SUMMARY AND COMENTARIES TO NATIONAL HOUSING POLICY OF THE EL SALVADOR GOVERNMENT RELEASED IN JUNE 2005

The National Housing Policy of the El Salvador Government (2004-2009), is a State Initiative that the actual government has formulated and promoting. It was presented to our society in June 2005 and is under coordination by the Vice Ministry of Housing and Urban Development, which is part of the Ministry of Public Works.

The policy includes the two millennium development objectives, which are to reduce to 50% in 2015, the proportion of people without access to potable water and basic sanitation, and needs to accomplish for 2020 a significant change in the life’s of 100 million habitants in slums and marginal zones.

The National Housing Policy has nine general objectives and action lines, one of which is to implement a National program of Savings for Housing and implement financial instruments to attend housing supply and demand.

Other actions lines include making more effective and efficient state entities related to the sector and modernize and integrate the legal and normative frame that regulates it.

The objectives of the Housing Policy are to contribute substantially to human and economic development of the country, assuming the constitutional, social, political and moral responsibility that ”every Salvadorean occupies and becomes an owner of a adequate housing solution in accordance to his possibilities in a sustainable environment”.

All this, puts a priority in the low income housing segment of Salvadorean Society if it is to contribute substantially to the actual governments plan. As we will see afterward, Government is asking for a supply and demand study with emphasis in the low income segment, but that includes middle and high income supply and demand analysis.

Because generating new mechanisms and financial instruments, in accordance to the economic reality of our country, is one of the main issues of the housing policy, then a system which measures correctly demand and supply for financial investment purposes in the low housing segment will be one of the government objectives.

Homes or families in 2004 ´were estimated as 1,626,036 with an average of 4.2 people per family group.

The housing park in El Salvador to the year 2004 was of 1,593,528 houses of which 63% were urban and 37% rural. Of this total housing park 1,081,216 or 66% were in good conditions and 512,312 or 32% presented some type of deficiency.

If we aggregated to the houses that presented deficiencies, those houses corresponding to demand of new homes, the total deficit camed to the order of 545,000 units in 2004. We must aggregate an approximate of 32,000 houses annually because of the vegetative growth of the population.

Demand has always registered a cyclical behavior in disharmony with supply, without any effort being made tending to its compatibilization. That is why it is necessary to develop new financial instruments that potentiate access to credit by the informal sector and Salvadoreans living abroad. (They have consistently been left out of formal supply and that is why their housing demand needs to be measured). When we mention informal sector we mean all those self employed people and people that employ others, that don’t register their transactions in a formal accounting system because they avoid paying taxes and therefore don’t have any means to prove their capacity to pay a loan. When we mention Salvadoreans that live abroad, we are talking about almost 2.5 million Salvadoreans that represent 30% of total our nation’s population and that are living and working in the U.S. and that is estimated that are investing in real estate more than 8% of the total 2 Billion dollars of remittances that they send to El Salvador annually.

In the past, I have been a member of an interinstitutional group composed of Developers, Bankers, Government and Real Estate Professionals. I have seen technical requirements of a survey that was intended to be made of demand of housing by this sector and that was left aside because of change of Government in 2004 and that must be reconsidered and redirectioned by goverment.

This creates the necessity to create a system that measures correctly demand and supply for financial investment purposes in the low housing segment and that includes measurement of demand and supply for people of the Informal Sector and Salvadoreans living abroad.

Because one of the actual problems are that the regulatory and institutional frames are obsolete, and produce inefficiency, bad coordination and lack of compromise in relation to changes in the sector, a design of a system that measures offer and demand must include an analysis and recommendation of who must have the responsibility for such system and its management and how can it be incentivated and implemented.

The housing policy is based in three axis that are:

1-Housing as a development tool.

2-Access to housing.

3-Modernization of Technical, Institutional, and Legal Frames.

Consequent with it, there are some points that government thinks in its Housing Policy, that must be achieved and that are of our interest:

1) Adequate Financial instruments. Again this places the necessity of offering a correct system that can measure demand of housing/loans, to better design the financial instruments. This puts a strong necessity of facilitating a correct measurement of supply and demand of housing to permit implementation of instruments such as Mortgage and Asset Backed Securities.

2) Promotion of long and short term financing.

3) Promoting peoples compromise with their land of origin and development of incentives to Salvadoreans living abroad for investment in projects of the sector located in El Salvador. Again this places the necessity of creating a system that measures demand and supply of housing solutions for Salvadoreans that live and work abroad (approximately 2.5 million Salvadoreans live in the U.S. and there are already some initiatives like a guarantee fund that will guarantee 100% any mortgage that is given by an American Bank to Salvadoreans that live in the U.S. and that want to buy a house in El Salvador).

4) Modern and efficient legal and normative frame. Again this places us in the necessity of defining who must create and manage the housing supply and demand measurement system and what will be Governments participation and responsibility in it.

5) Development and management of housing and territorial information instruments.

Inside a Social Market Economy, the Salvadorean State believes that it corresponds to it to promote the following:

-Create conditions in which Savings and resources are moved to the housing sector and to obtain positive returns in real terms.

-Create conditions in which mortgage loans are recovered in real terms, making housing finance sustainable in the long term and making possible that the financial intermediaries find the financing business, a productive option.

Government’s executive organ in article 43, confers to the Vice Ministry of Housing and Urban Development the following obligations and faculties:

-Formulate and lead the National Housing and Urban Development Policy, and elaborate National and Regional plans and dispositions of general character for developments, land parcellings, human settlements in general, and constructions in all the Republics territory.

-Plan, coordinate and approve the activities of the Housing and Urban Development sectors; determining in its case, the competency and respective activities of the State entities in its execution and orienting the participation of the private sector in such policy.

This means that if the promotion of a system that measures supply and demand is not to be managed by the Vice Ministry of Housing Urban Development, ít must be adviced which entity could be more suitable for this means.

Local governments are managed independently and in coordination with Central Government, and it could be sometimes difficult if local Mayors are of different political parties than Central Government.

Other functions, obligations and faculties that the Vice Ministry of Housing and Urban Development has, are the following:

-Elaborate, facilitate and care for the Urban Development Plans of those localities whose municipalities don’t count with their own local development plans. (We have entered a process in which local development plans are being created and there are already many of them for the most important areas of the country)

-Plan and coordinate the integral development of human settlements in all the national territory.

-Approve and verify that the programs that are developed by the Autonomous Official Institutions that belong to the sector, are coherent with the National Housing Policy emitted by the Vice Ministry of Housing, and coordinate all that is related with human settlements in all the Republics territory and verify that they are coherent with the development plans emitted by the competent municipalities.

-Adapt and be vigilant of the completion of Laws and Regulations in matters of urbanism and construction that exist.

One of the most important objectives that are a priority in the Housing Policy is to create a sustainable source of National Savings, that is able to activate a virtuous circle of saving-investing-growth-labor and accelerated reduction of poverty. The line of action to accomplish this objective will be to establish a system of savings and individual capitalization destined to the acquisition of housing and generate the mechanisms of transfer of resources to finance infrastructure projects.

Investment is one of the priorities and to invest, data is needed, and the most important data is demand and supply.

Data of demand is actually thrown by the Housing Census which is made every 10 years and which was be done again in 2005 and was made until 2007. There is also another tool that is used for obtaining data of demand and that is called the Family and Multiple Purpose Survey that is used to measure consuming patterns in Salvadorean Families. It is not a specialized Survey for Real Estate or Finance Purposes.

Again, to accomplish other priorital objectives in the Housing Policy such as eradicating the housing deficit, there are many action lines such as promoting and giving impulse to a secondary mortgage market, and designing instruments that facilitate access to finance houses to Salvadoreans that live and work abroad.

Another prioritary objective of actual Housing Policy is to arrange diverse financial instruments to attend housing supply and demand and specific lines of action include promoting an individual system of savings and capitalization destined to the acquisition of houses, establishing a system of guarantees that permits that enterprises increase their offer and that families access long term financing and to create entities that emit and manage Mortgage Backed Securities (secondary mortgage market) that facilitate access to housing finance.

The area of access to housing is a prioritary area of the Housing Policy, because there is a problem described as an inadequate condition of supply of land with urbanizable vocation that favors territorial development .This is because actual territorial conditions in our country, for the creation of urbanizable land, is in general terms very restricted, specially for those projects directed to sectors of low income, not only because of geographic conditions in our countries and it’s regions, but also because of the absence of mechanisms and instruments to incentivate and promote the creation and consolidation of urban and urbanizable land. The lack of land with basic social services is another problem that affects the possibility of the salvadorean families to have access to an adequate home. With the set in motion of an aggressive construction of houses of social interest supported by a direct housing subsidy, the situation tends to complicate a bit more, because a strong pressure is put in urban an urbanizable land. For that reason, a housing policy that does not include measures that tend to offset this effect could provoke that in practical terms, a translation of the housing subsidy provided by government is made to real estate owners, limiting severely the results of the housing policy. The participation of central and local governments is of vital importance in this matters in the sense of propitiating and giving impulse to market mechanisms that permit compatibilization with the objectives of the Housing Policy and Territorial Policy and in this way to resolve progressively the difficulties of the safe and competitive organization of cities and rural habitat, through the reduction and elimination of housing deficit. In this sense one of the objectives is to Increase supply of land dotated with basic social services adequate for the development of human settlements and Increase the densification of habitational land. To accomplish this objectives there is a specific action line that is important: DEVELOPMENT OF A HOUSING INFORMATION SYSTEM Eg: supply of habitational land, reference prices, restrictions, minimum density permitted, etc).