Mexico - Second Low-Income Housing Project

 Second low income housing project Report No: ; Type: Report/Evaluation Memorandum ; Country: Mexico; Region: Latin America And Caribbean; Sector: Other Urban Development; Major Sector: Urban Development; ProjectID: P007669 Mexico: Second Low-Income Housing Project (Loan 3140-ME) The Implementation Completion Report (ICR) for the Mexico Second Low-Income Housing Project (Loan 3140-ME, approved in FY90), prepared by the Latin America and the Caribbean Regional Office, with Appendix B contributed by the Borrower, was reviewed by the Operations Evaluation Department (OED). The loan for US$350.0 million equivalent was approved in December 1989 and closed in June 1995 as originally planned. The loan was fully disbursed. The project objectives were: (i) to increase the availability of housing credit for low income families; (ii) to further improve the Low Income Housing Fund's (FONHAPO) level of cost recovery; (iii) to redirect FONHAPO's subsidies to the poorest groups; (iv) to provide low-cost housing units by encouraging self-help labor by beneficiaries; (v) to streamline the administrative procedures of FONHAPO and its borrowers; and (vi) to contribute to the municipal government's improved planning and development of urban land expansion. These objectives were to be achieved through: (i) a conventional investment program to finance the purchase of serviced lots, home improvements, finished houses (82 percent of total project costs); (ii) special credit programs to expand the land area for settlement of low-income families and to legalize land tenure and provide services in such areas (13 percent); and (iii) three special studies (on savings mobilization, building codes, and irregular settlements) and project administration (5 percent). The project achieved most of its objectives. It increased the availability of housing credit to slightly more than the 250,000 low-income families forecast at appraisal. Housing subsidies were reduced for all loans as planned, and completely eliminated for larger loans, owing to an increase in the interest rate from 3 to 4 percent per year above inflation. Almost 40 percent of required resources came from internal cash generation through improved cost recovery, greater than the appraisal target of 34 percent. The administrative procedures of FONHAPO were streamlined, and the decentralization of FONHAPO's functions to the state housing institutions was carried out, substantially reducing its staff. The three studies mentioned above were completed as planned, and had a substantial impact on creating new savings schemes for low- income families, simplifying building codes and other procedures whereby reducing development costs, and defining policies to deal with irregular settlements and preparing long term urban development plans. The objective of expanding low-cost housing through lending for serviced lots and home improvements was not achieved, however. FONHAPO financed more finished houses for high-income families because the Bank agreed that the eligible income be raised to meet the increase in housing costs. The special credit programs for urban land expansion and regularization were only partly implemented, due to delays in acquiring legal titles. The objective of lending more to smaller cities was not met, mainly because of the lack of available land for development. The revised ERRs for finished houses and home upgrading (90 percent of investments financed by the project) were 11.6 and 23.0 percent respectively, higher than the appraisal estimates of 10.0 and 15.6 percent respectively. As in the ICR, OED rates project outcome as satisfactory, institutional development as moderate, sustainability as likely, and Bank performance as satisfactory. A main lesson is the importance of assessing the institutional capacity of the implementing agencies. The housing projects financed by FONHAPO were managed by the local housing associations, but these associations poorly performed their key functions such as property registration and mortgage loan administration. A detailed assessment of these associations would have helped the Bank mitigate the risk through technical assistance programs. The ICR is rated as satisfactory. No audit is planned.