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Part I: A Strategic Approach to Affordable Housing in Bogotá, Colombia

Part I: A Strategic Approach to Affordable Housing in Bogotá, Colombia

Faced with a critical need to provide more affordable housing for the City’s residents, in November 1990, Bogotá, Colombia’s National Savings Fund (FNA) got creative, setting in motion an ambitious plan to construct over 7,000 affordable housing units. The goals of the initiative were not only to regenerate declining urban areas, but also to secure homebuyers for developers’ for-sale stock. Although not without its challenges and setbacks, FNA’s efforts ultimately revealed critical insights into the complexities of urban housing development, insights which we will draw upon in part II of this series.

Initial Efforts and Challenges

Bogotá’s growing affordability crisis was initially recognized in the 1980s, culminating in the FNA’s decision to issue requests for proposals (RFPs) to construct more than 7,000 housing units. This RFP was coupled with the pre-approval of over 5,000 potential future homebuyers, an action intended to ensure a ready market for the homes, and thus making the project attractive to developers. The responses to the RFPs were underwhelming, however; and the received proposals covered a mere 1,000 units, all situated on the outskirts of the city where land was cheaper but demand was low.

This mismatch between supply and demand led the FNA’s Board of Directors to reject all the affordable housing projects submitted, a first in the organization’s 30-year history. The FNA’s reflected the importance of protecting the quality of its loan portfolio and the financial health of its clients, who were primarily middle and low-income families. This decision also underscored a critical lesson: in order to be viable, affordable housing must be located close to jobs and infrastructure. 

Strategic Shift and Acquisition of Land

Recognizing the need to fundamentally rethink their approach to incentivizing affordable housing construction, the FNA’s leadership formulated a new, comprehensive strategy. Market analyses had revealed that the high cost of land was a significant barrier to affordable housing production; responses to the first RFP reflected this reality. Seeking a solution, the Fund devised a creative response to this financial conundrum, in which they committed to assembling substantial amounts of land in a prime location and to offering that land to developers at prices not to exceed 10% of proposed projects’ total construction costs.

Within a month, the FNA secured 104 acres adjacent to Bogotá’s Bus Rapid Transit (BRT) system, which were strategically located between the City’s downtown and its airport. Land acquisition was facilitated by the government’s provision of tax credits to land sellers, ensuring the parcels were obtained at reasonable cost. Newly purchased land was then transferred to a trust dedicated solely to affordable housing, effectively freezing its price, suppressing speculation, and avoiding capital gains taxes.

Establishment of Trusts and Rezoning

Key to the FNA’s approach was the establishment of a LAND (Unit) TRUST that owned and managed land slated for affordable housing development. A DEVELOPERS TRUSTEE was appointed to oversee the effort’s rollout, who (together with property owners and investors, negotiated with the planning department) rezoned the land and developed a comprehensive plan to build over 7,000 affordable housing units that would be made available at 20-40% below the area’s median home values.

A RESOURCES TRUST was also created. Tasked with pooling funds from various investors to develop real estate assets on the LAND TRUST, the RESOURCES TRUST also distributed profits directly to investors, avoiding the need for reinvestment in the fund. This approach allowed investors who purchased homes to settle their investments in square footage, thus further aligning interests and ensuring financial stability.

Rezoning efforts were a critical component of the project. The FNA engaged in extensive negotiations with national and local authorities to define the project’s scope and site requirements. This process, though cumbersome and fraught with bureaucratic challenges, culminated in the Planning Department issuing an ordinance that outlined minimum urban preconditions, densities, and building requirements, thus ensuring that the development could proceed unencumbered.

Financing and Community Engagement

The FNA issued RFPs to design, build, finance, and transfer the housing units. This call attracted proposals from architects, developers, construction companies, and community development organizations, sparking a national discussion on urban regeneration and affordable housing. Ultimately, four diverse groups were selected based on community and client votes, thereby ensuring a collaborative and inclusive approach.

Development costs money, of course, and the FNA’s plan included some innovative financing tools that proved vital to the project’s success. Pre-development and construction costs were covered through construction loans, with the land omitted from these costs. In addition, Colombia’s version of the Community Reinvestment Act (CRA) required financial institutions to finance 80% of the construction cost of affordable housing in underserved areas. This provision ensured that the projects could be built in desirable locations, while avoiding displacement and market disruptions.

Technological Innovation and Demand Synchronization

The project sought innovation in construction technologies as well, with aims of increasing the quality, affordability, and speed of unit construction above what was typical at the time. Hence, proposals that utilized innovative technologies to enhance productivity, scalability, and sustainability were given additional points during evaluation. This emphasis on technological innovation ensured that the housing units were not only affordable but also of high quality and easy to maintain.

The Fund also implemented its own in-house innovations to optimize the process. Seeking to synchronize supply and demand, the FNA adopted creative tools such as building parks and salesrooms with exact models of the average unit for would-be buyers to pursue. These efforts, combined with an algorithm matching the time needed for down payment assembly with construction timelines, ensured efficient resource utilization and reduced financial burdens for builders and buyers alike.

Conclusion

The Bogota housing project exemplifies a strategic approach to affordable housing that integrates land acquisition, rezoning, innovative financing, and technological innovation. By aligning interests and engaging the community, the FNA successfully navigated the complexities of urban housing development to bring much needed new affordable housing to the City of Bogotá. This case offers valuable lessons for the many U.S. municipalities struggling to provide affordable housing for their residents. In Part II of this series we will borrow lessons learned from the FNA’s experience and add some U.S. land use context and tax policy innovations to create a toolkit for addressing the nation’s affordable housing crisis, one community at a time. 

Gabriel Nagy is a RSF Board Director and owner of NAGY Associates. Gabriel served as the Deputy Director of the National Savings Fund and as a member of the jury of the National Housing and Urban Planning Competition Carlos Lleras Restrepo from 1985-1991, along with serving as the Housing Director of the Ministry of Economic Development and the Deputy Director of Bogota’s Planning Department from 1986-1999 in Colombia.

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