Continued from part 1

By Yaroslav Lissovolik

In view of the above factors accounting for the centrality of housing construction in BRICS economies, it is no wonder that in all of the BRICS-5 core economies there are large-scale programs designed to promote housing affordability. In Brazil, the authorities launched the Minha Casa, Minha Vida (MCMV) program that envisaged subsidized housing as well as provision of homes for low-income segments of the population. In Russia, the authorities pursued affordable housing initiatives through the National Project “Housing and Urban Environment,” whose key elements included expanding mortgage-based lending as well as affordable housing construction via the use of instruments such as subsidized mortgage interest rate and subsidized interest rate for developers.

In China, a key initiative in the sphere of affordable housing provision, is the Affordable Rental Housing (ARH) program launched in 2021 to provide subsidized rentals to young employees. In 2024, the government launched initiatives to convert unsold apartments into affordable homes and support the construction of social housing to absorb excess inventory and stabilize the real estate market. These initiatives are starting to generate a rise in the role of social housing in China’s hosing market – according to Reuters, Ratings agency S&P Global estimated that social housing accounted for 8% of primary sales in major cities in 2023 and could reach 20% in 2026.

India’s PMAY (subsidies on house loan interest) and RAY programs, South Africa’s First Home Finance (previously FLISP) that provides housing subsidies for low-income earners, Indonesia’s Rumah Subsidi and Rusunawa programs – all these initiatives coming from BRICS further show the scale and importance of such initiatives in the largest developing economies.

With all the wealth of experience accumulated by BRICS economies in supporting affordable housing development, there may be scope for them to create a platform (perhaps led by the relevant national development banks that participated in the financing of such programs) for exchanging international best practices in this sphere. In particular, there may be a case for using cross-subsidization by developers and/or the conversion of unsold apartments into affordable homes (China’s approach) in BRICS countries such as Brazil. In fact, some of the recent initiatives in Brazil such as the 2023 National Housing Program do envisage the conversion of commercial buildings into affordable housing.

Apart from a platform for exchanging international best practices in supporting affordable housing, there may be several other tracks through which the BRICS could provide support to housing construction:

- NDB project financing: the importance of the housing construction sector for BRICS may be so significant that it may merit a notably greater share in NDB’s total project portfolio

- Regional and national development banks that cooperate within the NDB+ circle to provide financing for construction projects as well as subsidize the interest on loans for developers in BRICS+ economies

- Anti-crisis coordinated stimuli by BRICS+ to support housing construction through fiscal allocations during periods of economic downturn. Residential housing construction generates sizeable multiplier effects with respect to related industries such as chemicals, energy, construction materials – while cross-sectoral multipliers differ across countries, indications from Leontief’s input-output tables for developing countries point to multipliers typically in excess of the average for the broader economy.

Of the above tracks, the financing support provided by NDB and the regional development banks of BRICS+ economies for affordable and sustainable housing construction projects, appears to be the most straight-forward. In fact, the NDB is already involved in supporting housing construction with a project approved for Russia and another one yet to be approved in India[5]. For the project in Russia that has an initial NDB financing limit of USD 300 mn the description states that “the Loan proceeds will be used by JSC DOM.RF to address the shortage of affordable housing in Russia by financing housing construction projects, which meet criteria of affordability as determined jointly by NDB and JSC DOM.RF”. In the case of the proposed project for India’s housing program (with a proposed limit of NDB financing of USD 75 mn), the NDB states that “NDB’s loan will provide longer term funding to Piramal Finance [a prominent player in affordable housing finance segment in India] to support and expand its on-lending for individual housing loans to Economically Weaker Sections (EWS) and Low Income Group (LIG) for acquisition of affordable houses”.

There may be scope to also target a higher share of the affordable housing sector projects in the investment project portfolio of national and regional development banks with the participation of BRICS+ economies (Eurasian Development Bank in Eurasia or CAF in Latin America). Examples of such policies feature the Asian Development Bank (ADB) that supports affordable and green housing projects (including in rural areas) in countries such as India and Bhutan via a range of instruments, including loans to financial institutions for on-lending to developers and low-income borrowers. Furthermore, regional development banks together with NDB could cooperate in promoting the use of PPPs (Public-Private Partnerships) in expanding the possibilities for the participation of the private sector in affordable housing development.

As a word of caution, the experience of some of the largest BRICS economies also shows the risks associated with the excesses in the development of the housing construction and real estate sectors. One potential vulnerability is the high exposure of the banking sector to the borrowing of the real estate and housing segments of the national economy. A related issue is the level of corporate debt (particularly in the real estate and the housing construction sector) as well as mortgage indebtedness of households that may become a burden in an environment of chronically high interest rates. Other problems may include asset price bubbles in the property market, inventory gluts, incomplete construction projects. China’s experience in addressing the aftermath of its real estate difficulties and the debt problems of corporates such as Evergrande may provide important lessons for the rest of the BRICS grouping. A greater involvement of BRICS+ development institutions in supporting the housing construction sector could provide the policy frameworks and safeguards to mitigate some of these risks.

In the end, there is a bit of symbolism in the importance of the housing construction sector for the economies of the BRICS bloc. For the BRICS and their development institutions may serve as crucial elements in building the foundations of sustainable economic development across the Global South, much like the BRICS and BEAMS platforms may also serve as key construction materials in the evolving new economic architecture of the world economy. Boosting the growth in the supply of affordable housing could enable the BRICS+ economies to address some of the most fundamental imbalances in their economic development, including social inequality and low labor mobility. The BRICS and most notably NDB need to position the housing construction sector as one of the key priorities in the portfolio of investment projects for BRICS+ economies.

Yaroslav Lissovolik is Founder of BRICS+ Analytics.