Several sources related to the housing industry, estimated that by 2009 there was a deficit of 235 thousand units.”]In two previous articles, I addressed the low class housing shortage subject, now I will focus on the middle class. Both are important, for sure, but with different connotations; the first one being about a necessity that has to do with human dignity, because the ones who suffer it live in horrible conditions, specially children; this, by the way, questions the responsibility of those who can do something about it, and don’t do it. Shame on them! While middle class, at least, has the possibility of temporarily living at their parents’ house, or with a family member, inacceptable conditions, although not necessarily desirable, so it needs a solution.
Background
Several sources related to the housing industry, estimated that by 2009 there was a deficit of 235 thousand units, of which 200 thousand were shacks, that needed to be replaced because they didn’t meet the minimum requisites for a house. The other 35 thousand were required by new applicants that each year get into the market. There is evidence that indicate larger numbers. The Pro Housing Foundation (Fuprovi) estimates that the deficit is currently 371 thousand houses, which is possible, because the demand increases in 35 thousand units each year, the accessible supply is very limited, and payment capacity for large loans is insufficient.
High prices and insufficient ability to pay
Most households do not have the capacity to obtain enough credit from banks to purchase a house, as their incomes do not meet the pre-requisites, according to the banking industry standards, to be able to pay the installments later on. This is easily verifiable by anyone who goes out to look for a house.
According to the Costa Rican Chamber of the Construction Industry, a regular home of 950 sq. feet, costs around US$128 thousand (65 million colones). A large portion of the housing supply for the middle class, in the Metropolitan Area, exceeds the US$100 thousand, depending on the location of the construction. These are, generally, condos with 3 bedrooms, followed by 2 bedroom condos, with a construction area of 950 to 1500 sq. feet.
[captionpix imgsrc=”https://thecostaricanews.com/wp-content/uploads/2011/11/housing2.jpg” align=”right” captiontext=”A large amount of houses for the middle class, in the Metropolitan Area, exceed the US$100,000, depending on the location of the construction. These are, generally, condos with 3 bedrooms, and a construction area of 950 to 1500 sq. feet.”]Cheaper options are usually located outside of the Metro Area around San Jose, the capital, or in less attractive areas for a middle class couple. Normally what they do is evaluate if they can buy something in their preferred location. So if it is a house of $US130 thousand, the bank would lend at least 80% of the total value, so the couple would need to have around US$26 thousand, plus whatever they need to cover processing fees and the cost of the notary; besides that, they would have to think about furnishing the place, especially if it is a brand new house. They would need at least US$5000. So here is the first dilemma, do they have at least US$40,000 to get started?
If they can make it, here comes the second question, do they have enough monthly income to pay the installments, which is around US$2000 assuming an interest rate of 18%, for 20-30 years? Now, to be able to get this kind of loan, the applicant should have an average monthly income of $3500. According to La Nacion newspaper, on may 15th, 2011, 79% of the families in Costa Rica have an average household income of US$2,300 per month, and can apply for government help. 7% make more than US$4,600 and are identified as high class. So the remaining 14%, which add up to 183,000 homes, are the middle class; whose purchasing capabilities is subject to the available supply, and financing conditions.
Conclusion
What can, and should be done? Simply to build more houses at accessible prices for 125,304 families. What’s the price range for it to be accessible? I can say it is between US$76,000, and US$112,000. How many are available? Very few, I think.
As Eloísa Ulibarri, executive director of Fuprovi, said: “We need accessible housing proposals, and also nice and comfortable houses for the middle class”. Could those houses be built and still make profit with those prices? I think, yes. We only require some creativity and constructive efficiency. It is the job of urban designers and architects to do it. 125,000 families will thank you. Mark my words!
by Antonio Manzo, Economist
