2023-08-19 07:37:34
Without being linked to the legal frameworks related to territorial ordering or zoning processes, the preferential interest for mortgage loans has been, since its promulgation, in 1985, the main mechanism for generating housing and urban land in Panama. The recent presentation by the Executive before the National Assembly of a proposal that seeks to extend the validity period of this benefit until December 31, 2025, has sparked a heated debate about the usefulness, benefits, and weaknesses of this subsidy. The validity of the last update of this standard will end on August 1, 2024.
In the explanatory statement of the proposal for the extension of the period of validity of this norm, it is indicated that this law, “has achieved its objectives, which are oriented in two ways: the first, to facilitate the acquisition of a housing, and the second, to contribute to encourage the field of construction”.
There are three requirements that condition access to this subsidy, two of which have a direct impact on the production of housing and urban land in Panama. These requirements are that the loan is to buy a home in the Republic of Panama, that the aforementioned residence is new, without having been previously inhabited and, finally, the loan cannot be used to build improvements in a previously inhabited home.
Under these conditions, and in the absence of territorial counterweights that link this incentive with urban planning and policies to contain the expansion of the city, preferential interest has been a key factor in the well-known problems of quality of urban life. Especially because in the absence of territorial planning instruments, it has exacerbated a development of serial houses without taking into account the needs for endowment and access to public equipment, such as health centers, schools, shops and jobs. The urbanization model that emerged under this subsidy has also had an impact on the long travel times from the periphery to the urban center, which are estimated to be between 40 minutes and one hour per trip.
In addition to the financial costs that this implies for the State, the costs must be included in the provision of public infrastructure that is required for a city that is continually expanding. In the ‘Urban Growth’ study prepared by the IDB/MUPA in 2016, it was indicated that the cost of providing public infrastructure is $225,000 per hectare. This same study indicates that if the current model of urban expansion continues by 2050, the increase in the urban footprint would be 14,000 hectares. Based on these data, the cost of this expansion can be estimated at $3.15 billion, just for new public infrastructure.
Where and how is this benefit distributed geographically? According to the study ‘Distribution of subsidies by corregimiento’ published by the MEF (2013), “the districts most benefited by the subsidy were Panama (41.1%), Arraiján (13.1%), San Miguelito (10.7%), %)), La Chorrera (6.6%), David (6.0%), Santiago (5.2%), Colón (3.7%) and Chitré (3.4%). Together they received about 90% of the subsidy for the acquisition of loans under the benefit of preferential interest”.
This study continues indicating that, “the townships that received the most subsidies were Tocumen, 24 de Diciembre and Rufina Alfaro, with 6.6% and 6.3%, respectively, which translates into approximately more than $5 million in each township. They were followed by Juan Díaz, from the district of Panama, and Juan Demóstenes Arosemena, from the district of Arraiján, with 5.5% and 5.4%, respectively, and close to $4 million each in preferential interest subsidies. In general terms, the corregimientos that received the most subsidies belong to a large extent to the periphery of the metropolitan area of Panama.
How much of the housing that is built in Panama falls within the range of preferential interest? The reports of Convivienda –a union that brings together housing developers in Panama–, for 2019, 91% of the homes sold were within the preferential interest range. By 2022, the proportion of homes sold within prime interest had dropped to 82%.
In absolute terms, sales under the benefit of preferential interest went from 7,310 homes in 2019 to 5,334 homes in 2022. The balance of the credit for the first mortgage home with preferential interest law, according to data from the Superintendency of Banks, it was $8,447 million in June of this year.
For a conditional preferential interest subsidy model: a necessary reform
The existing restriction on the preferential interest subsidy, so that it is only for new housing and that it cannot be used to reform the existing housing stock, has had an impact on the absence of a second-hand housing market. By making the acquisition of already used housing impossible or unattractive, the restriction obliges us to continue building new housing and to continue occupying increasingly peripheral urban land.
Counteracting this negative impact requires a reform of the preferential interest law and the regulatory framework that regulates territorial planning in Panama. The preferential interest for mortgage loans, due to its territorial impact and on the quality of life of the population, must be seen and incorporated as an instrument of land management and urban policy in Panama. It cannot continue to be seen, analyzed and thought of exclusively as an instrument for reducing the housing deficit and stimulating the real estate and construction sectors.
Recovering its territorial dimension is essential for a more sustainable management of the city. The granting of the preferential interest subsidy must be conditioned to the public policy objectives of containment of urban expansion, and to instruments such as territorial ordering plans. This new model of preferential interest could focus on the recovery of existing buildings or housing in the urban center. It could meet environmental objectives, the generation of public space and climate change mitigation, the reduction of the carbon footprint, or, finally, promote the construction of affordable projects in the urban center.
The necessary reform is profound and it is necessary to incorporate aspects such as the generation of urban land management instruments, -practically non-existent in the current regulations- and the development of a new housing and territorial ordering policy more in line with the idea of urban planning. urban life. On the side of the formulation and management of management plans, greater transparency is required to obtain data on the impact of this subsidy in the territory, and thus the preferential interest can be incorporated into discussions about development. local urban.
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