THE DESIGN OF DIRECT DEMAND SUBSIDY PROGRAMS FOR HOUSING IN LATIN AMERICA

Abstract

Traditional Latin American housing programs, which have used below‐market interest rates to convey subsidies, have suffered from serious vices: high per‐unit cost and subsidies, low population coverage, lack of transparency, benefits to the middle‐class rather than the poor, and inefficiency. Chile broke out of this flawed traditional mode by launching a housing program that conveys subsidies directly to households in die form of a one‐time, non‐reimbursable grant This approach has spread to other Latin American countries, increasingly with the support of donors. The paper describes and then analyzes the strengths and weaknesses of direct subsidy programs in Chile, Costa Rica, Colombia, and Uruguay to distill ten design lessons: target to low‐income households and ensure political autonomy; replace below‐market interest rates with direct demand subsidies; use group mechanisms for low‐income households; stimulate supply, not just demand; adjust key amounts for inflation; balance progressivity and financial feasibility; join die efforts of various levels of government; use NGOs; establish mechanisms for on‐going consolidation of housing solutions; and include measures to promote broader housing sector reform. The conclusion applies these lessons to the design of a housing pilot project in Venezuela.

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