Saturday, December 2, 2023

Rent in the housing policy of the Dominican Republic

Latin America has an extensive record of housing policies that reflect different efforts to face the housing deficit; although, unfortunately, none of them has been able to close it definitively. In general terms, housing policies in the region have covered a broad spectrum that goes from the role of the State as a generator of housing supply, providing subsidies to families, to one of public-private alliances.

According to the latest report by the National Statistics Office, entitled: “Atlas: Characteristics of housing in the Dominican Republic.”, for the year 2018, rental housing represented, at the national level, 39.2% of the housing stock from the country; where it should be noted that, for the city of Santo Domingo (National District and urban area of ​​the province of Santo Domingo), this value is much higher, reaching 50.3%. These data make the Dominican Republic the second country in Latin America, only surpassed by Colombia (45.9%), where housing rental predominates. It is important to clarify that these numbers are not the consequence of a particular government, but rather reflect what has been done, or has not been done, in many years in this matter.

The housing policy of our countries has historically been focused on promoting own housing; an end, obviously very noble, and very necessary at a social level. However, we must recognize that, currently, and in a general way, living under the effects of the pandemic, and the increase in construction costs, derived from the war in Ukraine, with limited public budgets, together with the growing demand housing, associated with weak wage growth and the lack of capacity of families to be subject to mortgage loans, it is necessary and urgent to review this traditional model.

For years, the United Nations has declared that housing is a human right, and it is fully recognized as an objective within the sustainable development agenda (SDG), all under the concept of adequate housing. In summary, three of the seven principles of this concept are: i) Security of tenure: this means providing legal protection to the owner of the house, that is, ensuring the occupant the right to use and usufruct of his space in the time .ii) Affordability: that is, create conditions so that families can pay, be it the loan or the rent, of that house, without endangering the enjoyment of other basic satisfiers (food, education, health, recreation, etc.) .iii) Location: adequate housing cannot be conceived if it does not offer access to employment opportunities, health services, education, etc.

Promotion of Private and Social Rental. Given what has already been indicated, it should be clear that the right to housing does not mean that the State has to provide a free house to everyone; rather, it understands the responsibility of the latter to create mechanisms to facilitate access to adequate housing. For this reason, the Dominican Republic, and as a complement to the traditional housing policy, could incorporate an aggressive policy to promote rental housing. This incentive for rental housing by a government, whether it is carried out directly or through private rental housing models, would end up stimulating the construction sector, employment and the country’s economy. Funding for these models can be achieved through the Stock Exchange through real estate funds for rental housing (Ex: Multifamily of Chile) or real estate development trusts to build rental housing (Ex: Colombia).

For example, by 2023, the Spanish Ministry of Housing is dedicating close to 65% of its budget to rental programs, such as the purchase of land to build, together with private companies, social rental housing; loans to rehabilitate buildings for public rental housing and rent voucher for young people. In Germany, the government grants private developers subsidies, through loans at below-market rates, and gives them preferential tax treatment, in exchange for placing low-cost rental units on the market. medium and lower-middle income.

In summary, unlike the traditional housing policy, focused on trying to increase “temporarily” the payment capacity of families; The private and social rental housing approach seeks to “structurally” modify the housing market in the long term, trying to lower the costs of housing supply in the country. From this perspective, it should be clear that stimulating a rental housing stock makes sense for a country, because it is part of the life cycle of families. Finally, and in a similar way to what Chile and Colombia are doing, the rental of housing can be deepened using a housing leasing scheme: Rent with purchase option; where the individual who rents the home can opt to purchase it in the future. For countries like ours, this requires legislation that guarantees the participants, be it the Government, private owners and tenants, clarity in the terms of rental and purchase of the home over time.

By:

Melizandro Quiros.

Director of the Center for Financial and Real Estate Business Studies (CENFI)

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