Press Room

PRIVATE COMPANIES MAY HELP SOLVE HOUSING ACCESS ISSUES

September, 2014

Legislators must consider the different actors involved in the real estate market, such as construction companies, local governments, MINAE and environmental organizations when drafting laws to help in-need populations access housing.

Equal access to housing laws for low-income populations and persons between 18 and 35 years have recently been on the table again for the Legislature.

Government administrations have made reiterated efforts throughout the past 20 years to eradicate slums, grant housing bonuses, and facilitate financing for middle and low-income persons.

While the Government could have used these funds for education, all, or at least the vast majority, of these efforts have been fruitless and have even diverted fresh funds to undefined projects without clear purposes or goals. In some cases, these funds have been used towards political patronage or have been tangled in bureaucratic procedures.

Two very specific examples serve to illustrate this point: the Solidarity Taxing Law (in Spanish, Ley del Impuesto Solidario) (Law 8683), which is a tax over homes valued over a certain amount, and the Law for Young Persons to Access Housing (in Spanish, Ley de Acceso de Vivienda para las Personas Jóvenes) (Law 9151).

The Law to tax "luxury homes", attempted to tap into new sources of funding to provide housing for low income populations. By 2013, only one third of the expected funds had been collected, and it seems that evasion will be even higher in 2014.

This tax is inefficient and has not complied with its purpose. For example, calculating the tax is complex and the payment is fairly difficult, which hinders the good intentions of the regulation and creates a very real possibility of tax evasion.
On the other hand, the Law for Young Persons to Access Housing has not had the impact intended and, one year after its approval, the financing fund is still inexistent. Although this sector needs to grow, the Law contains serious deficiencies by not defining the financing conditions or the borrower profile required to opt for a credit. It shies away from being effective, and in many cases, it fails to address the financial realities of the real estate market.

WHAT IS THE SOLUTION?
It is hard to envision the best mechanism to reach the ultimate goal of providing housing for populations in need. However, our legislators must continue to follow a progressive view towards lawmaking, by including the different actors involved in the real estate market, such as construction companies, local governments, the Ministry of the Environment and environmental organizations.

The government, through INVU, BANHVI, and the Ministry of Planning cannot, and must not, build 800,000 houses and then give them away at no cost. The Government is not a construction company, and must not spend its resources and efforts in a financial activity that is not its own. Rather, the Government must implement mechanisms to supply the shortages the sector might have.

For instance, the new "Poor Door" Law recently approved in the State of New York, which has been criticized and questioned by several organizations because of its name, has promoted economic growth in depressed areas of Manhattan while meeting its social objectives.

The law contains a tax break provision for real estate developers that construct vertical buildings for mixed use (commercial, office-space, housing), in which a certain percentage of the homes are destined for low-income persons.

These homes will be sold at more accessible prices and/or will allow renters to pay prices below the market rate. This way, the same building would provide housing solutions for persons of different social statuses, including low-income persons living outside Manhattan, who, thanks to this initiative, can live within the island, access decent housing, live closer to their work places, and achieve a better social integration. This has translated into significant economic and social benefits.

If an initiative like that were to be applied in Costa Rica, the Government would be able to solve several problems, and could use its resources for education or to control financial deficit. An initiative like this would transfer the problem of decent housing to real estate developers, who would obtain economic incentives (tax related) if they decide to pursue vertical construction.

This initiative could be accompanied by two other options such as supportive and responsible construction (in which parks, schools and nearby green areas are embellished by the real estate developers) and sustainable construction (green constructions with renewable energies).
The incentives for developers in these cases could be discounts on the taxes for the construction permits, or a "fast track" procedure for the approval of permits (SETENA and INVU) in a term shorter than the 12 months that it currently takes to obtain them.

The funds not received as a result of the tax benefits, would be offset by more construction (rather than the expected 9% reduction that has been announced), and would create additional jobs.

Besides, this would impact the beautification of the city, and the reincorporation of public zones into daily life. In addition, our "dear" rush hours would be reduced because there would be less displacement.

The role of the Government would be limited to preparing a census (which already exists) to determine - in an objective way - who would be entitled to opt for this type of housing benefit. It can then launch joint projects with banks to also provide financing options and solutions for this group of persons.

The project could be executed by using legal figures such as real estate leasing, or by issuing mortgage titling that would indirectly reactivate the Costa Rican assets market, which is critically depressed.

This type of project would create an economic engine for the Government: the construction sector would grow, and stronger social integration would be created.

In summary, it is necessary to create a distance from laws such as the Solidarity Taxing Law and the Law for Young Persons to Access Housing, not only because they are not the most effective way to reach our goals, but also because they have not had the desired impact. It is time to look at more developed countries and seek housing solutions that incorporate and promote the participation of private companies, taking into consideration the needs of the middle and low classes, and those of the younger generations.

Eduardo Zúñiga
Junior Partner of Arias & Muñoz
ezuniga@ariaslaw.co.cr

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