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Mexico promised affordable housing for all. Instead it created many rapidly decaying slums

SEPTEMBER 30, 2015. TIJUANA, MEXICO. Tania Garcia, center sits with her 3-mo-old daughter Ashley and relatives outside an abandoned row house in Tijuana's El Florido neighborhood where they are living as squatters. The development of 2000 units was one of many across in Mexico designed as affordable housing for the poor. Now after 9 years it's turned into a slum with abandoned homes and crumbling streets. (Don Bartletti / Los Angeles Times)

Sixteen years ago, Mexico embarked on a monumental campaign to elevate living standards for its working-class masses.

The government teamed with private developers to launch the largest residential construction boom in Latin American history. Global investors — the World Bank, big foundations, Wall Street firms — poured billions of dollars into the effort.

Vast housing tracts sprang up across cow pastures, farms and old haciendas. From 2001 to 2012, an estimated 20 million people — one-sixth of Mexico’s population — left cities, shantytowns and rural ranchos for the promise of a better life.

It was a Levittown moment for Mexico — a test of the increasingly prosperous nation’s first-world ambitions. But Mexico fell disastrously short of creating that orderly suburbia.

The program has devolved into a slow-motion social and financial catastrophe, inflicting daily hardships and hazards on millions in troubled developments across the country, a Los Angeles Times investigation has found.

Homeowners toting buckets scrounge for water delivered by trucks. Gutters run with raw sewage from burst pipes. Streets sink, sidewalks crumble, and broken-down water treatment plants rust. In some developments, blackouts hit for days at a time.

Inside many homes, roofs leak, walls crack and electrical systems short circuit, blowing out appliances and in some cases sparking fires that send families fleeing.

The program cost more than $100 billion, and some investors and construction executives reaped enormous profits, hailing themselves as “nation builders” as they joined the ranks of Mexico’s richest citizens.

Meanwhile, the factory workers, small-business owners, retirees and civil servants who bought the homes got stuck with complex loans featuring mortgage payments that rose even as their neighborhoods deteriorated into slums.

The Times visited 50 of the affordable-housing developments from Tijuana to the Gulf of Mexico. It also reviewed thousands of pages of government and industry documents, and interviewed hundreds of homeowners, municipal leaders, housing experts, civil engineers, construction workers and government officials.

The program, plagued by poor planning, corruption and a lack of oversight from the start, has reached crisis levels amid government indifference and impunity. Authorities have rarely investigated widespread allegations of fraud. And developers in some cases have tried to obstruct homeowners’ efforts to get problems fixed.

The American housing crisis and recession a decade ago also were marked by regulatory failures, and the U.S. economy eventually recovered. But the crisis in Mexico has been deepening.

Conditions at the developments vary widely. While some meet basic standards, rapid decay is evident at developments in or near every major city: Failed water systems. Unfinished electrical grids, wastewater systems and other infrastructure. Parks and schools that were promised but never materialized.

Many developments were built far from employment centers on marginal land — wetlands, riverbanks and unstable hillsides — with scarce access to water. Local officials rewrote zoning laws and approved developments with little or no review.

Developers downsized homes — building about 1 million one-bedroom units as small as 325 square feet, which is smaller than a typical two-car garage in the U.S. Many families of six, seven or more live in these postage-stamp dwellings, sleeping in laundry nooks and hallways.

Builders have all but abandoned hundreds of developments without completing infrastructure, resulting in a patchwork of public services.

In developments without working streetlights, youngsters wield flashlights to navigate pitch-black streets. In those without trash-hauling, people burn garbage in vacant lots to deter rats.

Tree stumps are placed in open manholes to alert children to the hazards of poorly maintained streets. Residents of water-parched neighborhoods lock the lids of rooftop cisterns to keep thieves from siphoning water.

The unfinished developments blight cities across the country. An estimated 300,000 people live in more than 40 incomplete tracts in the fast-growing Baja California cities of Tijuana and Ensenada.

In Mexico state, which surrounds Mexico City, developers have completed only 36 of the 235 developments started between 2005 and 2012, leaving 200,000 to 500,000 people in limbo, according to state records.

“It was a world of corruption,” said Alberto Uribe, the mayor of Tlajomulco, a suburb of Guadalajara. His predecessors in the city approved developments where the well water has run low for an estimated 300,000 people, he said. Water is now rationed, and many families receive water only every other day.

Much of the flimsy construction remains vulnerable to harsh weather.

In September, hundreds of homes and streets in poorly graded developments flooded in Mexico state. Hundreds of homes in Ciudad Juarez have flooded so often that they are going to be torn down. In the Cabo San Lucas area, an August storm toppled two four-story buildings that were built in separate affordable home developments only eight years ago.

Residents of blighted developments over the years have marched on city halls, blocked highways, pelted sales offices with rocks, held sales agents hostage, even set fire to model homes.

“Homeowners protest for running water. Police respond with punches,” read a headline in June about police breaking up a freeway blockade at a development in the state of Veracruz.

Hundreds of thousands of people have walked away from their homes, allowing squatters and gangs to take over many neighborhoods.

Stay or go, many homeowners are saddled with mortgages tied to an inflation index. Because monthly payments — typically about 25 percent of a worker’s salary — are deducted from paychecks, the only way for many Mexicans to escape the rising debt is to quit their jobs and work in the underground economy.

The homeowner unrest has been largely ineffective; authorities have failed to hold anyone accountable for the problems.

Tens of millions of dollars’ worth of construction bonds intended to make repairs and finish infrastructure remain unused or unaccounted for. There have been no congressional hearings or fact-finding commissions in Mexico.

However, the U.S. Securities and Exchange Commission in March accused Homex, once Mexico’s biggest developer, of reporting “fake” sales of 100,000 homes, which inflated revenues by $3.3 billion. It is believed to be the largest fraud in Mexican history.

The SEC eventually settled with Homex, without assessing a fine, and filed similar civil charges against former Homex executives. Those remain pending. (Homex declined to comment on the SEC allegations.)

Mexico’s National Banking and Securities Commission assessed Homex a $1.2 million fine. There’s no evidence that Mexican authorities are investigating any criminal wrongdoing.

Instead, local prosecutors have pursued cases against activists who accuse developers of fraud and of shortchanging homeowners to boost profits.

The country’s most prominent homeowner leader has been imprisoned for two years without trial on armed robbery charges that several judges have thrown out. Other homeowner leaders seeking repairs to their developments say they have been harassed, threatened, even bribed to drop their protests.

Bearing the brunt are millions of first-time homeowners — people such as Lucia Lopez, 66.

When she toured the model homes at a new development called Colinas de Santa Fe, near the historic port city of Veracruz, she appreciated the modern touches: sparkling faucets, running water, electrical outlets in every room.

Lopez had raised her children in a shack with dirt floors and a roof made of palm fronds. She sold flowers and cleaned floors for a living. She had no savings.

Yet under the housing program, she was able to buy a tiny, two-bedroom house for $20,000 with a government-backed loan.

Her excitement was short-lived. The roof of her new home leaked. Frequent power outages plunged the neighborhood into darkness. Faucets went dry for days at a time.

Today, Lopez sidesteps crumbling asphalt and puddles of sewage when she goes out to shop or visit neighbors. She holds a lemon to her nose to block the stench from the broken-down water treatment plant.

One day last year she fell into an uncovered manhole. She managed to brace herself against the sides and climb out, badly bruised and covered in excrement.

“I cry every time I think about it,” she said. “If I had drowned, they would have never found me.”

———

The goal was to lift millions of Mexicans out of substandard and overcrowded housing, and fulfill Mexico’s constitutional guarantee of “a dignified and decent” home for all.

Families often rented cramped apartments that they shared with relatives. Poorer families claimed patches of land in shantytowns. They spent years scraping together materials and building houses room by room, a few cinder blocks at a time. Electricity was often pirated, and running water was scarce.

In 2001, President Vicente Fox set out to tackle the problem with a massive public-private partnership.

He directed Mexico’s federal housing finance agency, the National Workers’ Housing Fund Institute, or Infonavit, to ramp up its mortgage lending dramatically.

Under Fox and his successor, Felipe Calderon, the number of loans issued each year by Infonavit increased from 205,000 in 2001 to 494,073 in 2008. The new loans from Infonavit and other government housing agencies were aimed largely at first-time buyers with modest incomes and little or no savings.

To augment the government’s efforts, the World Bank and the Inter-American Development Bank invested $2.8 billion in Mexico’s housing sector.

The torrent of mortgage money created a dream scenario for hundreds of developers, large and small. With a pipeline of pre-qualified customers, they would be able to sell homes as fast as they could build them, at prices ranging from $15,000 to $35,000.

Foreign investors sought to capitalize on the boom, buying stock in the Mexican construction companies that built the largest share of the homes. Among those giants were Casas Geo, Urbi and Homex, a family-owned business in the state of Sinaloa that grew into one of the largest home builders in North America.

Almost overnight, housing developments sprouted. And almost immediately, serious problems arose. While many developers delivered substandard tracts, some of the most troubled developments were built by the industry’s biggest players.

One Homex development is tucked against barren foothills in the city of Huehuetoca, 40 miles north of Mexico City. Its official name is Santa Teresa. Residents call it Santa Pobreza, which means poverty.

Elderly women stoop for water at curbside spigots. Children chase balls into the rubble of collapsed sidewalks. Raw sewage bubbles up from manholes.

“It’s like a war zone here,” said Jose Merin, Huehuetoca’s water system coordinator, as he walked through an especially blighted part of Santa Teresa where tangled pipes and cables jutted from crumbling streets.

An empty water tower rises above the sprawl of some 8,000 tiny homes. The well that served this section of Santa Teresa started running dry shortly after the development opened in 2007. Homex overestimated the amount of people it could serve and as the company continued to build more homes surging demand overwhelmed the well’s capacity, Merin said.

By the summer of 2016, the well had gone completely dry. Water is now delivered by truck — twice a week, sometimes less.

Anahid Figueroa, a 35-year-old dentist, moved to the development from Mexico City to be close to her mother, who lives next door. Now she regrets it.

The water truck fills two barrels of water that she leaves in her tiny frontyard. She and her 7-year-old daughter conserve every drop. There’s enough for each of them to bathe twice a week — in a bathroom where the faucets and shower nozzle, Figueroa said, “are just ornaments.”

As dozens of new developments went up in the towns outside Mexico City, Huehuetoca’s population grew more than threefold, to 130,000.

The officials overseeing local construction couldn’t keep up. The town had only two building inspectors.

With so few scrutinizing their work, Homex contractors skimped on asphalt when they paved the roads, which were quickly pounded into dust by construction trucks, according to homeowner activists.

Civil engineers approved faulty designs for storm drains. Heavy rains washed away curbs and sidewalks, and turned streets into rivers.

The failure of oversight was repeated in troubled developments across the country, said Marco Lopez Silva, a civil engineer who has researched the Mexican housing industry for the Inter-American Development Bank.

“The federal government assumed officials would do their job at the municipal level. That they would have attorneys to review the construction bonds. They assumed people would make good decisions. All of that failed,” Lopez said.

Builders are required to finish streets, sidewalks and other infrastructure. It then becomes the property of municipalities.

But in Huehuetoca, Homex left Santa Teresa unfinished, so the city has refused to assume responsibility.

“There’s no way I can accept this,” said Merin, the water system coordinator. “The city doesn’t have enough money to fix this mess.”

The city, Merin said, tries to provide enough basic services to keep a lid on protests, repaving a few roads at a time.

Irate residents have hijacked water trucks and attacked utility workers. Once, in 2014, they handcuffed Homex employees to a light post.

“The people wanted to hang them,” Merin said, and only the arrival of the police saved them.

———

Ten miles away in the Mexico City suburb of Zumpango, many residents of a Homex project called La Esmeralda rely on diesel generators for electricity because the company didn’t connect large parts of the development to the electrical grid. The machines spew smoke and often break down or run out of fuel.

When streets flood because of inadequate grading — a common problem in the summer — fraying generator cables strewn across streets become submerged, sending electrical currents coursing through knee-high water.

That makes even a short walk home from elementary school treacherous for Sarai Ruby Montoya’s 7-year-old daughter, who cries when she sees the rising waters on her street.

“She knows she’s going to get shocked,” Montoya said.

When Dante Tapia, 8, sees cables sizzle and shoot sparks, he can’t run fast enough.

“It hurt real bad the time I got shocked,” he said. “I hate living here.”

Firefighters race from neighborhood to neighborhood during downpours, pumping out flooded streets. When the power goes out, paramedics rush to the homes of sick and elderly people dependent on electricity to operate medical devices or refrigerate insulin.

Pablo Rodriguez Mendez, a top Zumpango city official, likens the housing crisis to a natural disaster.

“We have emergency plans for hurricanes, but we also need an emergency plan for dealing with all the housing failures,” Rodriguez said.

Four years ago, after residents had gone three days without water or electricity, frustration boiled over.

Homex was in financial straits, having run out of working capital.

At La Esmeralda, most of the 3,000 planned homes had been built, but much of the electrical system and other infrastructure had not been completed. It was one of more than 30 developments, with a combined population of 150,000, that Homex and other builders had left unfinished in Zumpango alone, according to Rodriguez.

Marchers streamed out of the neighborhood and onto a busy six-lane highway. They erected barricades of chairs, rocks, bicycles and benches. For several hours they blocked traffic, chanting and waving signs. “We want answers from Homex,” one read.

“We exploded. Who lives without water? Without power?” recalled Maria Esther Cardenas, a mother of three. Still, the lights didn’t come on.

When night fell, the protesters headed to the sales complex, where brightly painted model homes stood behind a picket fence. Someone sneaked inside. A match was struck. Within minutes, flames devoured the complex.

“People were scared when they saw the fire get out of control. But we felt sad,” said Cardenas’ husband, Mario. “All we wanted was what they promised.”

———

At Colinas de Santa Fe, partially built on a wetlands area on the northern outskirts of Veracruz, rainwater and sewage back up into streets and homes during the rainy season. The underground drainage system collapsed years ago, leaving streets pocked with giant craters. The water treatment plant also broke down, compounding the health hazards.

Mosquitoes breed in stagnant puddles. City officials and residents say they have infected scores of residents with dengue fever and chikungunya virus.

During the dry season, sewage spills onto roads and dries into a fine dust. Heavy winds kick swirls of filth into the air.

“These people are trapped in their own homes,” said Salvador Barbes, a former director of public works in Veracruz. The Homex development is only 10 years old, he said, but the rapid decay of the infrastructure and homes makes it, in effect, among the oldest in the city.

“It has the kind of problems we see in developments that are 60 years old,” Barbes said.

To avoid sewage, neighbors step across makeshift paths of concrete blocks. Still, passing cars splash dirty water on children and the puddles obscure open manholes with 12-foot drops.

“We live in a pig pen,” said Adela Blanco, a 47-year-old homeowner activist at Colinas, “but we live worse than pigs, because we have to pay for it.”

In the upper reaches of the community, fires — not floods — are the problem.

Alberto Garcia, 33, and his family came home after a Sunday outing in July 2016 and saw smoke pouring from the living room window. A power surge had blown out a light switch and set a curtain on fire. It spread through the first floor.

It was the eighth electrical fire to hit the development that summer, residents said.

Garcia and other residents said they knew the power grid was unstable and the electrical wiring was faulty. His wife and children would use only two appliances at a time, fearing power surges. At night, he even disconnected the refrigerator.

Garcia said his family lost everything in the fire. With nowhere else to go, they still live in the two-bedroom home. Its walls are stained by soot.

“It’s so sad,” said Garcia, a cleaning products salesman. “We worked so hard for what we had.”

———

Residents of Colinas de Santa Fe used to visit the Federal Consumer Protection Agency’s offices in downtown Veracruz, toting thick stacks of paperwork. They felt they had been misled by Homex, and they wanted something done about it.

But Inocencio Yanez, the agency’s former top official in the state of Veracruz, said that shortly after he arrived in 2013, he discovered that staff attorneys had been shelving homeowners’ complaints for years.

So he put up a sign at the reception desk telling visitors to talk to him directly. Yanez assembled dozens of cases into a class-action lawsuit and forwarded the file to his superiors in Mexico City. Nothing happened.

Yanez said he was forced to resign in 2014 after going public with corruption allegations.

“My office was just a place for people to come and cry,” Yanez said.

It was a similar story across Mexico as Homex and government agencies blocked homeowners’ efforts to get problems fixed.

After Aaron Montes protested outside Homex’s model homes at the Hacienda Santa Fe development near Guadalajara in 2005, investigators with the Jalisco state attorney general’s office paid him a visit.

“They said Homex was losing money on the stock exchange because of my actions,” said Montes, a homeowner activist. “They wanted me to pay millions of pesos.”

A year later, Montes was arrested after leading another protest. He was released a few days later and went home, only to discover that his key wouldn’t open the front door.

Homex had sold his house to another family, he said. He and other leaders of his homeowner group eventually moved out of the development.

“I couldn’t go on,” Montes said. “It was like fighting a monster with a thousand heads.” Homex did not respond to a request for comment.

At the Lomas de Santa Fe development in Veracruz, attorney Miguel Varela said a Homex legal representative offered him a bribe to stop representing homeowners pushing Homex to finish the electrical system.

“He said, ‘How much do you want to just sit on this?’” Varela said, recounting a 2011 meeting at the Homex offices in the state capital of Xalapa.

Blanco, a homeowner leader from Colinas de Santa Fe who regularly organizes protest marches, said a Homex executive offered in 2010 to buy her a house in a different development, and that she refused.

“It’s not about money, it’s about lives,” Blanco said.

Veronica Barrientos, a homeowner activist from the Puerto Azul development in Ensenada, said in an interview that Homex representatives had dangled offers of money, cars and a home expansion in exchange for her dropping her effort to get problems addressed.

Emilio Salazar, the homeowner leader at the Barrio de la Solidaridad tract in Monterrey, said Homex representatives offered to pay off his mortgage.

Sergio Losoya, president of the homeowners association at the Chula Vista neighborhood in Cabo San Lucas, said a company representative offered to pay for therapy for his special-needs child.

The homeowner leaders said they rejected the offers. Taking a bribe, Barrientos said, would have meant betraying residents who haven’t had running water for five years.

“There are too many people that trust us,” she said.

A homeowner movement at the Vistas de Palmillas development in Tijuana fell apart after its leaders in the mid-2000s accepted Homex’s offers of new houses in different neighborhoods, residents said.

Homex declined to comment on any of the bribery allegations.

Today, problems related to unstable soil conditions persist at Vistas de Palmillas. Some residents live in homes tagged with signs declaring them “high risk.”

“Stay alert for possible landslides and floods,” read the signs from Tijuana’s civil protection division.

———

Eventually, complaints about shoddy workmanship, long commutes and broken infrastructure became too conspicuous to ignore. Demand for the houses collapsed.

In 2011, the government started reducing the flow of mortgages. By 2014, Homex, Casas Geo and Urbi had filed for bankruptcy.

Defenders of the program say it was a justifiable, if imperfect, effort that created jobs, boosted the economy and built housing for people who desperately needed it.

But their arguments have at times been undercut in embarrassing ways.

Then-President Felipe Calderon recorded a promotional video in 2011 welcoming families to a new development called Paseos de la Pradera, in the state of Hidalgo.

By 2014, residents had resorted to scooping rainwater from gutters to meet their needs. They staged protests and blocked a freeway for several hours. Problems at the development, built by a local company, persist today.

Homex declined to comment on conditions at its roughly 150 developments.

In a statement, the company said it has received a $20 million credit line from Infonavit to complete infrastructure. Experts say that’s enough to upgrade perhaps two of the company’s troubled developments.

“Homex continues to focus on building successful communities with a sustainable profile contributing to improve the quality of life of the Mexican population,” the statement said.

A spokesman for Infonavit said problems at the developments are exaggerated.

“Many residents say that things are bad, but it’s not true that they have no services,” said the official, Nezahualcoyotl Banos Hernandez.

When a Times reporter described conditions at some communities, Banos said Infonavit would look into it.

“Tell me the list of places you went … so we know where to investigate,” he said. “Maybe we can do something.” The Times provided a list but Infonavit did not respond to further requests for comment.

A comprehensive study commissioned by the agency in 2015 detailed severe conditions at the 36 projects inspected, according to the author, Alfonso Iracheta, a professor of urban development at El Colegio Mexiquense, a research institute near Mexico City.

In an interview, Iracheta said the report can be released only by Infonavit. The agency did not respond to The Times’ request to make it available.

Mexican President Enrique Pena Nieto, in a speech last year, attempted to move past the previous housing policies, calling the building surge “absurd.”

He promoted his housing policy, which banned one-bedroom houses and shifted development to urban areas. But critics note that Pena Nieto was governor of the state of Mexico from 2005 to 2011, when builders broke ground on more than 200 developments, many of which now are problem-plagued ghost towns that have been largely ignored by his administration.

Pena Nieto’s secretary of agricultural, territorial and urban development, Rosario Robles, in a speech last year noted the paradox of large numbers of abandoned homes in a country with a dire housing shortage.

“We have houses with no people,” she said, “and people with no houses.”

———

When storm drains back up, pipes burst or streetlights go out at Santa Teresa, people turn to Jose Colon. The 37-year-old store owner and father of two collects pesos from neighbors to pay for repairs or buy supplies.

Such do-it-yourself efforts have become commonplace in abandoned developments. Residents say it’s their only option.

One day last year, Colon peered into a trench dug by workers that exposed a leak gushing from a faulty pipe seal. Water was puddling up, wasted, in a development where most homes lacked running water.

He set out to collect money for a new pipe seal, going door-to-door along the fractured streets.

Homex, having emerged from bankruptcy protection, had secured $240 million in new financing.

Colon was looking to raise $5.

———

(Los Angeles Times researcher Cecilia Sanchez in Mexico City contributed to this report.)

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© 2017 Los Angeles Times

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