MMS, which means 32'305.000 pesos (€ 10.000).

The appliance for the subsides in order to access a VIS or VIP, are made through the SISBEN, which is the System of Identification of Potential Beneficiaries of Social Programs, and which is the one ensuring the needs of the population, and if a family “deserves” the subside or not.

All the beneficiaries, unless the families with less than 2 MMS, the populations displaced by violence or natural disasters, living in high risk areas or coming from the islands (San Andres, Providencia y Santa Catalina) must go through a program of Previous Savings (Ahorro Previo) paying monthly contributions depending on their incomes, and which represents an small part of their fund for the house. This policy is made not only to contribute paying for the house, but as a way of commitment of the family with their “home-construction”.

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+ Actual government policies: Family Housing Subside: Through the CCF, the employees earning less than 4 minimum monthly salaries, are able to apply for a subside for housing. This can be made in money or in-kind (for example in terrain to develop a house later, with help of some technical advisor). This calls are made by official announcements every year through communication media. The requirements are basic, but they imply being employed (or working independently) as a first thing, and have a family (of two or more persons, heterosexual matrimony or in permanent partnership). The subsides are given by Fonvivienda (for low income families or independent/ informal workers), the CCF (for employees) and the Agrarian Bank (for rural areas).

Long-term housing financing: The individual housing credits correspond to the loan made to one person for acquisition, construction or improvement of a VIS. This credits are given in pesos (legal Colombian coin) or in mortgage bonds in UVR as established in the Housing Law, and defined every year by the Republic Central Bank in head of the president, and based on the inflation. The VIS and VIP subsides are given always in pesos, not in UVR. Covering of inflation for housing credits: The state guarantees for all the beneficiaries of credits, the UVR will never be above the inflation, which permits the debtor knows the behavior of its credit rates throughout the period, and even constant and decreasing quotas.

Informal families Guarantees: The independent workers or single workers who apply for a credit or subside also have some guarantees protecting from the open market by the Housing Law. Iva devolution to constructors of VIS and VIP All the row materials for VIS and VIP projects can be bought with no IVA, because its possible to ask the state for the return of the value of the taxes.

Housing leasing Is a sort of renting, in which an entity (bank or commercial financial entity ) gives a house to a contractor, who pays monthly contributions and can also apply for buying the property.

Construction promotion accounts (Cuenta de Ahorro para el Fomento de la Construcci贸n, AFC) There is a tax reduction for people investing in housing through the AFC figure.

Real state micro credit Financing for acquisition, construction or improvement of housing under 25 legal monthly minimum salaries value, less than 5 years deadlines and interest rates of finance same as VIS ones.

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The Colombian institution of savings and housing

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This institution is in charge of promoting, educating the community and managing all the different kind of policies and treatments given by the state to the housing issue.

The Agrarian bank of Colombia

This is the statal institution in charge of managing and financing all the rural activities, such as agricultural, and also the rural subsides for housing.

SOCIAL HOUSING system and policies

The financing The governmental entity FONVIVIENDA (National Housing Fund) is actually the one in charge of managing controlling and ordering all related to the finances, and the budget of the central state for the housing sector, as much as making the transferences to every territorial entity (departments, and then municipalities).

The FNA was created through Special Decree 3118 of 1968 to manage the severance pay of public employees and official workers. Through Law 432 of 1998, this became a State Industrial and Commercial Business focused on finance at the national level which allowed it later to extend its business to the private sector. Its mission is directly related with the goals of the State especially the right of all Colombians to have a decent home and access to education.

Education and Housing Policies Boost sustainable economic growth and creation of employment.

Promote housing and construction.

Construct social equity.

Quality of urban life.

Risk prevention and mitigation. “ The benefits are credit for Housing and Education, no administration fees, no commissions charged for partial or full withdrawals, the public employees with retroactive service do not lose this benefit when transferring over to the FNA, four decades of experience, soundness, confidence and profitability. Ample National Coverage Extensive. Solidarity Group Life Insurance. This insurance guarantees the affiliate that has not been a beneficiary of a Credit and that is not a Homeowner, the recognition of compensation to his/her beneficiaries for the purchase of a home in case of death or total or permanent disability.�

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V. CONCLUSIONS The role of the state in a liberal economy, but a trouble society as the Colombian one, has to be reoriented.

The market ruled welfare has the power of letting too many people outside the systems, and when it gets into a society with a strong armed conflict, tends to let more losses than gains.

The Colombian state and the definition of regions and territorial entities, is still a little bit blurry, even more when seen from the rural “apart territories” and from the point of view of this populations, that are the most affected by the hard natural conditions of the tropic and the lack of presence of the state. The presence and the welfare of the state is not clear enough and not efficient enough for the housing issue, and other basic population needs as well.

Efforts are being made to re-conquer “the rural-apart” territories and re-integrate them into the social state, but the way has been long having policies against the rurality, and it’s clear specially in the data about housing. The new approaches have to be definitely more “inclusive” for all populations in Colombia, and taking in account all the

+ Which have been the gains in all this fast and hard industrialization of the rural areas in Colombia, and which are the implications when this process of migration to the urbe, mix with a violent and abandoned by the state rural territories? + How to manage the growing urban areas maintaining the quality both of urban life and urban housing?

METROPOLIS+RURALDEVELOPMENT+SUSTAINABILITY+DECENTHOUSINGCONDITIONS

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VI. BIBLIOGRAPHY -

*1“The housing market in Colombia : socioeconomic and financial determinants”, by Sergio Clavijo, Michel Janna, Santiago Muñoz. Cataloging-in-Publication data provided by the Inter-American Development Bank, Felipe Herrera Library. Washington DC, USA. 2005. *2“Housing finance in Colombia : from UPAC to UVR” , by Juliana Silva Echeverry, University of Strathclyde, Glasgow, UK. 2003. *3“Perspectivas de la vivienda en Colombia” (Housing prospective in Colombia) National Planning Department DNP, National Congress of CAMACOL 2007, Medellin, Colombia. 2007. *4“Subsidio de vivienda: realidad para los ricos, sueño para los pobres” (housing subsides: reality for the rich, dream for the poor)

Informational Web sites www.fna.gov.co www.inurbe.gov.co www.dnp.gov.co www.minambiente.gov.co http://icav.asobancaria.com/index.php www.hphcolombia.org www.servivienda.org.co www.metrocuadrado.com www.cia.gov/library/publications/the-world-factbook Online documents: http://www.habitat.org/intl/lac/46.aspx http://idbdocs.iadb.org/wsdocs/getdocument.aspx?docnum=472977 http://www.lablaa.org/blaavirtual/tesis/colfuturo/tesis_juliana-silva.pdf http://www.gestiopolis.com/recursos2/documentos/fulldocs/eco/subvijc.htm

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