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