, +K'J )i r HOUSING AND EMPLOYMENT IN THE METROPOLITAN AREA OF LIMA, PERU: Background and Overview of Recent Trends by by W. Paul Strassmann Professor of Economic and Principal Investigator Housing in Development Unit Michigan State University East Lansing, Michigan August 1980 This report gives the setting for fieldwork carried out in Lima during May-July 1980 by Miss Norma L. BoterD of MSU and the National University of Colombia - Medellin and by the Technical Office for Manpower Studies, General Bureau of Employment, Ministry of Labor, Lima, Peru. The research has been sponsored by the Office of Urba. Development, Bureau for Development Support, Agency for International Devpl,,pment, in accordance with Contract AID/DS-otr-C-0012. None of the abo,r are responsible for errors of fact or interpretation in these pages. Housing and Urbanization, 1950-75 Growth of construction employment depends on growth of construction output and its composition which, in turn, depend mainly on the growth of national product. In Peru gross domestic product grew somewhat more than 5 percent annually from 1950 to 1975, and so did construction. The volume of construction value added, though fluctuating, basically remained a steady share of somewhat less than 4 percent of national product. In 1950-51 it was 3.8 percent, and in 1975-76 it was 3.9 percent. Its highs were around 5.2 percent, and its lows around 3.0 percent. During boom-years like 1951-55 and 1961-65, construction grew much faster than national product; and during slow periods like 1956-60 and 1966-70 construction volume was low and even declined. Growth of the Peruvian national prcduct depended directly on flourishing exports, especially copper and fishmeal, that raised tax collection, private savings, and foreign capital inflows -- hence productive investment. The link between residential construction employment and these totals was far from simple and direct. In gross (not value-added) terms, housirg construction with permits varied from lows of around 2.5 percent of of GDP in 1959-63 and 1974-76 to a high of 4.9 percent in 1964-68. Ultimately the demand for dwellings depends on the number of households, their incomes, and their rate of migration. From the early 1960's to the mid-1970's the share of Lima rose from one-fifth to one­ fourth of the Peruvian population, and its share of national product grew from 40 to 50 percent. From 1961 to 1972 the growth rate of population in squatter settlements around Lima was 9.2 percent compared with a 6.3 percent growth rate 2 for the rest of the metropolitan area. Thus the share of population in the settlements (pueblos j~venes) rose from 20.2 to 25.4 percent. Value of settlement dwelling construction should be estimated and added in national accounts to housing built with permits. Since housing involves land and infrastructure and has durability that allows long-term finance, it is subject to a variety of government policies that can further or hinder its construction. Thus the amount of formal building that goes on and is counted in national statistics depends partly on official tolerance of squatter settlements as alternative housing. After all, most squatting takes place on public land. The annual growth of population in newly formed settlements around Lima was as follows under various 1 Presidents: Odrfa (1948-57) 25,500 Prado (1956-62) 15,500 Bela'nde (1963-68) 18,700 .Velasco (1968-72 only) 54,300 With respect to infrastructure, a law (Nr. 13517) was passed in 1961 requiring installation of public utilities before anyone could occupy land. Existing settlers had to acquire utilities promptly with full-cost loans. This policy later evolved into an ambitious commitment of public support that was scaled down by Belau~nde. He did not wish to accelerate migration and favored conventional public housing projects. After 1968 the Velasco government made the provision of infrastructure to the settlements its primary housing objective and expected contributions in money and labor from the beneficiaries. In general, the provision of water and sewerage in Metropolitan Lima has been efficiently managed since 1963, reaching most of the population and charging enough to cover operating and investment costs. 3 Finance for building was channeled through a variety of public agencies set up by successive governments. A national mortgage bank, Banco Central Hiputecaria, dates back to president Augusto Leg~a (1919-30). The Corporacion Nacional de Vivienda (CNV) was set up under President Bustamente (1945-48) and built thousands of units. Pedro Beltran, prime minister under President Manuel Prado, fostered a system of mutual savings and loan associations arid created an Instituto Nacional de Vivienda (INV) for encouraging private (expandable) housing as the solution to the nation's "number one problem."2 The CNV and INV were combined in a Junta Nacional de la Vivienda (JNV) by the 1962-63 military government. A Banco de la Vivienda became the supervisor of and financial channel to the mutual associations. By 1967 appropriations to the JNV were cut by S9 percent from the 1963 level. Meanwhile public housing projects were built that only the middle and upper middle class could afford. A Ministerio de Vivienda y Construccion was set up by Velasco in 1969 and given responsibilitieb for planning many aspects of the sector. Ten years later came the Fondo Nacional de Vivienda (FONAVI) which is to finance housing construction with funds obtained from a payroll tax and matching contributions. Public housing is administered by the Empresa de Administracion de Inmuebles del Peru/ (EMADI). As these agencies rise and decline in accordance with the general monetary situation and political priorities, housing construction expands and contracts. Fluctuations are also due to speculative miscalculations, such as the overbuilding of luxury apartments in Lima during the mid-1960's. The introduction of the first urban real estate taxes in 1968 and the aggravation of rent controls by accelerating inflation have inevitably affected the volume of private residential construction. Note the steady decline of rental income as a percentage share of 3 gross domestic product: 4 1950-51 - 8.9 1955-56 - 7.9 1960-61 - ---- 7.3 1965-66 -------- 6.4 1970-71 -------- 6.1 1975-76 -------- 5.9 Construction Employment Trends to 1975 From the point of view of workers and contractors, residential building is not a distinctive sector. Most are as ready to build shops, warehouses, offices, or factories as dwellings, and therefore employment statistics combine residential and non-residential work. In this discussion of trends in the ,ima-Callao area, we must necessarily do the same. Population of the Lima Metropolitan Area grew at a 5.1 percent rate from 1940 to 1961, about twice as fast as the national average. During 1961­ 1972 it accelerated to an annual 5.4 percent before slowing back to 4.8 percent by the late 1970's. The national rate had meanwhile fallen from a peak of 3.0 percent in the late 1960's to 2.8 percent. Employment in Lima-Callao did not keep up with population growth. From 1961 to 1972, for example, it grew only at 3.9 percent annually - 4.1 percent if only non-agricultural jobs are counted. The growth of construction employment at 4.3 percent annually was closer to this average than that of any other type; hence the sector maintained its share of about 7.2 percent of the labor force.4 Since few were women, construction workers made up somewhat more than 10 percent of the male labor forca. Contrary to a widespread impression of other cities, occupational mobility into and out of construction in Lima was not large compared with mobility in other sectors. For example, migrants did not crowd in disproportionately except 5 as workers on their own dwellings on evenings and holidays. According to a 1975 survey, only 5.5 percent of 1966-70 migrants and 6.0 percent of 1971-75 migrants worked in contruction. Most of these -- 4.2 and 3.0 percent, respectively -­ had been construction workers where they had lived previously. Two-thirds had 5 come from other cities. Not was there a remarkable shift out of construction at a later stage. A 1973 survey showed that 37.9 percent of respondents, who had been construction workers before their most recent employment, were still construction workers. Only 22.8 percent had become manufacturing workers. Both of these shares are comparable to trends among workers in public utilities and trade. Manfacturing and general services workers (by default) have a higher rate of retention with 54.8 and 63.1 percent respectirely. Put differently, 39.0 percent of current construction workers had the same occupation previously, and 22.2 percent had been manufacturing workers. The inflow and outflow from 6 manufacturing to construction balance. The relatively low turnover of contruction workers and the low propcrtion of migrants implies correctly that being in this sector has been advantageous. Compared with other developing countries, Peruvian trade unions of construction workers have been highly militant and effective in gaining benefits that were thoroughly enforced by public inspectors. During 1955-67 daily earnings in construction rose at an annual 14.6 percent compared with 8.7 percent for both construction materials and the consumer price index, or 9.1 percent for the GNP deflator. By 1967 unskilled construction workers received 40 percent more than unskilled labor in manufacturing. The skilled workers were paid somewhat more than skilled workers in manufacturing. Skilled construction workers, however, received only 7 percent more than the unskilled by the late 1970's and were therefore preferred by employers.