Latin American Cities to Millennials: Move Out of Your Parents’ House and Rent – Next City

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Latin American Cities to Millennials: Move Out of Your Parents’ House and Rent

Learning from affordable housing missteps in the U.S., Latin America is building a new model.

Story by Gregory Scruggs

Published on Jun 29, 2015

A sexy young woman in a pink slip and sporting a devilish smile toys with her hair. With a flip of her mane, she dramatically opens the bedroom door. But instead of finding an expectant lover, her face drops as she stumbles onto the whole family piled into the bed. A shocked mother-in-law in bathrobe and hair curlers covers her beau’s face with a teddy bear to round out the scene.

Humor and sex are frequently used to hawk beer and cars. But in contemporary Chile, this gem of television advertising wasn’t selling a product. It was selling housing policy. Chao Suegra (goodbye mother-in-law) is the government’s catchy name for a new rental housing subsidy program that is changing the way urban Chileans — including prudish in-laws, young couples and everyone in between — live.

The humorous TV commercial went viral with the hashtag “chaosuegra” — no easy feat for a government public service announcement — and 10,000 applicants showed interest in the first round of subsidies awarded late last year. More recently, Chile’s civil service deemed Chao Suegra one of the nation’s three most innovative public policies of 2014.

Chao Suegra embodies a strategy Chile has borrowed from the U.S. Department of Housing and Urban Development. In the U.S., we know the subsidy as Section 8, or more formally, the Housing Choice Voucher Program.

There are many reasons for Chile’s newfound interest in strengthening its rental market, but the simplest comes down to a question of economic opportunity.

Angelica Salvi Del Pero is a social policy analyst at the Organization for Economic Cooperation and Development (OECD) who has been monitoring and advising Chilean housing policy. She credits labor mobility as one of the major macroeconomic reasons to promote a stronger rental market: More housing options mean more job opportunities. “It’s easier to move around from one place to another for employment reasons if you’re renting rather than owning,” she says.

Although the rental subsidy program, which launched last year, started small with fewer than 10,000 families participating, its effects are already being felt in Santiago and across Latin America. Already, the Argentine capital of Buenos Aires and Medellín in Colombia are beginning to pursue their own local rental subsidies while Mexico has embarked on a national program.

Ricardo Jórdan is the chief of the human settlements division at the UN Economic Commission for Latin America and the Caribbean (ECLAC), which is headquartered in Santiago. He predicts the region’s move toward rental subsidies will grow over the next several years. Many of his colleagues, Jórdan says, are paying close attention to the program’s rollout as they prepare for the UN’s Habitat III conference on housing and sustainable urban development, happening in October 2016 in Quito, Ecuador.

“Chile’s rental subsidy broke with a long tradition of state support only focused on homeownership,” says Jórdan. “This new type of subsidy is being analyzed by other Latin American countries in the context of the Forum of Ministers of Housing and Urbanism and it will be taken up in the regional debate ahead of Habitat III.”

The Chilean Miracle

Chile is a leading economy in Latin America with the region’s highest per capita GDP. Like many of its neighbors, today’s economy came to be thanks to a package of spending cuts and privatization following a spate of hyperinflation in the 1970s. The result came to be known as Chile’s “economic miracle,” which has slashed poverty rates and dramatically raised the standard of living. A wealth of natural resources — especially copper, the country’s leading export — also helped as Chinese demand has boosted the local economy. In 2010, Chile was admitted to the exclusive OECD, becoming its first and only South American member and the second in Latin America. (Mexico joined in 1994.)

As a result, Chile finds itself at a geopolitical and macroeconomic crossroads. Increasingly, it compares itself less to its geographic neighbors and more to wealthy global peers. When it comes to housing, that attitude is justified. Chile does not have the sprawling favelas or barrios of Rio de Janeiro, Buenos Aires, Caracas and Lima. It has managed to house the majority of its people through the formal sector, although issues like overcrowding and concentrations of poverty remain challenges.

“In Chile, the social housing financing policy of the Ministry of Housing and Urbanism has been a success. This is an indisputable fact,” wrote Ana Sugranyes in 2005 seminal scholarly volume Los Con Techo: Un desafío para la política de vivienda social (The Housed: A challenge for social housing policy).

Chile solved its housing crisis with a neoliberal approach familiar to U.S. cities — public financing with private execution. Over 25 years, more than 500,000 social housing units were handed over to low-income owners in communities across the country. It was a supply robust enough to last through a generation, effectively heading off the growth of informal settlements or homelessness and putting Chile in a better position than its South American peers. But by the new millennium, the country had outgrown its supply. The houses that were enough a decade earlier were crowded, with multiple generations and sometimes multiple families living together under one aging roof.

Today, the average Chilean household has 2.4 people per bedroom. Compare that to the U.S., where a 2005 survey by HUD showed that only 2.6 percent of U.S. households have two or more people per bedroom. The 2013 American Community Survey indicates that the average size of an entire household in the U.S. is only 2.54 for renters and 2.71 for owners.

At the same time, a 2011 survey by the Ministry of Housing and Urbanism (known by the acronym Minvu in Spanish) showed that only 11 percent of low-income households in Chile rented, a disturbing trend the OECD commented on the same year Chile joined. By contrast, the percentage of renters in the U.S. is higher for every income group that the U.S. Census Bureau tracks. For households earning $50,000 or less — $50,502 is the national median income — the percentage of renters is more than 50 percent.

In the eyes of Chilean and U.S. policymakers, overcrowding and a limited rental market for low-income families were markers of an economy still in transition. “Most developed countries have a robust rental sector,” explains Salin Geevarghese, deputy assistant secretary for international and philanthropic innovation, the HUD arm that facilitated the policy exchange with Chile. “It depends on the life cycle of a family and a housing unit. Different housing choices fit better at certain times.”

While HUD is officially “agnostic,” Geevarghese says, on rental versus homeownership, he underscores the importance of the former for the U.S. “There is a huge crisis in rental housing right now, especially for low-to-moderate income groups.”

It’s a crisis that Chile hopes to sidestep through its investment in Chao Suegra.

The Disaster That Began It All

It started with an earthquake. On February 27, 2010, an 8.8-magnitude quake struck the Maule region in the central part of the country. Chile is very seismically active — the 1960 Valdivia quake registered a magnitude of 9.5, the highest ever recorded on the Richter scale — and has relatively strict engineering standards and building codes. As a result, there were fewer than 600 deaths in 2010, while more than one hundred thousand people died in a smaller, 7.0 earthquake in Haiti a month prior. Nevertheless, an estimated 350,000 housing units were destroyed at a cost of $30 billion U.S., at the time 17 percent of Chile’s GDP.

Minvu played a vital role in Chile’s reconstruction effort and quickly began looking to outside sources for advice on long-term recovery. Among other global partners, the U.S. emerged as a key interlocutor. (U.S.-Chile bilateral relations are among the strongest in South America, thanks in part to Chile’s economic policies.)

In the fall of 2012, Rodrigo Pérez Mackenna, then Chile’s minister of housing and urbanism, visited Washington to meet with the World Bank, FEMA and HUD. They wanted to learn from disaster recovery experiences like Hurricane Katrina and Superstorm Sandy. In the course of conversation, housing policy came up. It was a welcome interruption.

“We knew that we were too focused on homeownership,” says Pérez Mackenna, who stepped down from his post as minister in 2014. “I was participating in too many delivery ceremonies giving houses to young, single mothers or 80-year-old seniors. This made no sense.”

Pérez Mackenna is now president of the Pension Fund Administration Association and presides from a modern office building in Santiago’s tony Las Condes neighborhood, a constellation of glass skyscrapers nicknamed “Sanhattan.” He counts the rental subsidy program among his major accomplishments as minister of housing and urbanism.

“It happened very quickly, it was unprecedented how fast this came together,” he says. “This is something that transcends politics.”

That Chao Suegra was able to bridge four Minvu ministers and two presidential administrations, all while coming to fruition in a remarkably short period of time, is a testament to the program’s essential truth: Rental is an important option in housing markets, especially for low-income populations.

“It’s very difficult for political opposition to recognize another party’s success, but the bipartisan tone around this project really pleases me,” Pérez Mackenna says.

In the U.S., HUD’s Housing Choice Voucher Program provides rental support to over five million people. Despite its deep reach into all sorts of communities across the U.S., the program hasn’t managed to achieve the bipartisan support that greeted it in Chile. Thanks to consistent budget cuts, the number of people who receive vouchers in the U.S. has steadily fallen over the last decade of intense partisan deadlock.

A New Model

Chile’s Rental Subsidy Program differs from the HUD program in several critical ways, largely because of recommendations made by the U.S. agency. If successful in the long run, Chao Suegra might catapult late-to-the-game Chile ahead of its mentor in terms of program innovation.

A key point of difference between the U.S. program and Chao Suegra is eligibility. While income is the sole qualifying factor for Section 8 vouchers, Chileans must meet multiple eligibility requirements. For starters, HUD advised that many recipients become lifers, so Minvu capped the subsidy at five years per family. The program is then restricted to couples under the age of 30. (The couples don’t have to be married — same-sex couples can’t marry in Chile but are eligible for the program — and don’t need to have children to be eligible.)

Chao Suegra candidates are further screened based on the Ministry of Social Development’s socio-vulnerability index, which is used to administer public benefits. Known as Ficha de Protección Social (FPS), the formula takes into account educational achievement, income, expenses, net worth, health issues, food security and dependents. Of the 10 million Chileans with an FPS score (more than half the country), almost 90 percent, have a low enough score to apply for Chao Suegra. The tight age restriction can be seen as a way to make the program feasible and palatable at a political moment when policymakers aren’t eager to place half of the country into subsidized housing.

Another difference is how the amount of subsidy is determined. While HUD’s subsidy is calculated to allow a max tenant payment of 30 percent of income, Chao Suegra’s subsidy amount is fixed at 3 UF, about $120 U.S. (The UF is a unit-of-account indexed to inflation that is used for major purchases, including real estate, and financial services like loans, securities, and taxes; it is converted to Chilean pesos when actual payments are made.)

Families must earn between 8 and 25 UF ($320-$1,000 U.S.) per month, and the maximum allowable rent is 11 UF. Candidates must also deposit 4 UF in a savings account before applying.

“Low-income families pay 40-50 percent of their income toward housing,” says Alvaro Valdés Mena, coordinator of the Rental Subsidy Program. “With the subsidy it could be as low as 16 percent.”

Despite the program’s targeted focus, it has hit a nerve with Chileans. Ultimately, 5,700 couples applied for 5,000 slots. Interestingly, 20 percent of applicants did so online, a much higher percentage than usual for a public housing program and an indication of the tech-savvy nature of Chilean young people, even those with low incomes. The applicants who didn’t make the cut the first go-around were given preferential status for the second application period, which yielded another 2,100 approved recipients.

The Hidalgo Gonzalez family received the Chao Suegra subsidy in 2014.

One year into Chile’s experiment, a majority of subsidies are going to urban families. Some 70 percent of participating renters live in the metropolitan area of Chile’s three largest cities: capital Santiago, and to a lesser extent historic Valparaíso and higher-ed hub Concepción. The regional offices that handle the applications make sure units meet minimum living standards, with at least one bedroom, one bathroom and one kitchen. For landlords, the promise of a guaranteed minimum payment from the government must be balanced with the provision that tenants are allowed a three-strikes rule. They can miss their monthly contribution a cumulative three times over the course of the subsidy and the landlord will be out of pocket, at least until the tenant makes up the difference, which they have an incentive to do because otherwise at the end of the subsidy they will not be eligible for public home-buying assistance.

A study released in March by an economist at the Catholic University of Chile lauded the program’s initial results. It cited a drop in average person-per-bedroom count from 2.4 to 1.2 at a cost of only 17.1 percent of a family’s median income, when the same results would have eaten up 41.8 percent of median income without the subsidy. These immediate outcomes are sure to elicit cheer from amorous young couples on a budget across Chile.

Spurring Integration

The long-term jury is still out on Chao Suegra. After all, the program remains in its infancy compared to the Housing Choice Voucher Program, introduced in 1983 and the subject of intense scholarly research on social mobility, poverty alleviation and housing affordability.

Peréz Mackenna readily acknowledges the program is still a work in progress. “The project will need adjustments,” he says. Already, Minvu has bumped up the subsidy’s age ceiling to 35 and plans to better coordinate the subsidy with education and job training programs that will keep tenants paying rent on time.

Some of these moves are in response to objections raised by housing activists and researchers. These criticisms have to do with the policy’s design as well as how it impacts more systemic issues of spatial segregation in Chilean cities, especially metropolitan Santiago, where nearly one-third of the country lives.

Un Techo Para Mi País (A Roof for My Country) is a housing NGO that could be described loosely as the Chilean version of Habitat for Humanity. Since the group’s founding in 1997, Techo has expanded to nearly every country in Latin America and deployed a massive presence to Haiti following the 2010 earthquake even as Chile itself was reeling. Headquartered in a working-class part of Santiago at Infocap, “the worker’s university,” Techo’s offices are like a do-gooder’s Google with an open floor plan, colorful, arty decor, and young, passionate staff clustered around computers. (Unlike the Googleplex, the only freebies in sight are coffee and tea — and not the pour-over kind.)

Pablo Beytía is the director of Techo’s Center for Social Research, which has been studying Chao Suegra from its outset and plans to publish a report on its findings soon. “Our conclusion is that all you can hope to afford is social housing on the urban periphery,” Beytía says. Worse, in expensive cities like Antofagasta, a mining hub, 11 UF doesn’t even get renters a foot in the market.

That doesn’t mean Un Techo Para Mi País is opposed to the program. The group agrees that a rental housing subsidy can promote social mobility by helping families access more desirable neighborhoods, allowing them to save for a future home, and tiding them over while on the waiting list for public housing. “Unfortunately, the subsidy as it is written does not allow for any of those benefits,” Beytía says. “The subsidy isn’t enough to integrate the city.”

Techo’s recommendations are for a higher subsidy, a mandatory savings requirement for its duration, and rule changes that would allow for families to get on the subsidized housing wait-list while they are receiving Chao Suegra to avoid a gap in benefits once the five years expire.

To Minvu rental coordinator Valdés Mena, those critiques are misplaced. “The affirmation that the subsidy doesn’t allow for renting anything better than in the periphery is completely false,” he says. “According to our numbers the subsidy does permit you to rent in various parts of cities, including the center. And not just in social housing.” Indeed, there is a nascent effort underway to use Chao Suegra as a downtown revitalization tool in Santiago, where some inner-city neighborhoods have considerable vacancy.

At the same time, Valdés Mena acknowledges that the maximum allowable rental contract in cities like Antofagasta has been increased in recognition of the higher housing costs there. As for savings, he refers back to the reduction of housing costs from 40 percent of a family’s income to as low as 16 percent, which would allow for significant savings if they so choose. He also points to a homebuyer subsidy for “emerging and middle-class families” as the next logical step for Chao Suegra recipients — provided they meet the minimum income requirements. The homeownership program has a savings requirement and allows for simultaneous application with Chao Suegra.

It’s still too soon to know where Chao Suegra recipients tend to end up, but observers have already begun to challenge whether or not the program will be effective in creating more economically integrated neighborhoods. In the U.S., mounting evidence shows that housing vouchers — while effective at helping families remain sheltered in low-income neighborhoods — have not succeeded at helping families settle into neighborhoods with more opportunities. A roundtable of professors at the University of Chile’s Faculty of Architecture and Urbanism is skeptical that Chile will do any better.

“In a country with such a high amount of neoliberalism, I see it difficult to change spatial segregation,” says Jorge Ortiz, a geographer. He points to the growth of gated condominiums and a decentralized system of local control that encourages exclusionary housing policies. There is no central government for greater Santiago, and local councils have effectively vetoed a 5 percent inclusionary zoning requirement for large residential real estate developments.

“The national government can only force social housing [in a more affluent neighborhood] if it owns the land already,” says Mario Torres, who recently retired from the Institute of Housing.

HUD spent 10 years studying how to integrate low-income families into middle-class neighborhoods through an experiment called Moving to Opportunity for Fair Housing. The program mandated that recipients move to low-poverty zip codes and provided counseling to help them secure rental housing in these new communities. The requirement and attendant counseling were essential because families often choose to stay where they have social and kinship ties — relatives who babysit while a parent works, neighbors who come over for a barbecue.

Results were a mixed bag, as a lack of transit options hampered commuting for carless parents who moved from the inner city to the suburbs. Young girls excelled in school while young boys struggled to adjust to a new environment. In the end, most families moved back to the zip code where they started.

Chileans, too, say there is no clear answer.

“I’m not in favor of the name Chao Suegra as though it’s something negative,” says Ricardo Tápia, also from the Institute of Housing, who readily admits that he lives with his suegra. “The mother-in-law takes care of the kids, cooks, does laundry. The poor know that living in multifamily households is an economic strategy and Minvu is disrupting this.”

Innovation Knows No Boundary

While the debate rages domestically on the virtues of Chao Suegra and the program is certain to be adjusted over the coming years, Chile is already poised to share its experience far and wide, including back to HUD in a unique two-way exchange.

One idea HUD researchers have taken from Chile is the notion of a national socio-vulnerability index. While changing the definition of poverty and subsequent eligibility for social programs isn’t within HUD’s purview, the index represents a new way of quantifying social need. “As we innovate, innovation knows no sector in terms of boundary and geography,” says Geevarghese.

Back in Chile, the emergence of Chao Suegra has prompted calls for a program to stimulate the construction of rental housing in order to meet the expected demand that the subsidy will produce.

“Today [Chao Suegra] is marginal, but if the numbers increase we are going to need a supply-side policy,” says Pablo Alvarez Tuza, manager for housing and urbanism at the Chilean Chamber of Construction. Given the extensive experience the U.S. has financing affordable housing projects — with mixed success, from Pruitt-Igoe to HOPE VI — Minvu should know who to call when the time comes — and HUD should be ready to learn a thing or two along the way.

Our features are made possible with generous support from The Ford Foundation.

Gregory Scruggs writes about cities and culture, especially in Latin America and the Caribbean.