Actualidad Colombia

Mi Casa Ya: encouraging social housing

Decree 0428/2015, 11th March

The 2015 Decree 0428 is a new governmental proposal providing incentives for the construction of social housing, within a programme called “Mi Casa Ya”. In Colombia the term “social housing” is applied to housing development designed to safeguard the right to a home for those on the lowest incomes. It is defined as a living unit which meets quality standards in urban, architectural and building design, but which does not cost more than one hundred and thirty five minimum monthly legal wage packets - SMMLV (COP 86,987,250, or about US$ 34,540; in 2015, 1 SMMLV=COP 644,350).

The central government has set up a stand-alone trust fund to roll out the “Mi Casa Ya” programme, which will be managed by a company chosen by the government for this purpose. It will be responsible for administering the programme’s resources, which will come from:

  1. allocations from the National Budget earmarked for housing support programmes,
  2. financial returns from the resources deposited in this trust fund, and
  3. donations to the trust fund made by individuals or legal entities.

The programme provides for a state subsidy which will put down for the initial payment on the home. This will be granted to households whose income does not exceed a certain level.

Another financial advantage included in this programme is access to hedging of the interest rate granted through the FRECH Reserve Fund to stabilise the Mortgage Portfolio 1. This system not only helps low-income households in Colombia, but also offers more secure conditions to financial institutions granting housing loans.

Notwithstanding the above, we should bear in mind the negative effects which a free-for-all in governmental subsidies might have. Some worry about economic dependence on the government on the part of the population at large, a culture of not paying, as well as asymmetries in information. This is particularly true when there are no accompanying instruments or policies in support of the creation of production units or jobs to enable households to sustain themselves.

1 The FRECH Fund (Reserve Fund to stabilise the Mortgage Portfolio) is a fund expressly authorised in the 1999 Colombia Housing Law, Law 546. Its purpose is to provide interest rate hedgingspecifically in order to promote lending for social housing in urban areas, through loans to buy or lease housing. The hedge provided by the fund is a swap calculated against the interest rate agreed for new housing loans or leasing contracts originated by the credit institutions. It is available to borrowers meeting certain conditions required by law. The hedge will only be applicable in the first 7 years of the loan, counting from its disbursement, or from the date on which the housing lease starts. The FRECH Fund is administered by the Banco de la República.