Financing development of multifamily low income rental housing in Bogotá, Columbia

Abstract

One of the most important social problems in Colombia is the shortage of adequate affordable housing for the low income households. By the year 2000, Bogota alone had a housing shortage of about 540 thousand houses concentrated mainly on the three lower socioeconomic levels which represented 86% of the population of the city. As a response to the problem, the central government has traditionally supported the ownership of affordable housing through direct subsidies granted to qualifying low income households. However, given the constraints in the resources of capital available in the country, and the magnitude of the problem, the government support has only been able to solve part of the housing needs of low income families. The promotion of low income rental housing is an alternative that combined with the traditional support for home ownership will better serve the housing needs of the low income households in the country. This thesis aims to analyze the financial feasibility of the development of low income rental housing in the country by analyzing the case of Bogota. Based on an analysis of the American affordable rental housing policy, the thesis suggests a mechanism of government subsidies for the development of low income rental housing in the country. Through innovations in the capital markets in the United States, the government has been able to attract private equity for the promotion of affordable rental housing. Based on the Low Income Housing Tax Credit program in the United States, the thesis develops a financial model in order to assess the level of support that the central government in Colombia would have to provide to turn the development of affordable rental housing attractive to private investors. The thesis concludes that by leveraging private capital, the Colombian government could promote the development of low income rental housing in the country It finally recommends a new scheme for low income housing subsidies that will attract private equity for the promotion of both ownership and rental low income housing.