EcoCasa at Habitat III: Forward Momentum and New Products

Published: Thursday, December 15th, 2016 by Lenora

While at Habitat III, Homero Garza Teran, who manages the Mexican government’s EcoCasa program, updated me on the initiative’s next phase of growth. This sustainable affordable housing program sits within the Sociedad Hipotecaria Federal (SHF), the apex public lending institution for housing in Mexico. EcoCasa had achieved its targets of 27,000 houses built via EcoCasa ahead of schedule, which opened up new capital to expand. With a proof of concept established, we talked about next horizons.

Affordable houses of EcoCasa program

EcoCasa’s new KfW credit of EUR 50 million will grow the existing program to incentivize and build capacity among Mexico’s real estate developers for green affordable housing. EcoCasa’s team knows it needs to work harder to lower the total carbon footprint of housing developed with the program’s credits. Garza admits, “We want to keep improving the program and that’s why we are now analyzing how to complement our carbon efficiency tool (Sisevive EcoCasa) to take into account the development’s location and its impact on transport emissions.” Affordable housing in Mexico is still largely developed as single family homes at cities’ outskirts, so people still commute long distances to work, which increases the total energy and carbon footprint of this affordable housing approach.

Garza explained, “We’ll be able to provide financial incentives to developers with higher location scores. Capital is constrained, so we can take advantage of differential pricing. First, we opened the program up. Now, we can be more selective. We may also be able to draw on the Green Climate Fund.”

EcoCasa is also working on a new brand, EcoRenta, working with Greystar and other multifamily development leaders. Leveraging existing rating systems like LEED and collaborating with municipalities, the goal of EcoRenta is develop green rental housing. “Getting that market started requires low rates and incentives. There’s a lot of demand but not much supply of mid range apartments, even though there’s plenty of supply for high end apartment rentals,” says Garza.

He acknowledges that rental housing for lower and moderate income households will have to come later. “We need to grow a middle income market to have a proof of concept first.” Garza points out that, in fact, the dream goal would be to have inclusionary transit oriented development (TOD).

Garza and I also discussed bringing mainstream real estate investors into the mix. Garza underlines the program’s confidence in the success of this latest step: “We think that real estate private equity funds are interested in the potential to diversify from the market segments where they’re most focused, like logistics and office. Real estate investors in Mexico already have some experience of building, selling and stabilizing residential property. Prudential did it and had a good exit.”

Garza points out that SHF was already once not competitive enough to get a debt deal on one project when an insurance company showed interest, so he’s certain that investors looking for long-term assets are ready for EcoRenta. Because of SHF’s low-cost financing, the program has lured banks in as well.

Eleven new rental projects, including student housing, are already approved in multiple cities. Mexico City, Guadalajara and Monterrey will likely be the first markets, but there’s also a market in tourism driven cities like Cancun.

Even though private investors and banks could do these projects on their own, Garza insists, “EcoCasa is making the rules, acting as a bridge to developers and bringing green to the table.”