Housing Briefing Document. Resilient Puerto Rico Commission

Housing Briefing Document Resilient Puerto Rico Commission February 2018

Contents 1 Introduction... 3 2 Housing Conditions and Trends... 3 2.1 Housing development trends... 3 2.2 Housing affordability trends... 5 2.3 Housing stock losses due to Hurricanes Irma and Maria (by location type, tenure and affordability level) 6 2.4 Housing in need of repair due to damage from Irma and Maria (by location type, tenure and affordability level)... 7 2.5 Number of Households unhoused or under-housed as a result of the hurricanes (by location type, tenure and affordability level)... 8 3 Housing Policy, Development and Regulatory Contet... 8 4 Hazards Affecting Puerto Rico s Housing Stock and Vulnerable Communities... 9 5 Resilience in the contet of affordable housing... 9 6 Key Challenges... 9 6.1 Challenge I: Informal housing... 10 6.2 Challenge II: Damaged and Destroyed Housing Units... 10 6.3 Challenge III: Institutional Capacity... 10 7 Potential Strategies... Error! Bookmark not defined. 7.1 Quality (resiliency)... 11 7.1.1 Align structural improvement efforts with better incentives and requirements for constructors 11 7.1.2 Building codes to promote resilience and sustainability... 11 7.2 Affordability... 12 7.2.1 Greater involvement of microfinance institutions... 12 7.2.2 Local Research and Development... 12 8 References... 13 2

1 Introduction As the Resilient Puerto Rico Commission Housing Working Group begins the urgent work of rebuilding Puerto Rico s housing sector in the aftermath of Hurricanes Irma and Maria, this briefing document is intended to provide the Working Group members with a common body of knowledge regarding housing and resilience in Puerto Rico. Resilience is defined as the capacity of individuals, communities, institutions, businesses, and systems to survive, adapt, and grow no matter what kinds of chronic stresses and acute shocks they eperience. The document is organized into the following major sections: 1) Overview of Puerto Rico s Housing Conditions and Trends 2) Housing Policy, Development and Regulatory Contet 3) Housing and Resilience 4) Opportunity Areas Main Shocks and Stressors in Puerto Rico Aging infrastructure Coastal & tidal flooding Declining population / human capital flight Increasing elderly population groups Disease outbreaks Earthquakes Etreme weather events Infrastructure failures Fluvial & pluvial flooding 2 Housing Conditions and Trends Prior to hurricanes Irma and Maria, Puerto Rico had a total number of 1,571,744 housing units of which 78.7 were occupied and 21.4 were vacant (ACS 2012-2016, A). Of the 1,237,180 occupied housing units, 68.6 were owner-occupied while 31.4 were renter-occupied (ACS 2012-2016, A). These numbers do, however, not account for the share of informal housing in Puerto Rico. 2.1 Housing development trends Figure 1 and 2 below show the housing stock changes in Puerto Rico and San Juan between 2007 and 2016. As shown, in Puerto Rico more than 80 of the housing stock is comprised of single family houses. Housing with 3-19 units only accounts for 13 of all housing in Puerto Rico. Multi-unit housing with more than 20 units accounts for 6 of the overall housing stock. 3

Figure 1: Puerto Rico housing stock, 2007 vs. 2016 2007 2016 As an urban area, San Juan s housing stock has a greater share of multi-unit housing. Single housing units account for approimately 50 of the housing stock, while the remaining 50 are multi-unit complees ranging from 2 to more than 20 units. The greatest part of multi-family housing is comprised by complees that have 20 or more units. Figure 2: San Juan Housing Stock, 2007 vs. 2016 2007 2016 Historically, relatively few housing units have been built in Puerto Rico after 2010 compared to the share of housing units built in the mainland United States. Figure 3 depicts the share of housing units by the age of the building in the U.S., Puerto Rico and San Juan. Only 1 of Puerto Rico s housing units were built after 2010, while in the United States 4.2 of housing units were build post 2010. Furthermore, figure 3 highlights that the majority of the eisting housing stock in Puerto Rico was built 40 to 50 years ago, which highlights the need for rehabilitation in terms of resilience and efficiency. 4

Figure 3: Housing Units by year of construction, U.S. vs. Puerto Rico vs. San Juan 30% 25% 20% 15% 10% 5% 0% 2010 to 2013 2014 or later 2000 to 2009 1990 to 1999 1950 to 1959 1960 to 1969 1970 to 1979 1980 to 1989 1939 or earlier 1940 to 1949 US Puerto Rico San Juan Share Source: ACS 2016 1 Year Estimate 2.2 Housing affordability trends Housing affordability as measured by the portion of household income spent on total housing costs has been decreasing over the last decade in Puerto Rico. As depicted in Figure 4, the share of households that spend 35 or more of their income on gross rent increased from 30 to 58 between 2007 and 2016. Similarly, all other brackets also increased, implying that household income has decreased slower than the increase in gross rent. Figure 4: Puerto Rico gross rent as age of household income, 2007 vs. 2016 60% 50% 47% 40% 30% 28% 2007 20% 10% 11% 11% 12% 11% 7% 9% 6% 7% 6% 5% 2016 0% Less than 15.0 15.0 to 19.9 20.0 to 24.9 25.0 to 29.9 30.0 to 34.9 35.0 or more In San Juan, the share of households that spend 35 or more of their income in gross rent increased from 28 to 47 during the last decade. Similarly, the share of people in the remaining income brackets also increased, hinting at a relative decline in affordability from 2007 until 2016. 5

Figure 5: San Juan gross rent as age of household income, 2007 vs. 2016 60% 50% 48% 40% 30% 30% 2007 20% 10% 10% 11% 11% 8% 9% 11% 8% 10% 10% 7% 2016 0% Less than 15.0 15.0 to 19.9 20.0 to 24.9 25.0 to 29.9 30.0 to 34.9 35.0 or more 2.3 Housing stock losses due to Hurricanes Irma and Maria (by location type, tenure and affordability level) The impact of hurricanes Irma and Maria have been devastating to Puerto Rico s economy and housing sector. The eact etent of the destruction caused by the two hurricanes is still unknown, but estimates, as depicted in figure 6 below, range from 250,000 to more than 780,000 impacted houses. Similarly, the amount of destroyed houses range from nearly 3,000 to more than 87,000. The more conservative estimates by FEMA are presumably underestimating the destruction as these numbers are based on the registrations for FEMA assistance. Since many Puerto Ricans live in informal housing and cannot necessarily apply for assistance, these numbers are by definition lower than the actual numbers. On the other hand, the estimates produced by the Governor s Office are also only estimates and their methodology depends on a comparison to the impact of two previous storms, namely Georges and Hugo. In the light of these vastly differing estimates, we have to assume that the eact number of damaged and destroyed houses is somewhere between the two estimates until further data is provided. 6

Figure 6: Estimates of impacted housing units by hurricanes Maria and Irma in Puerto Rico 900,000 800,000 700,000 600,000 500,000 400,000 300,000 200,000 100,000 0 783,847 87,094 Governor report 252,035 FEMA 2,986 Total Destroyed Source: Build Back Better Puerto Rico, 2017; FEMA 2018 2.4 Housing in need of repair due to damage from Irma and Maria (by location type, tenure and affordability level) According to the Puerto Rico Association of Homebuilders, 87 of the infrastructure damage in Puerto Rico was due to impacted housing units, which are in need of resilient redesign and reparation. Estimates of the impacted housing units that qualify for repairs range from 700,000 (Build Back Better Puerto Rico) to 20,000 (FEMA). According to the Governor s report, of the roughly 700,000 impacted homes nearly 390,000 received major and 310,000 minor damages. According to FEMA, which only reports damages to renter homes, 15,000 units received minor and 5,000 major damages, as highlighted in figure 7. Again, the vast differences between the estimates are due to their methodological differences. 7

Figure 7: Housing in need of repair due to hurricanes Irma and Maria 1 800,000 700,000 600,000 500,000 400,000 300,000 Minor Major 200,000 100,000 0 Governor report FEMA Source: Build Back Better Puerto Rico, 2017; FEMA 2018 2.5 Number of Households unhoused or under-housed as a result of the hurricanes (by location type, tenure and affordability level) Overall, hurricane Irma and Maria took a huge and unprecedented toll on the island s housing stock and population. As of the 2017 Governor s report, over 472,000 housing units have received major damage or been destroyed by the hurricanes, forcing tens of thousands into congregate shelters and hundreds of thousands more into hotels or into the homes of family and friends (Build Back Better Puerto Rico, p. 12). 3 Housing Policy, Development and Regulatory Contet The major federal entities guiding housing policy, development and recovery efforts in Puerto Rico include the US Housing and Urban Development (HUD) and Federal Emergency Management (FEMA) Agencies, as well as other Federal entities that provide support for recovery efforts. At the level of the Commonwealth of Puerto Rico, the Puerto Rico Department of Housing 2, the Puerto Rico Housing Finance Authority (PRHFA) 3 and the Puerto Rico Planning Board 4 are key government agencies guiding planning and development. In addition, Puerto Rico s seventy-eight (78) incorporated towns and cities play a critical role in managing local housing policies and programs, and in providing land use planning guidance. A full list of housing plans and local government agencies involved in housing policy development is included as Appendi B below. 1 Available FEMA data only reports major and minor damages to renters. 2 http://www.vivienda.pr.gov/ 3 http://www.gdb-pur.com/principalsubsidiaries/housing-finance-authority.html 4 http://jp.pr.gov/ 8

4 Hazards Affecting Puerto Rico s Housing Stock and Vulnerable Communities Puerto Rico faces an etensive range of environmental hazards. Puerto Rico s coast and shorelines in particular around urban centers along the coast such as San Juan are especially susceptible to impact partly because of eposure to the common hazards threatening insular Caribbean contets (floods, liquefaction by earthquakes, tsunamis, storm surges, landslides, hurricanes and tropical storms, and sea level rise) but also because of a pattern of development practices that has severely limited ecosystem services in terms of their capacity to mitigate their effects (AECOM PRA, 2016). In addition to these primary hazards, Puerto Rico s communities face challenges associated with etended droughts, sudden flooding and public health risks, resulting from the combined effects of natural events and dilapidated or ineistent infrastructure. San Juan s Preliminary Resilience Assessment for the 100 Resilient Cities process (San Juan Preliminary Resilience Assessment, 2016), has shown that poverty, unemployment and income levels are the most influential determinants of vulnerability in an urban Puerto Rico contet. The most vulnerable populations are not only most likely to be living in hazard prone locations, but due to their socio-economic conditions these population groups are simultaneously least equipped to cope with hazards. Table 1 highlights the number of individuals in San Juan eposed to each type of major hazard. With a quarter of the population in the Caribbean (World Bank A) living in slums and informal housing, it becomes apparent how necessary new, affordable and resilient housing projects are in the city of San Juan and across the Island, in both urban and rural areas. Table 1: Hazards and eposed population per hazard for San Juan Hazard San Juan s population eposure Floods 163,400 Liquefaction 95,900 Tsunami 58,700 Storm Surge 58,600 Landslides 57,500 Tropical Storms - Source: San Juan PRA 5 Resilience in the contet of affordable housing Resilience, with respect to the housing sector, is often defined as designing and developing housing that is able to survive and adapt in the face of stresses and shocks, and even transform when conditions require it. In the specific case of Puerto Rico, this implies that new housing strategies need to reflect local environmental and economic conditions, as well as the specific hazards that affect rural and urban areas of the Island alike. 6 Key Challenges Rebuilding and creating affordable and resilient housing opportunities in Puerto Rico requires the assessment of the key challenges. Even prior to the hurricanes Irma and Maria, Puerto Rico s housing sector was facing a number of serious challenges in terms of both affordability and housing quality. In order to inform the working group 9

process, this brief identifies three main categories of challenges that will be crucial for the development of affordable and resilient housing: informal housing; damaged and destroyed housing stock due to hurricanes Irma and Maria; and, institutional capacity. 6.1 Challenge I: Informal housing The housing situation has been a chronic stress since long before Maria and Irma. Approimately 50 of Puerto Rico s housing units are informal or have uncertain legal standing. As many as one in five are built on private or government land. For eample, the Martín Peña Communities alone account for a population of nearly 30,000 (Resilience.org). Informal housing communities, many being located across the island s coastal plains, are historically underserved by the government and face substantial eposure to natural hazards. Informal and uncontrolled electricity connections create significant fire risks and the communities narrow roads prevent access for emergency vehicles. Additionally, the lack of proper sewage systems in many communities leaves them etremely prone to flooding (Resilience.org). Acknowledging the informal housing situation in Puerto Rico is essential for developing resilient communities with decent, safe and affordable housing in the future. Some efforts to solve the informal housing problem have been initiated. Gov. Ricardo Rosselló, for instance, proposed providing 48,000 informal settlers legal titles to their land, a plan that could potentially cost up to $30 million (Woellert, 2018). With aiming to create affordable and resilient housing in Puerto Rico, it will be necessary to build on these types of efforts to address the problem of informal housing. 6.2 Challenge II: Damaged and Destroyed Housing Units The impact of hurricanes Maria and Irma, as mentioned in section 2, further decreased the housing supply resulting in even greater demand relative to the supplied units. As depicted in figure 6, estimates on the impacted housing units by the hurricanes range from 252,035 (16 % of all units) up to 783,847 units (50 % of all units). Despite differing estimates, it is apparent that the already limited affordable housing stock in Puerto Rico has been further stressed, resulting in less overall affordable housing supplied to lower income Puerto Rican households. 6.3 Challenge III: Institutional Capacity It is the government s role to provide an economic and societal order that allows private investor, NGO s and international organizations to plan, develop and eecute financeable urban infrastructure and resilience projects. According to the World Bank, however, limited government capabilities can diminish the potential of urban projects such as the development of affordable housing (World Bank B) due to: 1) the lack of government capacity during the aftermath of hurricanes and; 2) the lack of private sector confidence. One specific eample of this type of challenge in the Puerto Rican contet is the inability of government to generate sufficient revenue to meet eisting obligations and maintain on-going programs, adversely impacting the 10

government s creditworthiness 5. This reduced credit rating further deters private investment to infrastructure and urban development such as affordable housing. 7 Opportunities Creating resilient and affordable housing in Puerto Rico should focus on two primary types of interventions: 1) increasing the quality of new and eisting housing units and; and 2) ensuring the affordability of housing for lowincome households. The following two sections describe potential approaches for each of these types of strategies. 7.1 Quality (resilience) The World Bank reports that the majority of governmental efforts related to housing in the Caribbean region with respect to affordable housing went into the development of new units. However, the share of the budget being spent on improving the quality of housing units has been relatively low 6. There are, however, several approaches to creating new affordable housing that also promote an increase in quality. 7.1.1 Align structural improvement efforts with better incentives and requirements for constructors Beyond changes in regulations that affect all residential construction, the Puerto Rico Public Housing Authority can impose a combination of requirements or incentives affecting only the developers of affordable housing. While requirements should be applied when there is direct contracting by the public agency, incentives should be used when there are subsidies from the buyer of the housing unit. The requirements for developers must be significant enough to make a difference in the achievement of the resilience objectives, but at the same time not be constraining in a way that hampers economic growth. Ecological certifications, issued by the government, have proven to be an efficient measure. The Brazilian "Minha Casa Minha Vida pilot-project, aiming to provide solar water heaters or increased efficiency in energy use to households, provides a good eample. During first phase of the program, developers were offered an additional incentive to include solar water heaters for multifamily homes, while the second phase incorporated requirements for singlefamily households. While this type of strategy was mainly used with climate mitigation related initiatives, such as the reduction of energy use, similar specifications can be applied to different forms of resilience or areas such as costal zones and/or flood prone areas. Overall, applying requirements and additional incentives for developers can create an environment that spurs the development of resilient affordable housing. 7.1.2 Building codes to promote resilience and sustainability Building codes are a common policy instrument to foster sustainable and resilient practices since concepts such as energy efficiency and resilient design can be implemented through these legal mandates. These regulations can be used to specify construction materials in order to reduce the use of those materials that involve high energy consumption, for eample. Yet another application can be found within defining structural requirements. In alluvial plains, for eample, structural requirements can mandate elevated constructions and thus mitigate the 5 Standard & Poor's credit rating for Puerto Rico stands at D with negative outlook. In general, a credit rating is used by sovereign wealth funds, pension funds and other investors to gauge the credit worthiness of Puerto Rico thus having a big impact on the country's borrowing costs. (https://tradingeconomics.com/puerto-rico/rating) 6 Data specific to Puerto Rico was not available. 11

impact by floods and tsunamis (Petal et al., 2008). The United States and Meico have implemented similar building codes to enhance the inclusion of additional standards on energy efficiency. The progress that has been facilitated through these programs suggests the viability of the approach with other resiliency efforts. 7.2 Affordability While increasing the resilience of housing in Puerto Rico, it is equally important to ensure the affordability of these units for low-income households as these are the most vulnerable to environmental hazards (San Juan PRA, 2016). Other than direct Federal, State or local governmental subsidies, the below potential strategies may constitute viable approaches to ensure the affordability of housing. 7.2.1 Greater involvement of microfinance institutions Currently, the proportion of home improvement loans in the portfolios of microfinance institutions fluctuates between 20 and 30. Involving microfinance institutions 7 proactively to increase affordability and promote housing resilience can be an effective tool for low-income families. The microfinance market could be supported and encouraged to epand services to low-income families, particularly in markets where the beneficiaries are (voluntarily) taking advantage of additional private resources, including their own income. 7.2.2 Local Research and Development Another policy option that has received little attention but has shown significant long-term results, is public support for research and development of new housing technologies that are profitable and resilient. R&D by the local construction industry ensures the inclusion of local knowledge and local materials. Additionally, it involves the community of private builders in the search for new technologies and reduces the resistance of local professionals with respect to innovations (IDB). The research may lead to more profitable technologies that are appropriate for the local housing construction industries. There are multiple eamples of this type of research and development programs in higher income nations within Latin America, such as those financed by the CONACYT in Meico and the FINEP in Brazil (IDB). 7 Eamples of microfinance institutions with global eperience include The Clinton Foundation and Lafarge. 12

8 References San Juan Preliminary Resilience Assessment (PRA) 2016 IDB (2013). Mitigación y adaptación al cambio climático a través de la vivienda pública. [online] Publications.iadb.org. Available at: https://publications.iadb.org/bitstream/handle/11319/6026/idb-tn-593_es.pdf?sequence=1 [Accessed 2 Feb. 2018]. Puerto Rico State Housing Plan 2014-2018 Resilience.org (2018). An Informal Settlement in Puerto Rico Has Become the World's First Favela Community Land Trust - Resilience. [online] Resilience. Available at: http://www.resilience.org/stories/2017-06-02/informalsettlement-puerto-rico-become-worlds-first-favela-community-land-trust/ [Accessed 2 Feb. 2018]. Sanchez, R. (2018). 450K in Puerto Rico still in the dark after Hurricane Maria. [online] CNN. Available at: https://www.cnn.com/2018/01/25/us/puerto-rico-hurricane-maria-power/inde.html [Accessed 2 Feb. 2018]. Walsh, M. (2018). How Puerto Rico Is Grappling With a Debt Crisis. [online] Nytimes.com. Available at: https://www.nytimes.com/interactive/2017/business/dealbook/puerto-rico-debt-bankruptcy.html [Accessed 2 Feb. 2018]. Woellert, L. (2018). We have a big problem : Puerto Rico seeks aid for tens of thousands of squatters. [online] POLITICO. Available at: https://www.politico.com/story/2017/12/31/puerto-rico-squatters-hurricane- 261495 [Accessed 2 Feb. 2018]. World Bank A (2018). Construir viviendas más asequibles y resilientes en América Latina y el Caribe. [online] Latin America & Caribbean: Opportunities for All. Available at: http://blogs.worldbank.org/latinamerica/es/construir-viviendas-mas-asequibles-y-resilientes-en-americalatina-y-el-caribe [Accessed 2 Feb. 2018]. World Bank B (2018). Investing in urban resilience. [online] Openknowledge.worldbank.org. Available at: https://openknowledge.worldbank.org/bitstream/handle/10986/25219/109431-wp-p158937-public- ABSTRACT-SENT- INVESTINGINURBANRESILIENCEProtectingandPromotingDevelopmentinaChangingWorld.pdf?sequence=1 &isallowed=y [Accessed 2 Feb. 2018]. 13

9 Appendi Housing statistics Figure 8: Gross rent as age of total household income Puerto Rico United States Total: 388,445 214,877 42,835,169 39,628,951 Less than 10.0 8,449 4% 1,511,935 4% 10.0 to 14.9 14,977 7% 3,378,801 9% 15.0 to 19.9 22,877 11% 4,924,867 12% 20.0 to 24.9 25,206 12% 5,016,743 13% 25.0 to 29.9 22,789 11% 4,549,860 11% 30.0 to 34.9 19,238 9% 3,603,580 9% 35.0 to 39.9 14,358 7% 2,658,367 7% 40.0 to 49.9 19,371 9% 3,672,331 9% 50.0 or more 67,612 31% 10,312,467 26% Figure 9: Occupation rates Puerto Rico United States Total housing units 1,571,744 131,034,946 Occupied housing units 78.70% 87.80% Vacant housing units 21.30% 12.20% Homeowner vacancy rate 3.7 1.8 Rental vacancy rate 8.4 6.2 Figure 10: Bedrooms Puerto Rico United States Total housing units 1,571,744 134,054,899 No bedroom 2.00% 2.30% 1 bedroom 6.00% 11.00% 2 bedrooms 21.20% 26.40% 3 bedrooms 55.50% 39.60% 4 bedrooms 13.10% 16.30% 5 or more bedrooms 2.10% 4.30% Figure 11: Housing Tenure Puerto Rico United States Occupied housing units 1,237,180 117,716,237 Owner-occupied 68.60% 63.60% 14

Renter-occupied 31.40% 36.40% 10 Appendi B Municipal and Consolidated Plans for Entitlements Figure 12: Consolidated and Municipal plans Towns/Cities Municipal Plan Consolidated Plan Aguadilla Arecibo Bayamón Cabo Rojo Caguas Canóvanas Carolina Cayey Cidra Fajardo Guayama Guaynabo Humacao Isabela Juana Díaz Manatí Mayagüez Ponce Río Grande San Germán San Juan San Sebastián Toa Alta Toa Baja Trujillo Alto Vega Baja Yauco 15