Affordable-Housing Loan Approved for Honduras

Source: Inter-American Development Bank Press Release, IDB Approves $30 Million Soft Loan for Housing in Honduras.

As part of its new initiative, “Building Opportunity for the Majority,” on October 4, the Inter-American Development Bank (IDB) approved a $30 million loan to the Honduran government. The money is aimed at helping improve living conditions and access to housing and basic urban services for low-income families and neighborhoods. The government and the IDB developed a program that looks to reform current housing policies by targeting more spending on low-income areas. They have coordinated their efforts with other development and donor institutions working within the Honduran housing sector, such as the World Bank and the Central American Bank for Economic Integration.

The IDB and Honduran government expect the initiative to impact around 12,200 families through a variety of subsidies, or monetary grants, that may be spent towards the purchase of a new home, the construction of a home on a presently owned lot, or the improvement of the conditions of an existing home. The subsidies will be as much as $2,000 per individual family for housing construction and up to $1,000 for improvements. Furthermore, group subsidies will be granted to low-income, high density urban municipalities to help increase access to potable water and sanitation, electricity, and access roads. These subsidies could be as high as $2,900 per family residing in the affected area.

This 40-year loan is expected to finance only the first phase of the development project. Because the IDB and the Honduran government also hope to promote private sector participation in the reform by providing additional financing for the construction of affordable housing, there is talk of an additional $30 million loan in the future. This loan would also be used to establish a fund to finance housing microcredit— a fund that would provide small loans to unemployed and other low-income individuals who are typically ineligible for bank loans.

Questions:

(1) What other ways might the Honduran government try to improve the living conditions of low-income citizens? Are subsidies necessarily the most efficient way to ensure long-term change in the housing situation? Should microfinance opportunities be offered sooner? See Housing Microfinance—A Key to Improving Habitat for a discussion of the ways in which microcredit may pose a better long-term solution.

(2) What steps should be taken to ensure that the money earmarked for low-income families and municipalities actually benefits those people?