Peru: Housing Divided

Affordable housing policies in Peru have been mainly based on direct subsidies to the consumer. The government simply provides cash and mortgage credits to low-income families to cover the gap between what they are able to pay and the cost of a home on the formal housing market. While the affordable housing market in Peru has grown, the lack of urban development reform has impeded social integration and ceded too much control to the private sector.

Over the past 10 years of impressive economic growth, Peru’s real estate and construction sectors have boomed. The housing supply in Lima increased from 5,000 houses in 1998 to 22,225 in 2012. Land prices increased fourfold between 2006 and 2011.

In 2002, the government established a subsidized housing policy, which grants low-interest loans and funds programs to promote affordable housing. One program, called Mivivienda, is targeted at the middle class; another, Techo Propio, is for those with lower incomes. Both programs have been largely successful. According to the Ministry of Housing, the central areas of the city have been repopulated, the housing supply has increased, and the mortgage credit market has grown. Housing prices have not dropped, which is fortunate given the way this would harm the construction industry and informal economy.

Still, there are issues of land scarcity, a result of several waves of rural to urban migration in the mid-20th century. Migrants established unplanned settlements that failed to provide heath services, housing, and sanitation. The failure of housing policies to accommodate these workers has led to the growth of social inequality. In 2012, the government launched the Urban Land Program to satisfy the demand for land for affordable housing and private initiative projects. It created a land bank of nearly 360 square miles with access to basic city infrastructure. The government planned to auction it at low prices to private developers and builders. Unfortunately, this program was not supplemented with land-use regulations or measures to control land speculation.

Moreover, the central government conducted these measures with little input from the local governments that actually set urban development policies. According to official statistics, only 10 percent of local governments have an Urban Development Plan, and 54 percent don’t even have a cadastral map. City governments must become more active in planning and create proper institutional arrangements to carry out comprehensive urban development reform.

Governments have promoted public-private collaboration in Peru, expanding the affordable housing market. But, by playing a mere facilitating role in this process, the government has given the private sector too much power. Since the public and private sectors have different incentives, the public goal of greater social integration will not be fulfilled without the government taking a more active role in leading urban development reform.