Written by Olivia Nielsen, Principal at Miyamoto International
Contributors: Agence française de développement en Amérique Latine & Ministerio de Vivienda y Asentamientos Humanos
Latin American cities are at a turning point. Once engines of opportunity, many now face growing inequality, uncontrolled urban sprawl, and underused public spaces. Revitalizing them is key to inclusive growth, but one major obstacle stands in the way: the cost and scarcity of urban land.
Costa Rica is no exception. The Greater Metropolitan Area (GAM), home to nearly half the country’s population, has seen steady increases in land and housing prices over the past decade. Urban rents consume between 30% and 40% of household income, while 47% of rental contracts are informal, leaving tenants unprotected and with few options. At the same time, the State holds a valuable but underused asset: strategic urban land owned by entities such as the National Housing and Urbanism Institute (INVU). Thanks to their proximity to jobs, services, and transport, these plots tend to appreciate over time. Many are located in the urban core of the capital and already have infrastructure—water, electricity, roads—which makes their redevelopment feasible in a relatively short period and at a lower cost compared with finding raw land without services on the urban fringe.
How can the government leverage this land for social good—without losing it?
Our recent study, financed by the French Development Agency (AFD) and carried out with the Ministry of Housing and Human Settlements (MIVAH), proposes an answer: affordable rental housing developed through public-private partnerships (PPPs).
Why rental housing PPPs? Closing a structural gap
For decades, Costa Rica’s housing policy focused on ownership, mainly through the Bono Familiar de Vivienda (Family Housing Grant). While this scheme increased homeownership rates—especially among the lowest two income quintiles (about US$500 and US$1,050 per month)—it left behind middle-income families, earning around US$1,700 a month. These households neither qualify for social housing nor find market units at a price compatible with their borrowing capacity.
This housing challenge has two critical sides: on the one hand, rental demand has grown—particularly among young people, single-parent families, and “intermediate income” households; on the other, supply remains scarce and expensive, especially in urban areas.
Urban rental housing shortages are aggravated by the absence of a construction model tailored for this purpose. Today, homes designed for sale are being rented out, pushing up prices and limiting supply.
PPPs offer a solution: the State provides land while the private sector finances, builds, and manages the units. International experiences—from the United States to several African countries—show that private management improves efficiency and reduces delinquency, while public entities that directly manage rental stock often face sustainability and collection challenges.
Under these PPP schemes, the private sector provides construction and, through an agreed rental operation period, recovers its investment. At the end of the term, the built asset reverts to the State, which can either start a new leasing cycle or, under a rent-to-own arrangement, sell the units to tenants, turning the model into a mechanism to promote gradual ownership. In addition, the PPP framework can be used to raise capital via public securities, sell receivables from rents, or issue bonds directly from the vehicle.
This type of Special Purpose Vehicle (SPV) can operate through issuing trusts or investment funds, either for project development or residential rental portfolios. The key is that the land remains public, ensuring long-term control over its use and location. The government sets rent caps and affordability criteria, protecting target households. And since the State’s contribution is in kind (land, not cash), the fiscal burden is low, preserving public finances for other priorities.
It is a model where everyone wins:
- Households gain access to stable, well-managed, affordable rentals, with the possibility—through rent-to-own schemes—of becoming homeowners in the medium term.
- The government retains strategic land, sets rules and social objectives, without assuming operational risks or major expenses.
- Developers and investors obtain predictable long-term returns, supported by a guarantee fund that reduces default risk.
Private-sector interest is already evident: developers and financial institutions in Costa Rica have expressed willingness to participate in pilot projects, seeing in this model an opportunity to create a new asset class in the country’s real estate market.
Two models, one goal
The study identified two promising variants:
- Classic PPP with perpetual rental. The State transfers, as agreed, the land for development purposes. The private partner operates the housing during a concession period, recovering its investment through rents. At the end of the contract, the asset fully reverts to the State.
- Operating Asset Model. Inspired by Peru’s Programa Nacional de Bienes Estatales (National State Assets Program), the State grants private actors rights to develop and manage the property while retaining ownership. This ensures that strategic land remains public yet productive. Under this scheme, the right to use the asset is granted without transferring ownership.
Both models formalize the rental market, reduce costs by removing the land component, and offer affordable, well-located, professionally managed housing.
Because they can be financed via the Stock Exchange, these models open funding options beyond traditional banking and attract resources from institutional investors such as pension funds.
Catalyzing urban regeneration
The benefits of rental PPPs go beyond housing. They can revitalize underused urban centers, support public transport, curb urban sprawl, and contribute to Costa Rica’s climate goals. By transforming idle plots into vibrant mixed communities, they strengthen local economies and make cities more livable.
Moreover, by increasing rental options for young people, these projects could stimulate household formation, driving higher consumption and employment in the areas where they are located.
Policy foundations and next steps
Costa Rica has favorable conditions to move forward. The National Habitat Policy 2020–2040 recognizes rental housing as a strategic priority. The recent PPP regulation (2024) provides a legal framework for collaboration. MIVAH and INVU are exploring the possibility of developing a short-term pilot on public land to demonstrate the model’s viability and guide future interventions.
To succeed, it will be essential to:
- Update and apply the existing legal framework. Since 2022, the Municipal Housing Law (No. 10.199) has been in force, introducing the usufruct mechanism to facilitate the use of municipal land. Just yesterday, San José’s Municipal Council approved the first local regulation to implement it. At the same time, clear rules are needed to allow agile use of State patrimonial assets for affordable rental projects.
- Create financial instruments such as guarantee funds and bond issues to attract institutional investors through the domestic capital market.
- Align stakeholders by engaging municipalities, developers, and financiers from the outset.
AFD has experience financing sustainable urban development programs and could support projects at both central and municipal levels, proving that public land can generate social value without burdening State finances. These initiatives could set a precedent for other Latin American countries, particularly to expand affordable housing options for the middle class, which—despite adequate income—needs tailored housing solutions. Rental schemes can also foster savings and payment histories that eventually enable access to homeownership.
Likewise, these vehicles can provide rental housing for groups needing temporary accommodation for work purposes, particularly in urban areas, offering flexible and affordable payment options.
A model for the region?
Costa Rica’s challenges mirror those of much of Latin America: scarce urban land, rising housing costs, and lack of affordable rentals. Rental PPPs offer a powerful path: they allow governments to preserve valuable land, avoid the difficulties of acting as direct landlords, and at the same time ensure affordable, quality homes for their citizens. International experiences, such as Austria’s limited-profit housing associations, show it is possible to combine public land with professional management to sustain a broad and stable supply of affordable rental housing.
The opportunity is on the table. The question is whether governments will seize it—or continue letting strategic urban land sit idle while the housing deficit grows.
