Failures and Successes in the Haitian Housing Market

Published: Tuesday, March 20th, 2018 by Olivia Caldwell

Cabaret housing project in 2015, funded by USAID and built by CEMEX

Ever since Haiti’s devastating 2010 earthquake, I’ve been trying to develop quality housing Haitians can afford. Nearly all my efforts have failed – until recently.

Many capable people and organizations have tried to tackle Haiti’s huge housing deficit of approximately 1 million units. Most tried to build for-sale affordable housing, as I did. Donors, investors, and construction companies met and pledged support. Plans were drafted. Often, despite good intentions and resources, they fell short. Hurdling local constraints proved too difficult.

The failures boil down to: urban land in Haiti is poorly entitled and expensive. So financing is difficult and affordability impossible. Optimistic would-be developers, mostly NGOs, confuse the need for housing with being able to pay for it. As immense as Haiti’s housing deficit is, so is the affordability gap.

I’d been here before while working for CEMEX in 2011. With the challenge to develop an affordable housing strategy to build good homes with a modest profit, I cultivated partnerships for two years with local landowners, investors and international donors. Ultimately, soil studies revealed that the land could not hold the weight of properly built homes. My hopes were dashed by focusing entirely on the affordability gap but overlooking basic technical feasibility.

The Cabaret project was one bright spot. With USAID funding, we built 156 homes for families displaced by the earthquake. True, one property didn’t catalyze the Haitian housing market. Nonetheless, the community is thriving today, a clear illustration of success and a point of pride.

Now at the Affordable Housing Institute (AHI) for two years, I advise banks, developers, and funders on international housing and best practice for developing Haiti’s housing market. As an impact-driven consulting group focused on housing policy and finance, AHI applies its global experience to avoid mistakes that have already been made.

As an example, Haiti HOME is now building market momentum after two years’ work. With AHI as a principal advisor to this USAID-funded project, the World Council of Credit Unions (WOCCU) is supporting the housing ecosystem. Instead of building homes directly, the Haiti HOME program provides money and advice at weak links in Haiti’s housing value chains. With technical assistance and incentives to local financial institutions and developers:

  • The pay-for-performance financial incentives push the companies to go down-market and take on more risk; and
  • Technical assistance enables them to undertake these activities sustainably.

Why is it working? Because Haiti HOME catalyzes both the supply side and the demand side.

Villa Flora housing project in Port au Prince, developed by Chabuma and supported by Haiti HOME

On the supply side, rather than imposing our designs, Haitian companies show us theirs. We collaborate to adapt current higher end construction to middle-income affordability with pay-for-performance incentives structured by Haiti HOME. These incentives only cover the ‘profitability deficit’ for incremental changes to meet the target segment’s needs. Developers do build smaller and more affordable units when they know can make more money. We get these homes to the right families as income-qualifying households take out mortgages from local banks.

The program also aims at Haiti’s degraded environment by teaching developers about the benefits, both environmental and economic, of going green. Projects also achieve EDGE certifications.

Haiti HOME is working: 5 housing projects are under way. Houses cost as little as USD 25,000 and up to USD 140,000, well below the Port-au-Prince’s average formal sales price, which typically starts at USD 300,000.

On the demand side, HOME works with microfinance institutions, credit unions, and banks to increase access to housing finance. Credit unions are especially enthusiastic and effective: KOTELAM, one of the country’s largest credit unions targeted a 75% boost in its housing loan portfolio. The portfolio more than doubled that target – up 191% in only nine months – while reducing the portfolio-at-risk at thirty days (PAR30) to 1.91%. The $150,000 of Haiti HOME pay-for-performance incentives has mobilized over $1.8 million in private capital, a leverage effect of 12 to 1. KOTELAM has made housing finance accessible to 99 households with HOME’s support.

KOTELAM did not stop there: Motivated by the new business opportunity, its Board will launch a long-term mortgage product to formalize target segments. Previously untapped socioeconomic segments will gain access to capital, bringing innovation and new players into the mortgage space. This product will offer a new solution for low income clients typically ignored by commercial banks for long-term financing.

Of course this effort has met challenges. Building a housing market from scratch is a slow process. Pay-for-performance incentives need to motivate local actors without distorting the market. This required careful market analysis. Housing projects also require lengthy planning and often never take off.

Despite the challenges, Haiti HOME has accomplished in two years what I spent six years prior not accomplishing. The secrets of our success?

  • Work with local actors who know the market and its constraints
  • Focus on the affordability gap and leave most technical matters to local actors
  • Incentivize locals to take risks and explore down-market opportunities while giving knowledge and tools to do so safely and efficiently
  • Invest in the housing value chain to support the supply side and demand side simultaneously, strengthening both value chains; and
  • Innovate, experiment and provide modest capital on flexible terms

There’s plenty more to be done. I am immensely proud of the Haiti HOME story and our collaboration. We believe Haiti HOME’s model can be replicated in countries with similar issues. HOME’s value chain approach could prove useful to markets where high poverty and income informality plus weak land tenure make formal housing development difficult. If HOME can crack Haiti’s housing market, I believe it can be adapted to succeed just about anywhere.