Summary  

Mexico’s “EcoCasa” program supports the construction of 27,000 efficient homes that will reduce emissions, while improving the quality of life for low-income families. The programme was launched in 2013 in collaboration with the German Development Bank (KfW) and the Inter-American Development bank (InterAmerican Development Bank). The programme provides financial incentives and technical assistance to developers to deploy green technologies and also provides funding to Local Financial Institutions (LFAs) so that they can offer mortgages for energy efficient houses to support low-income residents. This case study demonstrates how governments can use financing to provide affordable energy efficient homes for low and middle-income households.

Challenge

Mexico has a climate ambition to reduce emissions by 35% by 2030 (UNDP Climate promise). Reducing emissions in its residential housing market will be a key lever to meet these goals. Mexico’s residential sector currently accounts for 16% of total energy use and 26% of total electricity use (UNFCCC).

Additionally, the residential housing sector has a strong knock-on effect on linked sectors such as cement, steel and transportation. Construction practices related to the housing market such as inefficient water use and use of GHG intensive building materials can lead to increased energy consumption and GHG emissions. GHG emissions have grown as a result of inadequate architectural designs and the use of emission-intensive materials, building techniques and technologies (World Bank report).

Mexico also has a housing shortage of approximately 9.2 million homes (UHPH). Housing affordability remains a challenge with demand far outstripping supply. In 2022, demand for housing was estimated at 800,000 units annually (Reuters) but only ~135,000 housing units were constructed in the same year (Global Angle). Housing prices are seeing a significant increase given the competitiveness of the market with prices increasing 12% in 2023 vs 2022 (Yucatan Times). Consequently, government support in financing and promoting climate friendly housing needs to ensure incorporation of affordable housing.

Programme Goal + Expected Outcomes   

The “EcoCasa” programme aims to reduce emissions in Mexico’s residential housing sector, while also supporting low-income communities. It seeks to achieve this through two objectives (World Bank):

1. Increasing the production of low-carbon housing through financing developers through Sociedad Hipotecaria Federal (SHF; the Federal Mortgage society)
2. Increasing the supply of mortgages for low-carbon housing, by providing financing for local financial institutions to fund mortgage loans

The program  specifically targets social housing, given that more than 20% of the population are affected by housing shortages and struggled with affordability. The project targeted low and middle income groups (KFW).

The proposed program seeks to scale up the deployment of low-carbon housing by providing the financing and the incentives that will lower the costs of both developing and acquiring such houses. This is done by providing:

1. Loans for developers: Loans will be provided for developers to construct low and middle income sustainable housing. The prices for the housing units will be between MXN 200,000 and 600,000 ensuring affordability while promoting environmental sustainability. A key eligibility criterion is that the projects must deliver at least 12 kg CO2e per m² and year or 20% reduction versus baseline in the expected GHG emissions associated with the energy consumption of the houses, whichever is lower. This ensures that the funds are allocated to projects that ensure emissions reduction
2. Loans for Local Financial Institutions (LFIs): This offers loans to local financial institutions to facilitate mortgages for homes meeting stringent energy efficiency criteria as determined by Comision Nacional de Vivienda (CONAVI), Mexico’s National Housing Commission. This ensures a place based approach to the programme.

The program will contribute to improve the quality of the construction industry in Mexico by ensuring consistency in energy efficiency standards of newly built houses into ECOCASAs. It will also provide mortgage finance that will encourage the purchase of houses already built with a set of minimum efficiency criteria. Combined, this will reduce energy consumption and water usage and GHG emissions.

Enabling conditions 

Three key conditions ensure the implantation of the EcoCasa program was equitable: 

1.  Integration of efficiency and sustainability standards to ensure consistent approach of level of quality in housing for low- and middle-income families. The "ECOCASA" Program integrates CONAVI energy efficiency and sustainability criteria into housing policies and promotes the use of eco-technologies and sustainable building materials. The program also integrates a sustainability rating system developed by INFONAVIT which will rate thermal performance, household device efficiency, water usage and urban infrastructure ((World Bank report).
2. Strengthening institutional capacity. The programme is delivered primarily through the SHF which provides funding for construction loans and mortgages to financial intermediaries with a focus on lower middle class and poor beneficiaries.
3. Targeting. The program targets low to middle income workers not covered by any social security program. It also leverages CONAVI’s programmes for low-income households such as “Esta es tu casa”, a housing subsidy programme that funds green mortgages exclusively for low income housing.

Indicators of success  

Overall, the EcoCasa programme has been successful in its ambition to reduce emissions while providing energy efficient, affordable housing. It has:

• Constructed 71,440 homes as of December, 2023 (Mexican government). Benefitting families enjoy greater thermal comfort as well as energy savings of $200 annually (ESCI EcoCasa)
• Mitigated 2.62MtCO2e due to the use of sustainable building practices and from reduced energy consumption (Mexican government)
• Conceded 1,700 green mortgages (EULAIF)

Key Takeaways/Implications 

• Offering low-interest bridging loans to commercial developers, along with financial incentives for buyers, has been highly effective in promoting energy-efficient new construction in social housing.
• Calculation tools with transparent and clear award criteria provide commercial developers with planning certainty for their investment decisions.
• User behaviour significantly impacts the energy efficiency of buildings. Optimised energy use requires extensive clarification (e.g., through consumer awareness programmes) and should be considered as part of complementary measures.