Lack Of Rental Housing Creates Gentrification

In emerging countries like Mexico where home buyers in urban neighborhoods displace lower income households, the question is not who to blame, but what can be done to change the housing system.

Mexico, a country with a population of 112 million people living in 28.6 million households, has a hungry demand for housing, reaching beyond 1 million units per year with a 50% underserved housing market. (553,000 units were offered in 2016 according to CONAVI; Mexico’s Housing Commision ).

A lack of housing that creates gentrification, urban sprawl and an increase of dwellings (irregular housing settlements). A series of actions that affect the economy, create poverty and generate an income gap within Mexico.

Ever since the 1970s policymakers in Mexico emphasized on home ownership and created INFONAVIT with the goal of generating sources of housing finance for private and public sector workers.

During the 1990s the devaluation of the Mexican peso took all housing efforts into a halt. To the point that in 1997 INFONAVIT created a report called “The State of Mexico’s Housing” , which identified the challenges of the Housing Market and the need of large-scale infrastructure through mortgage lending. As a result, in 2000 housing ownership got a jump-start through mortgage markets, this way financing affordable homes to larger segments of the social income market.

From 2010 to present day much changed, the 90s solution morphed into a Mortgage Housing Disease (MHD), with side-effects still apparent today like:

1. Urban sprawl.
2. No access to credit for a large portion of households.
3. Unaffordability among those who have access to finance.
4. Limited financing for those living in rural or semi-rural areas.
5. Bankruptcy of large specialized lenders “SOFOLES or SOFOMES” (when this sector was the only one serving informal sector households.)
6. Wary investors because of quality of portfolios, bringing private investing to a halt for social interest housing.

The solution for real estate developers was to move upstream within the market. From building the low-income housing sector to laying the foundations for the upcoming middle class.

Today more than 50,000 units are being built for the upper middle class. An effect that’s reshaping most old urban Mexican neighborhoods, given that modern households want to live within an urban landscape.

The repercussion of this new strategy is the displacement of neighborhoods and the cultural heritage loss that’s being created through gentrification (process of neighborhood renewal accompanied by the influx of the middle-class into deteriorating areas that often displaces lower income residents).

But who is to blame, market or government? Evidence shows that the current house ownership system has a much stronger effect on gentrification than rental housing, given that neighborhood accessibility is reachable when residents don’t have to fully own the place they live in.

Today rental housing in Mexico is, in large proportion, in the informal sector. According to a World Bank report, “there is virtually no formal system of large landlords, property managers, and institutional investors like those that exist in other countries like Germany or the United States... Nor is there any system of social rental housing, or housing that is owned by a governmental or a nonprofit entity and leased to people who have low income or special needs.”

Another argument is that when people use disposable income for the overall urban economy, instead of mortgage payments, small businesses and the social fabric of neighborhoods become more accessible to multiple sectors of the population.

For this set of reasons the rental housing market should become a priority for the Mexican economy. A real solution for mitigating the effects of urban gentrification in Mexican cities and other emerging countries.

The true key-holders of this proposed solution are banks and government financing arms, which can generate the capital needed for rental developments for affordable and middle-income housing within urban areas.

A model that can create bridges between developers, financiers, neighborhoods and the people that live in them.