The challenges in housing after Catalina Velasco’s departure from the Ministry of Housing

The challenges in housing after Catalina Velasco’s departure from the Ministry of Housing
The challenges in housing after Catalina Velasco’s departure from the Ministry of Housing

Social Interest Housing Projects (VIS) in Bogotá. Reference image.

Photo: The Spectator – Jose Vargas

For a couple of years now, the housing in Colombia He has been called a patient with a “reserved prognosis” because of his symptoms of Low sales, increased withdrawals and higher finished inventories. And for weeks there have been rumours that the treating doctor was going to change. And so it happened, with the departure of Catalina Velasco from the Ministry of Housing, which was announced on Monday night. Although there is no official confirmation, it is rumoured that Helga María Rivas would come to lead this portfolio.

Velasco was one of the few members of the cabinet who had been there since the early days of President Gustavo Petro’s government and this, in part, explains his departure, as the president seeks to breathe new life into his government team.

Velasco’s departure comes after a period in which the construction industry has had to deal with a less than flattering economic outlook, with several indicators in the red and some discontent on the part of businessmen in the sector.

To this we must add factors that do not depend on the housing sector, but which ultimately impact it, such as a widespread and deep slowdown that hit in 2023 (with an anemic GDP result for the year, 07%), high interest rates (which hit hard a sector that lives off credit) and a general low consumption of households.

First, the big numbers: since 2016, when construction reached its highest share in the Gross Domestic Product (GDP) (7.3%), until 2023, construction has lost three percentage points (4.3%), according to a recent BBVA Research report with data from DANE.

Last year, the sector was driven (by more than half) by the construction of residential and non-residential buildings.

Within this group, houses and apartments (VIS and No VIS) contributed the largest part of the construction GDP in 2023. This shows the enormous weight that these items have in the entire management and health of the sector.

In Colombia, more than 18 million Colombians (just under 5.2 million households) live in housing deficit, that is, they require housing or need to improve their property so that it has minimum habitable conditions.

It is not just a matter of macroeconomic well-being, but a vital issue (in a more literal way than one might think) for millions. The decisions of the Ministry of Housing have repercussions, for better or worse, on these vulnerable Colombians and the scenario that will be faced by whoever takes over this entity is closely related to issues such as: certainties about subsidies, decisions with interest rates and recovery of household spending.

The lights and shadows of housing in Colombia

Construction companies total approximately 7,400 firms, of which 39% are in the residential sector, according to data from BBVA Research. The figures from these construction companies help paint the picture of the housing landscape today.

Between January and May 2024, home sales registered a 14% drop compared to the same period of the previous year, according to the Coordenada Urbana report, compiled from figures reported by construction companies affiliated with the Colombian Chamber of Construction (Camacol).

In the first five months of the year, pre-sales amounted to $15.46 billion, a figure lower than that recorded in the same period in 2023 ($17.35 billion) and 2022 ($27.25 billion). The market registers a contraction of 10.9% compared to 2023.

The value of Priority Interest Housing (VIP) sales grew by 58.8%, $299.704 billion between January and May 2024, but the rest of the Social Interest Housing (VIS) and Non-VIS segment registered a drop of $2.19 billion.

Likewise, the construction of new homes also registered red numbers, specifically, -11.2% in May. By segment, the VIS grew 1% due to a variation of about 4,237 units started in the segment of up to 90 minimum wages, that is, VIP housing.

Going further back in the data, the situation that is obvious is that the new housing market in Colombia went from joyous to painful in a short time. While in 2021 the record of 209,000 units sold was reached, today there is talk of the urgency of reactivating this sector.

At this point, it must be said that construction, like any other sector of the economy, rises and falls over time. After the consumption and production frenzy of 2022 (which in turn came after the lethargy of the pandemic in 2020 and 2021), these years are ones of economic readjustment.

Behind this record sales in 2021 was a combination of factors that allowed the housing locomotive to advance at high speeds. Among the basic conditions, the country was emerging from the pandemic, spending was on the rise and interest rates were very low, which favored mortgage borrowing.

And, even more importantly, there were subsidies that made it easier for a family to close a housing project: Mi Casa Ya, FRECH (interest rate subsidy) or Semillero de Propietarios, among others, taken advantage of by buyers (and builders) throughout the country.

The Petro Government came into office and one of the first announcements by Minister Velasco, more or less, was that the tap had to be turned off on housing subsidies because the money was not enough for more. At this point, a lance must be broken in favor of the Government, since the intention behind “cutting” programs like Mi Casa Ya was to reduce the high levels of public spending that were reached in times of pandemic.

As things stand, housing is returning to more normal levels of production and consumption and, by definition, lower than those recorded in previous years.

The above is easy to say, but the fear that persists is that the red numbers in sales and start-ups (again, compared to years of “fat cows”) will end up affecting the employment generated by the sector.

Falling sales, start-ups and licensing lead to less employment in the construction industry (which provides a million jobs in a normal year) and, from then on, the effects on the economy are not at all positive.

Estimates from the National Planning Department indicate that for every job created in the construction sector, around 2.17 indirect jobs are generated.

For Mauricio Hernández, senior economist at BBVA Research, home sales will gradually recover to a range between 150,000 and 180,000 units in 2025.

“Inventories and destockings will remain high during the first half of 2024, before gradually declining. Employment could fall due to lower activity. Costs will be pushed up by labor,” he adds.

The Ministry and the builders

In the midst of this adverse situation, Velasco was able to be the government’s lightning rod in the face of the builders’ complaints.

The now ex-minister reiterated (almost to the point of exhaustion) that the red figures presented by the construction union are explained by a “stabilization” of housing after the blow of the pandemic and pointed out that bank interest rates are the main culprits of the slower pace of unit sales.

It could also be said that the official died standing up defending that the situation is not as bad as the builders paint it. The now ex-minister explained at the time that, although the pandemic generated a “very serious” shock, the consolidated starts in 2023 are equivalent to those of 2019 (139,000 and 138,000 respectively), and home sales, which were high in 2021 and 2022, had adjustments in 2023, something that occurred in the rest of the economy.

Camacol’s balance sheets, for their part, highlight that 2023 ended with 38,000 households that had to give up on the purchase of their home during 2023, that is, the number of withdrawals increased by 62.9% compared to 2022.

A study conducted by Camacol asked families the reason for their withdrawal and most mentioned the changes made by the Ministry of Housing to the program My House Now.

The future of My House Now

For more than seven years, Mi Casa Ya operated under a “first-come, first-serve” model, meaning it guaranteed the subsidy to those who first met the access requirements, which basically always included meeting the income requirement, not owning a home in the national territory, and not having received a housing subsidy in the past.

During the Gustavo Petro administration, greater focus has been sought for the program and, in fact, Mi Casa Ya subsidies have been assigned through the Sisbén IV Survey and other prioritization criteria. A differential approach was even adopted for single mothers, informal sector workers, victims of violence, among others.

Well into 2024, the Ministry moderated its approach and ended up acknowledging that some changes in Mi Casa Ya created burdens on the allocation of subsidies and, consequently, on the sale of properties.

In a video, the now ex-minister stated at the time that “knowing that we have already made progress in the policy objectives, we have listened to the builders, who have told us that the scoring system generates confusion and does not necessarily encourage the production of VIP housing in large cities.”

And the Government continued to loosen the screws on the subsidies. On June 22, it was announced that the Ministry of Housing will begin the budgetary procedures to guarantee the financing of the 17,000 interest rate coverages that currently lack resources to cover the 50,000 subsidies announced for this year as part of the “Mi Casa Ya” program, as confirmed to this newspaper. Guillermo Herrera Castanopresident of Camacol (construction union).

This was one of the measures to reactivate the sector that Camacol had requested in the midst of the negative figures that have been recorded this year and shortly before the poor GDP results for the first quarter were known (which registered a growth of 0.7%).

According to Herrera, during a meeting she had this week with the Minister of Housing, Catalina Velasco, the official also assured that there would be no cuts in “Mi casa Ya”.

Two adjustments that were celebrated by the construction industry. When these provisions promised to put coal in the boiler of the home, the portfolio loses its main sufferer.

The saying goes that “those who harvest tamarinds do not reap tamarinds” and that is precisely what can be seen in the construction sector, where what is done today has a long-term effect. It is hoped that whoever takes over the direction of the Ministry of Housing can continue with the reactivation measures with their feet on the ground, since compliance with the fiscal rule, for the time being, would not allow for greater indebtedness that would revive the “Mi Casa Ya” of previous years.

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