Why there? Developers' rationale for building social housing in the urban periphery in Latin America

Abstract

Inadequate housing has become endemic to Latin American cities for over six decades. All that has changed has been who is going where. In the 1960s, the rural poor who came to the city solved their housing needs by building their own informal settlements on peri-urban lands. Today, the urban poor relocate to peri-urban housing complexes built by the private sector with state subsidies. Why have these new housing units for low-income households been built in peri-urban areas? This paper examines some of the mechanisms behind the location of the urban poor in cities, with a specific focus on the role developers have played in the construction of affordable housing in peri-urban areas of Brazil and, Mexico. The paper explores these mechanisms through interviews with affordable housing developers. We found that economies of scale – and not land prices – explain developers' preference for building in peripheral areas. Initial savings that accrue to developers due to lower land prices in the periphery are offset by the cost of having to build basic onsite infrastructure. Plus, large lots – which are available almost exclusively in urban peripheries – enable developers to achieve significant cost savings because these large lots make it possible for developers to build more than 500 units. In addition, weaker municipal regulations and fewer bidders, both of which are typical for projects in difficult-to-access peripheral locations, make for a shorter and easier approval process for these large housing projects.