Brazil’s Base of the Pyramid Housing Program Significantly Lagging

For a country increasingly being referred to as a “future superpower,” it is often hard to formulate this vision of success when seeing the reality of living conditions for the large majority of Brazilians. Whilst it is true that incomes are rising and many people are benefitting from the new economic landscape, the ability to deal with the growth of urban slums is arguably one of the largest challenges the country faces.

At its launch in April 2009, the Minha Casa, Minha Vida (My House, My Life) program was hailed by former President Luiz Inácio Lula da Silva as the answer to the country’s housing woes. The proposal was a seemingly simple subsidy granting program to be largely focused on majority ostracized from getting on the ladder as well as complementary incentives for the construction industry. At the time, the real estate development sector rubbed its hands in excitement at the prospect of having a pre-established demand level at what some estimates point to as being 30,000,000 housing units. However, as with many Latin American government-led programs, a number of key real time issues have since emerged.

A Lack of Established Presence in the Low Income Housing Sector - Almost two years after the launch of the program, it was reported that just 3,600 units were actually delivered to the low income Brazilian population and during the course of 2011 not one unit has been acquired specifically by the demographic – mainly owing to a lack of affordable options being available. Perplexingly, the Dilma Rousseff government initiated part two of the program in mid-2011 (with a low income housing construction target of 860,000 units by 2014) despite this and the other complications below remaining.

Rising Costs of Construction - Whilst the recent amendments of monetary policy and public spending cuts may yet need to filter through into the wider economy, the effect of inflation on building inputs has been one of the predominant factors in impeding the true progress of the program. As the average Brazilian basic production cost of construction rose from R$ 690,20 per square meter at the launch of the program to R$ 802,66 per square meter in September 2011 (according to the SINAPI government index), building for the affordable housing sector has become simply unfeasible. The result has been either “corner cutting” building procedures, as housing developers secure their gains (but compromise quality), or, as has been largely the case, a complete abandonment of the sector.

Land Speculation - Whilst widely perceived as becoming more under control, the rapid growth of Brazilian real estate has filtered through to have a proportional effect on land values, particularly in the fast growing metropolitan areas (total urban population has grown from 64 percent in 1950 to 84 percent in 2010). In Rio de Janeiro, for example, in what is already an area with limited supply, plots of land are snapped up almost immediately after release for sale and values have subsequently risen to levels that professional constructors cannot work with. For Minha Casa, Minha Vida projects themselves, the few projects that have occurred are often located in areas where land is cheaper but not as desirable (due to not being located to employment, schools, health facilities and other essential amenities and infrastructure).

Construction Worker Supply Decreasing - Added to the difficulty of the rising costs of inputs is the issue of labor supply – more Brazilian building site workers are refusing to accept what has become increasingly recognized as tough working conditions with low pay levels. Furthermore, with the improving economic conditions, there are a number of better opportunities available in other employment sectors.

Higher Price Ceilings - In February 2011, under debatably forced market pressure combined with reinforcing its political image, the Brazilian Cities Ministry elevated the maximum value of Minha Casa, Minha Vida price ceiling from R$ 130,000 to R$ 170,000. Whilst this served to bring more construction projects within the realms of the program, housing became even more beyond the reach of Brazil’s low income majority.

Overpricing - As shown in a recent survey undertaken by our associated site the Brazil Real Estate & Land Investment Guide, the program has become entirely focused on the middle income segment – knowingly moving away from the true market needs.

Complicated Administrative Procedures - Brazil’s well recognized bureaucracy has bought a reluctance on the part of constructors to become involved with the program despite interest free financing and other incentives.

A Lack of Professional Industry Guidance - It is widely viewed that the civil servants who created the Minha Casa, Minha Vida are clearly not specialized in understanding the complexities of real estate construction, let alone the needs of Brazilian low income groups.