Involving third-party partners to finance the rehousing of Morocco’s slum dwellers

By 2030, two thirds of Morocco’s popula­tion will be living in towns and cities, as compared with 59% today. This means that over the coming 20 years homes will need to be found for six million additional urban residents – the current housing deficit already stands at 840,000 units. The other major chal­lenge will be to eliminate existing substand­ard housing. Estimates suggest that unregu­lated building, that is building constructed without either authorisation or access to urban amenities, accounts for more than one third of housing production. Moreover, despite the efforts of the public authorities, 8.2% of Morocco’s population is still living in slums, particularly in Casablanca (UN-Habitat/ MHU, 2012). Access to de­cent housing, guaranteed by Morocco’s new consti­tution of 2011 is therefore one of the major challenges of the coming decades.

Since independence, the Moroccan state has pur­sued an active policy of improving access to hous­ing. It first supported sup­ply-side growth – in par­ticular, by making public land available and bearing the costs of servicing that land with roads and ameni­ties – and has encouraged demand by subsidising interest rates on housing loans. From the mid-1990s onwards, faced with a worsening housing deficit, the public authorities have focused on ac­tively involving the private sector by means of financial and fiscal incentives designed to encourage private investment.

250,000 and 140,000 dirhams social housing

It was in this context that the programmes for social hous­ing priced at MAD 250,000 and MAD 140,000 came into being. The partnerships set up under these programmes undoubtedly helped to re-energise the production of social housing, structure the private sector and fa­cilitate the emergence of large Moroccan real-estate groups: Addoha, Chaabi and Alliance. At the same time a major drive to eliminate sub-standard housing got under way with the Villes Sans Bidonvilles (VSB – Cities With­out Slums) programme. Launched in 2004 in the wake of the UN’s Millennium Declara­tion and in response to the 2003 bombings,¹ this programme has the goal of eradicating all the slums, nearly 360,000 households, in 85 towns and urban centres in Morocco. To date, in-situ slum restructuring, re­housing in multi-dwelling units and reset­tlement – allocating serviced plots for de­velopment via assisted self-build housing schemes – have been the three modes of intervention preferred by Morocco’s Min­istry of Housing and the state operator, Al Omrane.² Alongside these operations, ini­tiatives of varying degrees of formality have emerged to eliminate the slum districts and respond to the demand for housing. Recog­nised and regulated by the authorities and integrated within the official programmes, they represent genuine innovations that might interest private-sector businesses, too. This is the case, in particular, with the ’third-party partner‘ (tiers associé) mechanism initiated in Casablanca as part of the VSB pro­gramme.

Third-party partners: recognition of an ad hoc practice

The practice of involving third-party part­ners has developed in Casablanca, the Mo­roccan city most severely impacted by slums. In 2005, the country’s economic capi­tal had more than 500 slum districts housing nearly 500,000 people – 13% of the total population of Greater Casablanca. Resettlement pro­jects were launched to remedy this situ­ation, as part of the VSB programme, and are continuing today. Serviced plots– provided with roads and urban amenities – are developed on public or state-owned land to provide homes for slum dwellers who are as­sessed as priority cases. Slum households are allocated a serviced plot at a subsidised price³ where they have to build their own home. The average cost to be borne by them ranges from EUR 10,000–15,000 – a sum they often find difficult to raise. However, the third-party partner model adopted by the local authorities and public operators in Casablanca has helped to release slum families from the burden of financing their new home. This arrangement offers two slum families sharing the same plot4 the option of entering a contractual partner­ship with a third party ineligible for the VSB programme – a developer, investor, home­buyer, etc. The third party undertakes via this contract to guarantee the construction of a four-storey residential building and to supply a housing unit to each family as well as cov­ering the cost of the land ordinarily payable by the slum dwellers – MAD 70,000 in total, equivalent to around EUR 6,200. In return, the third party is allocated the two remaining storeys – either for their own occupancy, for renting or selling – allowing them to benefit from heavily subsidised land costs.

The third-party partnership principle was in­spired by practices from the 1980s which in­volved allowing the recipient of a slum reset­tlement plot to team up with a third party to finance the construction of their home. This model was subsequently prohibited to pre­vent ‘external’ third parties from profiting from a public subsidy on the cost of the land. Yet the arrangement set up under the VSB programme recognises the value of a practice that is both long-standing and often informal – and provides a regulatory framework for its operation.

The positive outcomes of the third-party partnership system

The third-party partnership system has been a resounding success – as evidenced by the fact that it has been adopted by the large majority of households benefiting from the VSB pro­gramme in Casablanca: just over two thirds of the total for two of the main projects, Essalam Al Loghlam and Medinat Errahma. It has ena­bled these families to own their new homes free of charge. A social and economic impact study conducted by Al Omrane shows that these ini­tiatives have provided them with access to de­cent housing and basic services (AFD, 2014).

The third-party contract arrangement also provides these households with guarantees regarding both the financing of the construc­tion – which generally costs EUR 70,000 – and its realisation, in terms of both quality and timing: under the terms of the contract, the third-party partner is obliged to deliver the works in accordance with a detailed sched­ule covering structural works, finishing, connection to the water and power supply, sanitation and fittings. The partner also has to complete construction within a maximum of six months and undertakes to meet tempo­rary rental costs for the families concerned in the case of any delay.

The other key indicator that this arrange­ment is working is a resale rate significantly lower than the average observed in standard resettlement operations. The ‘slippage‘ effect that arises when plots are resold by recipient households prior to construction – whether for financial, personal or other reasons such as family disputes, refusal to live in the new accommodation, etc. – is one of the primary hazards of slum clearance programmes.

Success factors

According to Al Omrane’s investigation, hous­ing finance seems to be one of the key diffi­culties for the families targeted by the VSB programme, in particular those at the lowest income levels or in socially precarious situ­ations. According to the Al Omrane survey, 20% of beneficiaries have no financial resourc­es and 36% of the working-age beneficiaries are unemployed. The key benefit of the third-party arrangement, therefore, is that it frees slum households from having to meet con­struction costs. The attractiveness of the ben­efits offered to private investors is also a key factor in this mechanism’s success. Granting two of the four homes built to the third-party partner is a clear incentive to investment. The one-to-five differential between the purchase price of the serviced plot and its market value5 – in the context of high demand for real es­tate in the Casablancan market – undoubtedly encourages third-party investors to take part. The substantial rental market for this kind of real-estate product offers attractive prof­itability to the third-party partner. Creating homes for rental in this way also helps to meet the demand from families, many of them from the middle class, who cannot afford to buy their own home.

The third-party partnership model also sup­ports the government’s objective of urban densification, in a context of diminishing land availability. This experiment is based on the construction of four-storey residential blocks – buildings of one or two storeys higher than those in previous pro­jects. This key feature also makes it possible to house more families, increasing the profitability and the attrac­tion of the scheme for the third-party investor. This attractiveness could well encourage the emergence of more structured private interventions originated by professional stakeholders, property de­velopers or other institutional investors. To date, the third-party partners have still mainly been individuals rather than organi­sations – often people related or closely con­nected to the families involved. Nonetheless the impact study highlighted the purchase of 40 plots by a Moroccan citizen resident in Italy– which could be the start of a more or­ganised, large-scale response.

The practice of financing construction by involving a third-party partner has now ex­tended across the entire VSB programme in Casablanca. It highlights the benefit of these initiatives, which echo the principle of the ‘additional development rights’ introduced in various cities worldwide – notably in Mumbai, India, where investors are granted additional surface areas in exchange for financing hous­ing within slum-eradication programmes. The Moroccan experience of the third-party part­ner mechanism clearly represents a useful experience for other cities in developing coun­tries – especially in Sub-Saharan Africa. Its replicability will depend on the terms of the public-private partnership involved. Public in­centives for access to land, a regulatory frame­work for the scheme, dynamic local real-estate markets and endorsement by local people will be the key conditions driving the success of such initiatives.