Tuesday, 2 June 2015

Mortgaging Development: The World Bank and the Globalisation of Housing Finance

Through this post, Liam Clegg shares some preliminary findings from his research into the evolution of the World Bank’s lending for housing. 

In an earlier blog, I recounted the story of World Bank lending for housing in Mexico. The story was told through the prism of Lazaro Cardenas, a port on the Pacific coast of Mexico. Here, I add further detail on the case. I also present reflections on whether the Mexican story was a one-off egregious case, or can be seen to illuminate recurring patterns within the Bank’s lending for housing portfolio.

Lending for Housing in Lazaro Cardenas 
To begin, a recap on Lazaro Cardenas. In the early 1970s, a vast iron ore processing plant was constructed with Bank support on the outskirts of the town. Inward migration of c.10,000 construction workers and c.5,000 plant operatives and their families resulted, with the necessary housing being largely provided through informal self-builds. The standard of shelter was extremely poor, with utilities infrastructure almost entirely lacking. To try to remedy the situation that its intervention had helped to create (internal reports acknowledge the emergence of ‘a chaotic social, environmental, and urban planning situation’ in Lazaro Cardenas), the Bank approved first lending for housing in Mexico in 1978. 

The local municipal Housing Trust was contracted in to provide community facilities, upgrade existing low-quality shelter, and create thousands of plots of land with utilities connections for self-build construction (‘serviced plots’). Around US$40m (2001 value) was earmarked for these purposes. While improvements were undoubtedly achieved, the project was beset by major problems. Auditors refused to sign-off on Housing Trust accounts, with poor record keeping making it impossible to effectively track the purposes to which Bank resources had been used. Suspicions of mismanagement were later confirmed by the Bank’s own site visits. 

World Bank site visits revealed that facilities the Housing Trust claimed to have supplied simply did not exist. One of the community developments that bucked the trend was the Plaza Tabachines, a small local market that did exist, and indeed continues to exist; the structure can be found on googlemaps (the ‘medium sized, single storey, red brick commercial centre with a big sign on its roof’ referred to in the previous post). Unfortunately, it wasn’t built with World Bank money, but with a different pot of resources. Wherever the balance of the US$40m had gone, it wasn’t to this Plaza. By a quirk of fate, however, the Plaza has in fact over time come to be more closely linked with World Bank lending for housing in Mexico.

Since the 1990s, the primary form of the Bank’s lending for housing in Mexico has been through projects directed at mortgage market extension. First of all, the Bank supported the federal government make reforms in its mortgage subsidy scheme. Through a number of mechanisms, those on the margins of housing finance are now given grants toward a deposit, to enable them to hook in to formal circuits of housing credit. More recently, the Bank has provided in the region of US$1bn to support the creation, in the early-2000s, of a Mexican version of Freddie Mac. The Sociedad Hippotecaria Federal (SHF) has further increase the pool of capital available for mortgage origination, with around US$15bn of SHF Mortgage Backed Securities having been sold on by 2010. Other things being equal, this increased supply of credit will have slightly lowered the cost of borrowing in the sector. ‘But how does this intersect with Plaza Tabachines?’, I hear you ask. Well…

… At some point in the last few years, HSBC has either bought or begun to rent space in Plaza Tabachines. Certainly, a large ‘HSBC’ sign is visible on googlemaps. This means that, if you live in the vicinity and have a sufficiently high income to be on the margins of accessing housing finance, then you might just be able to get access to a subsidy to enable you to walk through the doors of this HSBC and sign on the dotted line. 

For those individuals with moderately-paying jobs on the margins of gaining access to credit, these World Bank-supported schemes are undoubtedly beneficial. However, it’s likely that you’ll only be in a position to sign on the dotted line if you have an income that is several times the national minimum wage. If you are in formal employment but have a lower income, or if you work in the informal economy, you simply won’t be able to benefit from this recent World Bank lending for housing activity in Mexico. Sadly, if you have a lower income or work in the informal economy, your need for improved housing is likely to be significantly more pressing.

Mexico: A Representative Case, Unfortunately

The previous blog ended with the question of whether the Mexican story provided ‘an egregiously bad example of the globalisation of mortgage markets seeming to distract policy elites from undertaking more mundane, but betting targeted, housing policy interventions’. Sadly, it seems that the answer is ‘no’; rather than being an egregious outlier, the Mexican case is broadly representative. 

Since the mid-1990s, World Bank lending for housing has become quite poorly targeted across the board. The upgrading of low-quality housing in informal settlements and the provision of serviced plots has slipped down the organisation’s agenda; mortgage market extending has shot up the agenda (see Figure 1 below). In some cases, the benefit of these mortgage-market based operations are being enjoyed by the highest-income 50 percent of the population; in other cases the top 40 percent; in other cases, yet higher still. 

Much more detail on the topic will come through ‘Mortgaging Development: The World Bank and the Globalisation of Housing Finance’, which will be the main output from this research project. With the help of extremely useful feedback from colleagues across the University of York’s Department of Politics, I’m currently in the last few months of the re-drafting process (I think!) 

I will also continue to use #housingpolicymatters to gather relevant resources and insights together. Please do consider following @LS_Clegg and contributing your own interest and expertise to this hashtag-based endeavour. 

And here are some links for potential PhD Applicants on this area or other aspects of global economic governance, and for other potential postgraduate and undergraduate students.  

  Source: Author’s analysis of World Bank project database.


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