Mexico’s Sociedad Hipotecaria Federal (SHF) finances houses for low-income families. For the last five years, it has been giving incentives for the construction of energy-efficient houses through a program called “EcoCasa.” The program has been successful in reducing Mexico’s carbon footprint while sustaining the housing industry’s growth and providing affordable housing.
“The Mexican housing sector is very big and touches many branches of the economy, but has lacked innovation and incentives for sustainable housing that is affordable at the same time,” said Ernesto Infante, deputy director for multilateral affairs and sustainable housing market development at SHF. “With EcoCasa, we are changing that.”
The EcoCasa program started at a difficult moment for the housing industry, as the biggest developers in Mexico went bankrupt and the construction sector’s survival was at stake. The government reacted by entering the market and granting direct loans to developers and builders.
EcoCasa offered up to 3-percent reductions on loan interest rates if the projects complied with its requirements for efficiency. Common market rates can add up to 14 percent of annual interest rates in Mexico, according to Infante. “For developers, the common reaction was ‘Where do I sign?’ Up to 70 percent of construction costs are financed through loans.
Sustainability comes at a price - and developers know it. Looking for more resilient materials and energy-efficient projects usually means increasing costs. This makes it harder to massively promote this kind of project.
Mexico’s housing market demands between 1 and 1.2 million new houses per year, according to EcoCasa’s 2015 public presentations on Mexico’s national estimates. And the national housing sector accounts for almost 14 percent of the nation's total energy consumption, as estimated by Mexico’s Energy Secretariat for the 2016 National Energy Balance report.
BBVA’s Research Real Estate Outlook report for 2017 states that, in Mexico, even though the housing market has slightly decreased in recent years, roughly 350,000 houses are still incorporated each year into the National Housing Register. It also says more than 80 percent of mortgage loans are directed toward the construction of new homes. Mortgage credits are not growing and consumers’ confidence is down, but the housing market is still viewed as robust and delinquency levels are at all-time lows.
The government has played an important role in sustaining the housing market through the National Housing Commission, significantly increasing aid to low-income families, and helping to reverse a downward trend in the construction market.
According to the BBVA report, around $15.5 billion USD in credits is used to finance Mexico’s housing market. Half of it comes through commercial banks. Nevertheless, 75 percent of the total number of loans come from public funding and SHF funds 1 of every 3 new houses in Mexico.
Infante states that the EcoCasa program represents approximately 20 percent of SHF’s portfolio and has been a key actor to maintain rhythm as they expect strong demand for EcoCasa’s products for the years to come.
In this sense, the Mexican government is aiming to close the housing gap while setting the standard for how these houses should be built.
SHF partnered with the Inter-American Development Bank (IADB) and the KfW Development Bank to offer cheaper lending rates to developers and financial intermediaries if the projects comply with EcoCasa’s main requirement: a 20-percent reduction in greenhouse gas (GHG) emissions in comparison to a baseline house. The reduction is obtained through construction and architectural techniques that allow occupants to reduce their energy consumption over the house’s life cycle.
What is the cost of sustainability? Developers all over the world are aware of the possibilities and opportunities for building more sustainable buildings. But when buying houses, families and individuals are very sensitive to the prices of buildings and the cost of loans.
Developers must perform an energy simulation that shows a reduction of 20 percent in the GHG emissions in comparison to a baseline house in order to access funding from the program. The process is straightforward and all of the information is available on EcoCasa’s website.
Developers can choose their own technology and construction techniques, as long as they achieve a 20 percent reduction. A list of around 17 required documents is part of the submission process. All of them relate directly to the project’s blueprints and documents. They include information about equipment and materials. The information is publicly available on EcoCasa’s website.
Is this program working? Yes. By 2020 EcoCasa aims to have funded 50,000 houses. It looks as if it is on the right track. By the end of 2016, EcoCasa had already exceeded 2019’s goal of 27,600 houses. This target was for an estimated reduction of 1 million tons of carbon dioxide equivalent, according to its website and public statements.
EcoCasa’s first package achieved its goals three years before expectations. It accomplished the goals of the second package five years before the deadline, according to Infante. And he adds that by more standard measures, the program has been successful as demand increases and default rates are as low as 3 percent of the total portfolio.
“At first, people said the program would not succeed,” Infante said. “It’s a model that cannot be stopped. There are long-term commitments. We see this as one of the most successful models within SHF and as a role model for other public policies.”
In the long run, EcoCasa also wants its projects to reduce water consumption. It also wants to use construction methods that actively reduce energy use by families.
Down the road, EcoCasa’s challenges will focus on funding projects that reduce the occupants’ travel times to their destinations, funding smaller construction companies outside the banking system, incorporating water treatment as part of the projects, promoting neighborhoods instead of individual projects, and even obtaining financing though green and social bonds.
With resources from the European Union’s Latin America Investment Facility (LAIF), EcoCasa is piloting the construction of passive housing. These houses would mitigate around 80 percent of GHG emissions, compared to a standard house. They have comfortable temperatures for occupants – between 20° and 25° C.
These houses will have thermal isolation, special windows, and smart ventilation. This is a model that started in 2016. The first homes are already under construction.
“It has never been done before in Mexico. EcoCasa subsidizes up to 70 percent of the additional technology. The other 30 percent is paid by the buyer,” Infante said.
This will allow the government to learn about new materials and techniques.
“If companies see that there is a market, they will come and start producing here. That's the Ferrari of the portfolio,” Infante said. “It’s like a master's degree for companies and the market.”
Given the program’s current performance, new opportunities could be leveraged. For example, many commercial developments could be part of EcoCasa’s funding, if it comes hand in hand with housing opportunities. This could be particularly relevant to areas in need of new investment.
Even though EcoCasa started operating in the middle of an economic downturn, the program is flexible enough to help the Mexican economy face future challenges such as post-earthquake reconstruction efforts. After October 2017, SHF established a housing program in the cities affected by that year’s earthquake – about $330 million USD.
This government-sponsored initiative has been successfully adopted by the market. It is helping the country by promoting sustainable economic growth and reshaping the market for energy-efficient houses.
Countries around the world are looking at this model as a great opportunity to reduce their carbon footprints. For example, Peru’s Ministry of Housing, Construction and Sanitation has announced that it will be granting lower interest rates for sustainable housing by 2018, following EcoCasa’s model.