analysisBy Raquel Rolnik
Raquel Rolnik, UN Special Rapporteur on the Right to Adequate Housing, emphasises the need for governments to prioritise human rights considerations over economic ones in housing policies.
The right to an adequate standard of living is enshrined in Article 25 of the Universal Declaration of Human Rights (UDHR) and Article 11 of the International Covenant on Economic, Social and Cultural Rights (ICESCR). Amongst other things, this includes the right to adequate housing - a particularly delicate issue in the context of increasing urbanisation across the world.
The policies and paradigms used to justify housing policies have changed over time, closely following the paradigms of the global political economy. But the three most prevalent policies, aimed at enabling housing finance for homeownership, have ultimately established a paradigm in which the focus has become the financialisation of housing rather than a human rights-based approach that expands access to housing for the poor.
I - A BRIEF HISTORY OF HOUSING POLICY
By the middle of the 20th century, many developing countries in Latin America, Africa and Asia had experienced rapid urbanisation of the rural poor. The absence of urban and housing policies to enable this new urban population to access urbanised land led to the creation of self-built informal settlements, characterised by precarious dwellings and a severe lack of basic services and infrastructure.
In the late-1970s, a dramatic shift occurred in housing policies, starting with North America and Europe, followed later by developing countries in Latin America, Asia, Africa and by formerly planned economies. This shift, supported by predominant economic doctrine, called for the transfer of activities from state control to the private sector and for unrestricted free markets and free trade.
A growing consensus was formed, according to which governments should renounce their role as suppliers of affordable housing and support market demand rather than directly providing outcomes. This new role implied creating conditions, institutions and regulations aimed at supporting housing finance systems to promote homeownership under neoliberal principles of reliance on private property and market forces.
Developed and developing countries have thus been steadily moving away from traditional supply-side assistance to demand-side policies. As a result, support for households to take on debt, the financial sector and the private housing market became the primary mechanisms for allocating housing solutions. Despite some diversity in housing policy experience, most countries opted for promoting housing markets and individual homeownership, privatising social housing programmes and deregulating housing finance markets.
II - THE HUMAN RIGHTS FRAMEWORK FOR HOUSING FINANCE
i) What is housing finance?
The need for housing finance systems was quickly identified as a crucial element in this paradigmatic transformation. Housing finance refers to financial policies and programmes that aim to finance the cost of housing for individuals and families by providing loans (mortgages or microloans) or grants (subsidies or tax exemptions) for the purchase, rental, construction or improvement of housing.
These strategies are based on the premise that the housing market, if properly designed and regulated, and with the necessary supporting legal and institutional framework, is capable of ensuring access to adequate and affordable homeownership for all.
Housing finance is now perceived not only as a tool for promoting access to adequate housing but also as critical to the development of the financial sector, and has become a central pillar of the financial market, expanding the terrain for global capital. It encouraged deregulation, liberalisation and internationalisation of finance in the 1980s and had major implications for housing and urban development.
ii) Where do human rights considerations come into housing finance?
Article 11 of the International Covenant on Economic, Social and Cultural Rights, recognises the direct impact housing finance policies have on the affordability of adequate housing.
States should accordingly establish laws, policies and programmes to ensure that the percentage of housing-related costs is commensurate with income levels.
States are also required to constantly monitor the impact of their housing policies on the realisation of the right to adequate housing and to control unreasonable increases in housing costs.
Policies and legislation should be designed to bridge social inequality gaps and when a policy proves detrimental to the enjoyment of the right to adequate housing, states should adjust and rectify their policies and programmes accordingly.
III - THE THREE COMMON TYPES OF HOUSING FINANCE POLICIES
i) Mortgage markets
In recent years, market-based housing finance has spread throughout the world at an unprecedented rate. Mortgage lending remains low throughout most transition economies and developing countries despite intensive efforts to develop mortgage-based finance systems.
It has been traditionally considered unattainable for the poor owing to issues such as lack of title, informal and illegal settlements, restrictive zoning and occupancy regulations, low and erratic income and large-scale employment in the informal sector. Research in 12 countries across Africa found that less than 10% of local populations are eligible for mortgage finance.
With the growing understanding that mortgage finance remains unaffordable for lower- (and often middle-) income groups in both developed and developing countries, over the past two decades new mortgage products were designed specifically for borrowers with low incomes.
Although these lending policies were intended to enable access to housing finance for low-income households previously excluded from the mortgage markets, they are still in effect extremely discriminatory, leading to ever-increasing household indebtedness and economic insecurity.
Yet, the effect of the housing crisis has been less detrimental for emerging economies where, owing to their structure and performance, mortgage markets remain smaller, more conservative and less connected to capital market flows.
ii) Demand subsidies
However, another major component of the shift from supply-side to demand-side housing policies has been the promotion of demand subsidies - as a means to enlarge the market for privately-produced residential units, mobilise public resources and direct them to potential buyers with the idea of "reducing government intervention".
The rationale is that low-income households will be able to finance their housing through the free market, with their own savings, assisted by a down-payment subsidy or a subsidised loan provided by the state. The main types of household demand subsidies used are: (a) direct payments; (b) subsidies tied to savings programmes; (c) interest-rate or interest payment subsidies; (d) tax subsidies tied to mortgage payments or real estate taxation.
The capital grant-subsidy approach has been promoted to target low-income households in particular. Programmes aim to increase housing affordability by offering a cash subsidy to cover part of the purchase price of a formally-constructed dwelling offered for sale in the market by private companies. The Chilean experience, said to be an inspiring model, has been widely replicated in Latin America and on a large scale in South Africa since 1994. But subsidy programmes in South Africa, Mexico and Brazil have been criticised for replacing widespread informal housing with low-standard and stigmatised housing typologies concentrating low-income families.
Capital-grant programmes have had difficulties reaching low-income households, mainly owing to the inability of low-income families to assemble significant down payments or to meet the monthly payments of market-rate loans. Even when able to meet the credit or savings requirement, many of the new owners could not afford to maintain the accommodation or pay the charges for their water and electricity, and were forced to sell their homes. Attempting to complement resources, some states have promoted the involvement of both private banks and non-governmental organisations in supplying low-income households with microcredit, in addition to the state subsidy.
However, research indicates that problems emerge particularly in instances where the same microfinance institution manages both the need-based subsidy and the demand-driven loan, as the amount of the subsidy is inversely related to the amount of the credit. In some cases, administrative barriers or difficult requirements, such as travel costs or constraints, expensive documentation, or inefficient land registration systems prevent low-income households from benefiting from subsidies.
iii) Housing microfinance
The majority of the urban poor live in unplanned and un-serviced urban settlements and self-produce their habitat incrementally, mobilising their own material and financial resources. In 2005, over one third (37%) of the urban population in developing countries lived in slums; yet until the 1980s, slum dwellers and the urban poor had not been a market for financial services. As a result, low- and even middle-income households adopted "informal" finance strategies based on individual savings, family loans and remittances, or moneylenders or pawnbrokers.
However, in the 1980s, a new finance paradigm emerged, one that appeared to be able to address poverty through the expansion of small, informal-sector income-generating credit: microfinance.
There has been a dramatic rise since then in the flow of private investment capital (supported by donors, multilateral banks and international organisations) into the microfinance sector and, more recently, into housing finance services adapted to support incremental building processes. In the past 10 years, a growing number of housing microfinance programmes have been initiated, offering loans to homeowners ranging from $300 to $5,000, frequently with repeat lending opportunities and repayment terms of 1-15 years.
Owing to their limited scope, housing microfinance loans are used mainly to finance progressive improvements to housing and expansions to an existing dwelling, or for the incremental construction of a home. Housing microfinance is offered by a wide variety of institutions including microfinance agencies, banks and commercial institutions, and intergovernmental organisations and NGOs specialising in shelter provision. Latin America has the largest housing microfinance portfolio, but it is growing in Asia and, to a lesser extent, in Africa.
Although microfinance agencies' interest rates are typically lower than those of informal moneylenders, they are much higher than those charged by formal financial institutions and have shorter maturities. In most cases, the interest rates range between 20-50%.
The use of floating rate interest also leads to increased interest over the repayment period, increasing clients' indebtedness and reinforcing a vicious cycle of poverty and the likelihood of defaulting. The incremental approach used may promote the habitability aspect of the right to adequate housing by assisting slum dwellers, but it does little to promote the broader aspects of tenure, location, availability of services and infrastructure.
Whether housing microfinance increases housing affordability is also questionable: housing microfinance borrowers increase their housing expenditure, but even after the improvements their dwellings tend to remain segregated from health and education services and employment opportunities. There is also growing awareness that many housing microfinance programmes, being financially oriented, appear to target only the higher-income urban poor and near poor (a household income of up to 120-150% of the national poverty line).
A more recent form of housing microfinance, developed mainly in Africa and Asia, is community funds. These funds work with group loans and/or savings in order to assist communities to finance land regularisation and acquisition, infrastructure and service provision, and home improvements. Community funds provide financial and technical support for the purchase of land parcels and communal infrastructure.
While such programmes developed in tandem with the evolution of housing microfinance, they have a significantly different approach, emphasising community ownership and broader aspects of adequate housing such as location, access to infrastructure and services, and security of tenure. Community funds are less finance-oriented and therefore interest rates on loans are usually lower than housing microfinance rates and loan periods are often longer, up to 25 years.
Community funds require government budgetary assistance and intense involvement by local and national government in the planning and execution stages in order to achieve the necessary scale, sustainability and technical assistance. Although it is still too early to assess the impact of community funds on the access to adequate housing for the poor, the financial sustainability of community funds has already emerged as a problem.
Owing to their large scale and reliance on multi-stakeholders, community funds depend largely on donors' financial and technical support, which can prove erratic, and research indicates that community funds suffer from low repayment rates and high arrears. Additional concerns have been raised that the communal loans lead to internal conflicts and power imbalances within the borrower communities, owing to differences in repayment capabilities.
IV - CONCLUSION
Subject to financial logic, the housing market has not led to adequate housing solutions for the poor. In many cases, housing finance policies have resulted in increasing inequalities in access to housing, increased tenure insecurity, poor location and low habitability, social segregation and sometimes, increased homelessness.
Long-term rights-based assessments of the impact of housing finance on access to adequate housing for the poor is largely lacking. Available data focuses on the volume of lending and housing finance availability, and there is a shortage of consistent, reliable indicators on the performance of housing finance systems over time, especially regarding the housing conditions of the poor.
The Special Rapporteur calls for a paradigm shift from housing policies based on the financialisation of housing to a human rights-based approach to housing policies.
Housing finance policies based on credit are inherently discriminatory against lower-income households, and, at their best, increase housing affordability for upper- and middle-income groups. Current solutions often "redline" the poor, who are required to pay much higher prices for financial services, exposing them to financial risks inherent to global financial markets and indebtedness.
At the same time, housing finance policies tend to focus solely on housing affordability while failing to address the broader aspects of the right to adequate housing: location, access to infrastructure and services, habitability and security of tenure. The focus on the financial aspects of housing has led to the conceptualisation of housing as an asset and commodity, distributed only by market forces. However, even when gaining access to credit, low-income groups have no capacity to negotiate credit conditions or housing typologies and are forced to comply with the housing solutions allocated by the economic and profitability considerations of the housing market.
Broader state policies and interventions should be adopted, including, inter alia, public investments in infrastructure and basic services, human settlements upgrading and rehabilitation, urban planning and land policies, public financing, land and housing provision, rent regulation and related legal and institutional frameworks.
The right to adequate housing should be respected and protected during the design, implementation and monitoring phases of housing policies and programmes and elaborated and implemented with the full participation of affected individuals and communities. The right to adequate housing should be understood as the right to live in conditions deemed adequate on the grounds of security of tenure; availability of services, building materials, facilities and infrastructure; affordability; habitability; accessibility; location; and cultural adequacy.
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QUESTIONS TO CONSIDER:
1. How and why did housing policies shift in the late 1970s?
2. How did housing finance become a tool for promoting adequate housing? What role do states have?
3. How have mortgage markets, demand subsidies, and housing microfinance aimed to make housing more affordable and how have this strategies failed?
4. How does the Special Rapporteur propose to shift current focuses?
UN-HABITAT and the Office of the UN High Commissioner for Human Rights. The right to housing. http://www.ohchr.org/Documents/Publications/FS21_rev_1_Housing_en.pdf
The UN Special Rapporteur on the adequate right to housing:
ILO 2010, World Social Security Report 2010/11. Providing coverage in times of crisis and beyond, chapters 1 and 2, pp 11-34 http://www.ilo.org/gimi/gess/RessShowRessource.do?ressourceId=15263
World Bank, Making Services Work for Poor People, World Development Report 2004. Washington, World Bank, 2003, pp. 1-43, 133-179 on health, nutrition, drinking water sanitation and electricity, http://econ.worldbank.org/wdr/
IDS Bulletin 38(1): issue on 'decentralisation and service delivery'
A. Barrientos and Hulme, D., 2008, 'Embedding Social Protection in the Developing World' in A. Barrientos and D. Hulme (eds.) Social Protection for the Poor and the Poorest: Concepts, Policies and Politics. Basingstoke: Palgrave Macmillan
* This article is an excerpt from the Special Rapporteur's report to the UN General Assembly on August 10 2012 on adequate housing. It is available at http://direitoamoradia.org/wp-content/uploads/2012/09/A-67-286.pdf.
 World Bank, Housing: Enabling Markets to Work, World Bank Policy Paper (Washington, D.C., 1993), p. 6.
 ECE, Housing Finance Systems for Countries in Transition, p. 7; World Bank, The Emerging Role of Housing Finance (Washington, D.C., 1988)
 ECE, Policy Framework for Sustainable Real Estate Markets: Principles and guidance for the development of a country's real estate sector, Geneva, 2010 (ECE/HBP/147).
See also World Bank, Housing Finance Policy in Emerging Markets, Loïc Chiquier and Michael Lea, eds., (Washington, D.C., 2009), p. xxxiv.
 Committee on Economic, Social and Cultural Rights, general comment No. 4 (1991) on the right to adequate housing, para 10, which can also be seen as authoritative guidance for the interpretation of the right to an adequate standard of living referred to in other international human rights instruments such as the Universal Declaration of Human Rights.
 General comment No. 4 (1991), para 11.
 IMF, Global Financial Stability Report, p. 134.
 UN-Habitat, Affordable Land and Housing in Europe and North America, p. 48.
 World Bank, Thirty Years of World Bank Shelter Lending: What Have We Learned?, Robert M. Buckley and Jerry Kalarickal, eds. (Washington, D.C., 2006).
 Aalbers, p. 159.
 UN-Habitat, Guide to Preparing a Housing Finance Strategy (Nairobi, 2009), p. 45.
 A. Gilbert, "Power, Ideology and the Washington Consensus: The Development and Spread of Chilean Housing Policy", Housing Studies, vol. 17, No. 2 (2002), pp. 305-324.
 Inter-American Development Bank, Sharpening the Bank's Capacity to Support the Housing Sector in Latin America and the Caribbean: Background Paper for the Implementation of the Social Development Strategy(Washington, D.C., 2006).
 Mariana de Azevedo Barreto Fix, "Financeirização e transformações recentes do circuito imobiluário no Brasil", doctoral thesis presented at the Instituto de Economia da UNICAMP, Campinas, Brazil, 2011; UN-Habitat, Housing Finance Mechanisms in Mexico (Nairobi, 2011); Fernando Jiménez-Cavieres, "Chilean Housing Policy: A Case of Social and Spatial Exclusion?", doctoral dissertation, Technical University of Berlin, 2006.
 UN-Habitat, Financing Urban Shelter, p. 60
 Gilbert, pp. 31-32.
 World Bank, Housing Finance Policy in Emerging Markets, pp. 405-406; UN-Habitat
 See Katsura and Romanik.
 See South Africa Financial and Fiscal Commission
 UN-Habitat, State of the World's Cities 2010/2011: Cities for All: Bridging the Urban Divide (Nairobi, 2010), p. xii.
 UN-Habitat, Financing Urban Shelter
 UN-Habitat, Housing for All: The Challenges of Affordability, Accessibility and Sustainability: The Experiences and Instruments from the Developing and Developed Worlds (Nairobi 2008), p. 11; UN-Habitat, Financing Urban Shelter, pp. 99-100
 See, for example, the UN-Habitat Slum Upgrading Facility and the Shelter Finance for the Poor Initiative of Cities Alliance; Bruce Ferguson and Peer Smets, "Finance for Incremental Housing; Current Status and Prospects for Expansion", Habitat International, vol. 34 (2010), pp. 288-289; World Bank, Housing Finance Policy in Emerging Markets, p. 395.
 Although microfinance institutions such as Grameen Bank have had housing loan programmes since the 1980s, housing microfinance began to attract significant attention only in the last 10 years.
 Some housing microfinance institutions offer loans up to $8,000. UN-Habitat, Housing for All, p. 18.
 World Bank, Housing Finance Policy in Emerging Markets, p. 399; Bruce Ferguson, "Housing Microfinance: A Key to Improving Habitat and the Sustainability of Microfinance Institutions", Small Enterprise Development, vol. 14, No. 1 (March 2003), p. 21.
 UN-Habitat, Financing Urban Shelter, pp. 106-112; Housing Finance in Emerging Markets: Connecting Low-Income Groups to Markets, Doris Köhn and J.D. von Pischke, eds. (Berlin, Springer, 2011), pp. 33-35
 FinMark Trust, Scoping the Demand for Housing Microfinance in Africa: Status, Opportunities and Challenges (2009).
 UN-Habitat, Housing for All, p. 19.
 P. K. Manoj, "Prospects and Problems of Housing Microfinance in India: Evidence from 'Bhavanashree' Project in Kerala State", European Journal of Economics, Finance and Administrative Sciences, Issue 19 (2010), pp. 178 and 190
 Housing Finance in Emerging Markets, pp. 36-37.
 Nilsson, p. 19
 UN-Habitat, Financing Urban Shelter, p. 120
Special Rapporteur on adequate housing as a component of the right to an adequate standard of living, and on the right to non-discrimination in this context
Raquel Rolnik is an architect and an urban planner, with over 30 years of experience in planning and urban land management. She has a large experience in the implementation and evaluation of housing and urban policies.
Based in Sao Paulo, she is a professor at the Faculty of Architecture and Urbanism of the University of Sao Paolo and is the author of several books and articles on the urban issue.