45. Affordable housing in the 21st century: two proposals

The increasingly brutal gab between social expectations and the reality of obtaining a house in larger cities should make us rethink housing policy. This essay defends two concrete proposals: the development of social rental housing and incorporating notaries into the state.

One problem that plagues Millennials and generation Z in particular is the relative unaffordability of middle class housing in urban environments. This is certainly true for the bigger cities in Mexico, but is really part of a more global trend, that for example also affects Eastern metropolises such as Seoul and Hong Kong. While adequate housing has been a challenge for all regimes during throughout history, in today’s late capitalism it seems to reach another peak, making it near impossible without generational support.

    This problem ties into a larger theme of our era, which is that while society is culturally becoming more individualistic, societies that are not strong welfare states do not seem to be built around individual needs. In Mexico this is evident in topics ranging from working hours to childcare. In the case of housing, the social expectations (including the timing) that these generations were raised with simply do not correlate to what the average person can achieve on the labor market.

    This phenomenon is particularly strong in fast growing cities such as Monterrey, where prices keep rising. In richer municipalities such as San Pedro, the whole concept of middle class housing stopped existing, since the ground under even the most dilapidated constructions is worth ten to twenty million peso. On the opposite end, the working class is pushed outside the edges of the city, living in low quality housing with sparse services.

    While governments can do a whole lot to increase income, as long as housing is seen as an investment, the cost of housing is a difficult problem to solve. In what follows we will discuss two concrete policy proposals. These are not solutions as such, but can help to alleviate the pressure on the current generations trying to establish a place of their own.

The first proposal is the development a state level social rental program. What we wrongly call ‘social housing’ in Mexico really amounts to mass construction of low income housing backed by state credits. Mexico has made the historical choice to focus its housing policy on ownership,  and chose giving credits (thus generate debt) as the main tool for achieving that, with INFONAVIT as the main program. Note that this thus does not actually socialize (‘decommodify’) the right to housing, as citizens need to engage in debt to obtain this right. In the past the government did more often take the lead in the planning and construction of ‘social’ (meaning cheap) housing, but since the neoliberal era this has been deregulated and largely outsourced to the private sector. In practice, contractors build masses of identical houses on cheap land, and use the lever of government credit to sell these to workers.

    The problem with this program is not supply as such, for example Nuevo León has historically one of the highest rates of INFONAVIT housing in the country, leading even to the opposite problem of house abandonment. The real problem is threefold: 1) the quality and location of the houses is still limited to the budget, as low income households are expected to buy these houses on (relatively high) credit. This in practice leads to low quality housing and the outwards expansion of the city that follows a pure cost effective logic regardless of available services. 2) INFONAVIT is linked to social security, and thus limited to the minority of Mexicans with formal employment. 3) This system does not reduce the vulnerability of families, instead engaging them in long terms debt. It are the workers who themselves pay for this system, which distributes money towards contractors, not individuals.  

    INFONAVIT is a successful program by its own terms, and recently has undergone changes to make it more social, but what I am proposing is the creation of a supplementary agency focusing on rental housing. This would ideally be federally financed but planned on a state level, with each municipality getting assigned a quota of 5% social housing within their territory.

    Social housing in most countries (for example the U.S. or Belgium) refers to government build or sponsored housing that is rented at a low rate to citizens. One way of doing this is by charging a percentage of the individuals income (for example 20%) rather than a fixed price, making it expensive for rich people but cheap for those with low wages. This runs contrary to the normal functioning of the market, in so far that social housing in not aimed at recovering costs as quickly as possible. Especially if the government directly controls the housing, investments can be recovered on much larger timespans than might be tolerable for mortals. Such as system has the following advantages:

1. It can reduce or at least stabilize poverty. Poverty is primarily an income problem, but this can make a difference because it helps households to control their main cost. Countries with low poverty rates such as the Netherlands typically have a long history of social housing. In contrast to INFONAVIT this is not linked to social security or any fund, making it available to millions of informal workers. Additionally, it cannot generate additional vulnerability through debts and interest rates.

2. In can counter or slow down territorial segregation. Usually cities are engaged in a dynamic called gentrification, where lower income groups are being pushed out of certain parts of the city when those become more desirable. This process can be perverse, because whenever poor neighborhoods finally do receive improvements, the real estate market will raise prizes, thus pushing out residents to worse locations. With social housing governments can buy speculative land in all (not just the cheapest) parts of the city, and build projects that house far more people (for example apartments) than the land might otherwise be used for. By renting those for cheap a social mix can be created, which could potentially also stability buying prices for the middle class in those neighborhoods. Similarly, governments can apply upgrades to neighborhoods with concentrations of social housing, without having to fear a perverse effect of replacing the population.

3. If done on a large scale, it can give local governments some more limited control of traffic flows. One of the tragedies of INFONAVIT housing is that it is often located far outside the center, limiting the employment options of residents to nearby factories. Those people who do work as for example a night guard or cleaner elsewhere, need to spend hours in traffic each day. Since in my concept to government takes direct initiative in the construction, it can take the reduction of traffic (thus CO2 pollution) as a secondary objective.

4. It gives the government (more) control over the quality of housing. Since the government is responsible for the construction of these units, it can set the building standards, both in terms of living conditions and sustainability. Since the client do not have to buy the house, the standards do not have to be as cheap as possible.  Quality here does not just refer to the individual house, but the neighborhood as a whole. With housing construction the units are often planned without services, while social rent housing can be implanted more organically within the city, or in the case of large developments in conjunction with other infrastructure investments such as hospitals, metro stations or schools. 

Building up a relevant social housing stock of this kind will take time, but long term can have positive effects for both renters and potential buyers. While initially targeted at more vulnerable households, over time the access can be expanded to lower-middle class families.

The second, smaller proposal is to abolish public notaries as an independent institution. What sets notaries apart from the larger lawyer class that charges ordinary mortals for autographs, is that their independence seems like an inheritance from feudalism. In Feudalism elites are awarded legal rights over certain areas. This included economic rights over the lands, but also certain political powers such as being able to levy taxes. Notaries are similar to lower nobility in the sense that: a) depending on the country, their privilege is inherited or endowed upon them by political leaders – in Mexico’s case by governors; b) they as individuals can tax people in the form of fees.

    To be clear, around 85% of the money you pay at the notary office for buying a house are taxes collected for various levels of government. That means that the notary fees are ‘only’ roughly between 20.000 – 60.000 peso for middle class housing, still a significant cost that requires multiple months of saving. Yet it is an outdated principle that for buying a house you are required you to pay a certain percentage to private individuals, who themselves just like doctors are exempt for income taxes on their honorary fees.

     The solution would be to incorporate the profession of notaries into the civil registry of municipalities, who we already entrust with for example the registry of babies. The important work of notaries can then be carried out in a (high) salaried context, and could be charged to the citizens at a fixed rate, similar to other administrative procedures, rather than directly taxing the property. While this change is too small to change the overall trend, it can help the population to collectively save large amounts of money.      

Both proposals discussed in this essay would require rather big institutional overhauls, which each would undoubtable be met with different types of elite resistance. Additionally, both would not generate sudden massive effects on the housing market, making especially the second a political risk. Yet both would be logical directions for a modern state to evolve in. One would help control costs and redistribute on the short term, the other provide the government tools for intervening in the dire urban housing market on the long term.