From: rich@pencil.cs.missouri.edu (Rich Winkel)
Subject: Proceso 537: Inadequate housing policies
Followup-To: alt.activism.d
Originator: rich@pencil.cs.missouri.edu
Organization: PACH
Date: Wed, 11 Nov 1992 00:50:16 GMT

/** reg.elsalvador: 126.0 **/
** Topic: Proceso 537: Economy **
** Written  3:07 pm  Nov  8, 1992 by cidai@huracan.cr in cdp:reg.elsalvador **
From: cidai@huracan.cr (Centro de Informacion Documentacion y Apoyo a la Invest. - UCAJSC)
Subject: Proceso 537: Economy

Center for Information, Documentation and Research Support (CIDAI)
Central American University (UCA)
San Salvador, El Salvador
 
PROCESO 537
November 4, 1992
 
ECONOMY:
Inadequate housing policies
 
     One of the basic needs which serves as a parameter to measure
poverty is housing. Thus, any policy which seeks (as ARENA's policy
does) to combat poverty must include sectorial social programs
aimed at meeting that need. The government's Development Plan
includes a sectorial program aimed at solving the housing problem.
     Nevertheless, and due somewhat to the goals of this program,
the housing policies which have been implemented are expected to
reduce participation in housing solutions on the part of the State
and the financial system. Some of the program's goals include
"eliminating the system of government protection of savings and
loan associations by 1991, and privatizing their shares." In
addition, the program hopes to "privatize, with some exceptions,
the execution of government housing and urban development programs
and projects starting in 1990."
     In this framework, the Urban Housing Institute (IVU) was
closed down, and changes were announced in the Social Fund for
Housing (FSV) which are beginning to make it resemble a private
bank. Both institutions were in charge of financing housing
programs for low-income families under favorable loan terms.
     For this reason, it is important to stress the need for a
sectorial housing program oriented toward the poor, but which does
not base its system on the market, since the market does not offer
adequate housing solutions.
 
Housing conditions
 
     Ever since it took office, the government has been fully aware
of how poorly basic needs have been met in El Salvador. In terms of
housing, the Economic and Social Development Plan acknowledged the
existence of a housing deficit of 450,000 units, of which 70% were
needed in urban areas and 30% in rural areas. In addition, in 1988
some 390,000 families (38% of total households) lived in
overcrowded conditions, while 58% of all Salvadorans lack potable
water and 42% lack sanitary facilities.
     For this reason, it was estimated that reducing the housing
deficit produced by natural population growth and by previous
accumulation, it would be necessary to build 30,000 units per year.
     These unfavorable housing conditions can be explained by the
specific characteristics of supply and demand. A glance is enough
to reveal the precarious condition of family income for the
majority of Salvadorans, and thus the low level of effective demand
this can generate. Low income is the reason why most cannot meet
their basic needs and, therefore, why the majority of Salvadorans
are classified as poor. According to the 1990/91 Household Survey,
54.1% of the urban population lives below the poverty line, while
eight-tenths of the population saw their real income drop between
1988/89 and 1991/92 (cf. Proceso 531).
     As a result, the greatest problem is that the real demand for
housing among the poor cannot translate into effective demand,
given the lack of ability to pay. As a consequence, the supply
necessary to meet housing needs cannot be found in the market.
     According to figures from the Vice-Ministry of Housing and
Urban Development, 14,118 units were built in 1989, of which 70%
cost between 19,153 and 71,952 colones ($3,000-$11,000 at the
time). Just over 90% of all new units were built in the department
of San Salvador, which demonstrates the exclusive nature of the new
supply. Furthermore, the public sector built 15.37% of all new
housing, while the savings and loan system built 61.42% and
accounted for 85.58% of total investment in all new housing costs.
 
Policy implications for housing
 
     One of the measures taken by the government to meet the
housing crisis was to reform the nation's savings and loan system.
The measure was taken more as part of the process of privatizing
the entire banking system than to help meet national housing goals.
Basically, the government proposes to broaden the operations of the
savings and loan associations (traditionally focused on financing
construction and purchase of housing) to include more profitable
areas. In addition, and as part of the ARENA's concept of the role
of the State, some operational changes have been made in the method
of institutional intervention in the area of housing and urban
development.
     According to the president of the Central Reserve Bank (BCR),
"with the process of privatizing the financial system, the savings
and loan associations ought to become more competitive and begin to
work like business which, as they become more profitable, begin to
play a greater role in financing the construction industry."
     This implies getting the savings and loan organizations to
become more profitable, meaning a priority on assigning resources
to activities which are more profitable than building houses. In
other words, the savings and loan organizations are to allocate
fewer resources to housing.
     Given the important role of savings and loan associations in
building and investing in housing (61.42% and 85.58%, respectively,
in 1989), these changes in the nation's financial system will have
a great impact on housing construction.
     Furthermore, and as part of the "institutional and legal
reforms for redirecting the economy," the government has promised
to privatize, close down and/or change the systems of those
institutions which are not playing an important role in its
economic strategy. Housing has not been an exception.
     Recently, the manager of the Systems Planning Division of the
Social Fund for Housing (FSV), Raul Rivas, reported on the
impending increase in credit limits for housing loans offered by
his institution, as well as a consolidation of interest rates to
13%. According to Rivas, the measure is part of a new system which
the FSV will put into effect next year in order to resolve its
precarious financial situation. Fixing interest rates just below
commercial bank rates (16%) is a fundamental component of the new
system which seeks to clean up the FSV's finances.
     Furthermore, and as we mentioned earlier, the IVU was closed
down for allegedly technical and financial reasons. In late 1991,
a proposal was made to merge the resources of the IVU, the National
Housing Financing Company (FNV), and the National Program for
Popular Housing (PRONAVIPO) into one institution, the National Fund
for Popular Housing (FONAVIPO).
     This merge represents an attempt to use the resources of the
three institutions in order to development popular housing programs
which can combat the problem of the nation's housing deficit.
According to the Vice-Minister of Housing and Urban Development,
{Roberto Paredes Martell, this deficit had reached 450,000 units in
1989 and requires 40-45,000 new units per year to resolve it
(10-15,000 more than projected by the Development Plan). According
to statements made by Paredes in November 1991, an "aggressive
program of housing solutions" requires a budget of one billion
colones.
     In early September of this year, Paredes announced that
housing programs were already funded to the tune of over one
billion colones; nevertheless, government investment in housing is
much less. There are 800 million to be invested in formal housing
projects, 200 million in FONAVIPO, and 20 million for allocating
plots by municipalities.
     The implications for the housing system of modernizing the
State and privatizing the financial system are still unknown, but
reducing State participation in this sector and restructuring the
financial system run counter to the efforts of the government's
Sectorial Housing Plan.
 
Conclusions
 
     The government's strategy for the housing sector, although
based on a realistic analysis of the situation, carries with it a
plan of action which is inadequate to resolve the problem. The
problems of the housing sector are to be resolved by reducing State
and financial sector participation and letting the market serve to
allocate resources.
     The market cannot be left with the responsibility of
conducting all transactions and determining the services to be
provided. In the case of housing, this would mean channeling
available resources to the construction of housing which is out of
the reach of the majority. Given current population trends, this
will only increase the housing deficit.
     At this point, the government's economic policy is the
greatest obstacle to meeting the nation's housing needs. The
efficiency found in private property, free markets, competition and
the State's subsidizing role do not create adequate conditions to
meet the housing problem.
     The lack of effective demand for housing, a product of low
family income, undermines any strategy which omits State
intervention in the private financial system and the direct
promoting of housing construction.
 

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