Building a new Brazil
All eyes will turn to Brazil when the football world cup kicks off there next year and the country is keen to make a good impression. Nick Duxbury tackles the government’s house building programme whose goal is to move people out of Brazil’s infamous favelas and into 2.4 million new affordable homes.
Football and favelas: as the 2014 World Cup approaches, Brazil’s performance on both counts will fall under the spotlight.
First, there is domestic anger. In the riots that broke out across the host nation in June, protestors - furious at the R$28 billion (around £7.5 billion) being spent on rebuilding stadia to meet Fifa rules - wielded placards calling on the government to provide ‘Fifa standard housing’. On the international stage, perceptions are no better.
This much was clear when, in September, a warning by Raquel Rolnik, UN special rapporteur on adequate housing, that British policy changes were creating ‘a danger of retrogression in the right to affordable housing in the UK’ was slapped down by ministers. Outraged, Conservative Party chair Grant Shapps asked why ‘a woman from Brazil’ - ‘a country that has 50 million people in shanty towns’ - was lecturing the UK government on housing policy.
Such scorn of Brazil’s housing record may soon require revision. Not because there isn’t a crisis - there are around 11 (not 50) million people living in favelas, and the country has a deficit of 8 million homes - but because another ‘woman from Brazil’, leftist president Dilma Rousseff, is taking radical steps to deal with its housing crisis head on.
It is four years in to its Minha Casa Minha Vida - ‘My house, my life’ - affordable house building programme, to move Brazil’s emerging middle-class out of private slum housing in favelas and into new build homes on a huge scale. By the end of 2014 it expects to have built 2.4 million affordable homes at a cost of R$72 billion (£19.3 billion).
Instead of subsidised social rent, the government has elected for subsidised social sale - in effect, seducing a generation of low-income Brazilians with the possibility of ownership. The result is a subsidised mortgage scheme not a million miles away from the UK’s help to buy programme. The scheme is means-tested, and intended to help only people who could not otherwise hope to own a home. If you earn a minimum wage - R$678 (£182) a month - you could be eligible and it is likely to be cheaper than renting in the favelas.
So, is this socialist take on a Thatcherite dream working? And, as the economy slows, elections loom and the nation faces the costs of hosting the World Cup in 2014 and the Olympics just two years later, is its affordable housing programme sustainable?
Inside Housing travels 4,465 miles across the Atlantic to Natal in north east Brazil to find out. Our host is EcoHouse - one of the only UK developers involved in the MCMV programme. It plans to build 40,000 affordable homes over the next five years across Brazil and has made a decisive start.
Already, it has 1,949 homes under construction from a pipeline of 7,496 - all financed through £22 million raised from international retail investors, who have been offered returns ranging from 10 to 20 per cent a year on their cash.
Chief executive, Anthony Emery, has since cemented his presence in Natal by buying a local construction company, football club (it’s good advertising), and is now in talks to secure up to £200 million of institutional investment to expand outside the state.
Mr Emery believes the MCMV scheme has already raised building standards. ‘Before the programme there was no control,’ he explains. ‘Housing complexes up dirt roads were built higgledy-piggledy, often without the necessary infrastructure. Now, people can’t just buy some land and build what they want.’
This doesn’t mean MCMV homes are luxurious; they are functional but stark by western expectations. Nonetheless, they meet construction standards and represent a huge upgrade from the dangers of the favelas that sprawl around the edge of Brazil’s cities.
At EcoHouse’s 2,000-home Bosque development near the airport outside Natal, this new disciplined approach is on show. Rows of unfinished, uniform terrace homes cook quietly in the midday sun.
Where an outsider might see bleak lines of grey concrete shells planted in a vast sand pit down a dusty track 45 minutes outside the city, Mr Emery sees the start of a thriving community. Over the coming weeks, asphalt will be laid, paint applied and gardens built. If the computer generated images (right) are to be believed, things will also look rather more green. Not that aesthetics matter; every home was sold off-plan within hours.
In fact, ‘demand’ doesn’t do justice to the ravenous appetite for housing from Brazil’s emerging middle class. Over the past decade 50 million Brazilians have seen their household income rise to between R$900 (£242) and R$1,200 (£323) a month - and with it their aspirations.
Eligibility is dictated by household income: you need an income of at least three minimum wages per household to enrol with the banks, and can’t earn more than 10 times the minimum wage. Around 60 per cent of the homes are aimed at Brazil’s lowest of the three income groups. EcoHouse focuses on the second, three to six times minimum wage, bracket.
Under MCMV, buyers can receive 25 per cent grants, 100 per cent mortgages, low interest rates, and waived credit fees. People can buy without a deposit by drawing down cash from an employment severance fund - a government fund that increases depending on the length of employment - and by accessing a fixed-rate, low-interest loan.
Outside a shopping centre in Natal, Itma, a 34-year-old local bus driver tells me he is in the process of buying.
‘I am renting at the moment and living with my wife,’ he says. ‘It will be cheaper to own a home.’ Right now, Itma pays R$600 a month in rent (around £161). After delays have been ironed out with the banks, he will be paying R$500 (£134) a month to live in his own home. ‘I will live there for the rest of my life,’ he states.
In a shop across the road, two of the four staff have bought MCMV homes. Francisco Carlos, 29, lives with his wife, in a home purchased last year. He pays R$400 (£108) a month compared with R$250 (£67)previously, but in a rental property in ‘a bad location’. Mr Carlos reckons it will take him 15 years to pay off the mortgage. ‘My living conditions are much better now - my life has improved,’ he says.
In Natal alone there are 65,000 people signed up to MCMV and waiting for homes. Around 1 million have been built so far in Brazil, but developers are struggling to get them out of the ground fast enough.
‘The big problem is the government started the [MCMV] scheme with one Federally-owned bank, Caixa,’ says Mr Emery. ‘All of a sudden they have a million applications.’
Although there are now two banks administering the scheme, developers are still waiting months for finance. This means some are delaying starting construction work, while others are going bust. Indeed, Mr Emery’s decision to tap retail investors was to ensure EcoHouse would not be at the mercy of the perilously slow banks for development finance.
But the banks aren’t the only source of delays, according to Rogério Marinho, secretary of state for development and infrastructure in Natal. ‘The bureaucracy here is very big; environmental licences in different stages of the government, construction licences, registration with the federal tax system, the government in general…’ he trails off.
Source: Nick Duxbury
As with stalled bank finance, for many developers it is a case of adapt or die (possibly literally, as bullet holes in the entrance to Mr Marinho’s Natal office bear testament). In typically bullish fashion Mr Emery addressed Brazil’s problems of corruption, crime and violence by purchasing a security firm. A team of ex-military heavies shadow him with untucked shirts that barely conceal the guns strapped to their hips, travelling in a convoy of blacked-out, bullet-proof 4x4s.
But where developers are under financial pressure and government pressure to meet demand, there is the risk that quality will suffer. And what is to stop these social housing schemes later becoming ghettos?
At EcoHouse’s Bosque scheme Mr Emery says there are measures in place, including gating the communities and the use of service companies that residents must pay R$95 (£25) per month to maintain the grounds and control access to electricity and water. But for other developers, he concedes this could be a problem.
As with help to buy in the UK there are worries that the Brazilian government is taking on excessive risk by lending to people who may have difficulty keeping up with repayments. Official data about default rates has not been released. However, Mr Emery believes the figure is between 15 and 20 per cent. ‘I don’t think that’s too high’ he says.
Privately, some officials admit there are concerns about the quality of the credit profile of Brazil’s first generation of mortgagees. Until 2009, just 10 per cent of the country’s property had a mortgage attached to it - and those went to the wealthy. Already, in two years, the value of mortgages on social homes has increased four times quicker than private bank lending to R$202 billion (£54 billion).
The consensus seems to be that the MCMV programme is too much of a vote-winner to be scrapped before next year’s election.
‘After 2016 I don’t know, though,’ says Mr Emery. ‘In this world… the army won’t suffer, but housing might. They could announce they will build 500,000 instead of 1 million one year.’
Which, after so much expectation, would be like crashing out of the World Cup due to an own goal.
Brazil: in numbers
population of Brazil, making it the sixth largest country in the world
approximate number of people living in slum dwellings known as favelas
number of homes Brazil needs to build to meet current demand
amount Brazil is spending on football stadia ahead of the world cup
value of the Minha Casa, Minha Vida affordable house building programme
number of homes MCMV aims to deliver by the end of 2014