Housing and Finance in Developing Countries

William J. SiembiedaandEduardo López Moreno

California Polytechnic State University, USA, and Universidad de Guadalajara, Mexico

Three factors are important in understanding the status of the housing crisis in Mexico. First, there is a housing deficit that exceeds 3 million units and is increasing at an annual rate of over 200,000 units (SEDESOL 1996). In order to address this housing deficit a number of ambitious government programmes have been formulated over the past twenty-five years, but supply has only ever been able to address about 20 per cent of the total annual demand (Siembieda and López Moreno 1997, Pezzoli 1995, Ward 1991). Second, the purchasing power of wages has declined to approximately 40 per cent of 1985 values, presenting low-income households with problems of affordability (González de la Rocha 1994, Ward et al. 1993). Third, the housing finance system is inadequate either to address the demands for finance from households or to motivate a more efficient supply from developers (Zearley 1993, Lea 1996).

While these problems are acknowledged by the Mexican government and have prompted reform of the public and private commercial housing finance system on numerous occasions since the mid 1980s, this chapter argues that such reforms have not had the desired effects. An examination of the deficiencies in the present system of commercial and public bank trusts reveals significant constraints on the government’s ability to raise real wages and to incur debt from housing subsidies. It seems unlikely that the further continuation of a policy to readjust the present housing finance system, albeit in increasingly market-oriented forms, can ever meet the country’s real needs. Furthermore, a series of events in the finance sector specifically as well as the problems of macro-economic management, mean that the people’s trust in the central government or the commercial banking system to solve the housing crisis is low. It would seem to make policy sense, therefore, to promote housing

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