1. “Cities are where human beings find satisfaction of basic
needs and essential public goods. Where various products
can be found in sufficiency and their utility enjoyed. Cities
are also where ambitions, aspirations and other immaterial
aspects of life are realized, providing contentment and
happiness and increasing the prospects of individual and
collective well-being.”
– State of the World’s Cities, 2012-13 Edition: Prosperity of Cities; UN Habitat.
Our latest “Trends andViews” piece addresses the concept of urbanization in Latin America,
and its potential impact on the region’s real estate market.The following paper is divided
into four sections:
1. Statistics that demonstrate the degree to which Latin American is urbanized;
2. The rationale behind why Latin American societies have urbanized rapidly in recent
decades;
3. Challenges created by urbanization; and
4. The ways in which the real estate market is impacted by the urbanization trends.
Urbanization Trends in Latin America and Implications for the
Housing Market - August 2014
TRENDS + VIEWS
JAMESTOWN LATIN AMERICA
Real Estate Private Equity
www.jamestown-latam.com
Contact:
Bret Rosen – Managing Director, Research
+1 212-652-2141
brosen@jamestown-latam.com
Rio de Janeiro • Bogotá • Atlanta • New York

2. Urbanization Trends in Latin America and Implications for the Housing Market - August 2014
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Urbanization in Latin America:The numbers
Latin America is the most urbanized region in the
developing world. Over the last several decades
millions of citizens have migrated to metropolitan areas
in the region, mainly, in search of improved economic
opportunities. The share of the total population in the
region living in cities has doubled since 1950, from 40%
to 80%, an equivalent urbanization ratio to that of the
United States. The United Nations Population Division
estimates that by 2025, 84% of the region’s population
will reside in urban areas. In contrast, less than half of
the populations of Asia, China, India, and Africa live in
cities, while in Europe just 73% of its population resides
in urban areas.
Population Living in Urban Areas as of 2014
BY REGION % IN URBAN AREAS
South America 83%
North America 82%
Europe 73%
Africa 40%
Asia 48%
Oceania 71%
BY COUNTRY % IN URBAN AREAS
Argentina 92%
Brazil 85%
Chile 89%
Colomia 76%
Peru 78%
Mexico 79%
USA 81%
UK 82%
Germany 75%
China 54%
India 32%
The extent of urbanization in LatinAmerica is particularly
striking. According to research conducted by the
McKinsey Institute in 2011, 260 million people lived in
198 large cities in Latin America.1
The same report states
that these large cities have an annual economic output
of US$3.6 trillion, equal to the combined GDP of India
and Poland.The ten largest cities in Latin America have
a population of 100 million people. Notably, the average
GDP per capita of these ten largest cities is $18,000, well
above the regional average of around $10,000. Nearly
one-third of the region’s GDP is produced in these ten
cities, versus 20% in the largest ten cities in China.
By 2025, McKinsey estimates that 315 million people
in Latin America will live in large cities, including 50
million new entrants into the labor force, a number that
exceeds the current working-age population of France.2
Over the last decades the number of Latin Americans
living in cities has grown at an impressive rate. The
United Nations Population Division reports that Brazil’s
urban population has grown from 111 million in 1990 to
173 million currently. Peru’s urban population was just
15 million in 1990 versus 24 million today, an increase of
62%. In fact, in 1940, Peru was 65% rural; by 1972 it was
60% urban.3
From 1940 to 1993, the urban population in
Peru grew six-fold, compared to three-fold for the entire
population of the country. But the pace of urbanization
growth has slowed versus prior decades, a natural
outcome for a region that is already very urbanized. For
Latin America as a whole, the number of citizens living
in cities has been growing by approximately 1.5% per
year over the last five years (compared to 1.1% overall
population growth for the region), versus 1% in the
United States. However, the current pace of urbanization
is slower than in prior time periods. In the 1970s, the
number of people living in cities grew by 3.5% per year;
in the 1980s, it rose by nearly 3%.
Page 2
1
Defined as a city with a population of 200,000 or more, http://goo.gl/oS8tx0
2
From St. Louis Fed: http://goo.gl/9UY6Ht
3
http://goo.gl/6aSovW
Source: United Nations Population Division, Dept. of Economic and Social Affairs

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Peru population trends (1940-1993)
1940 1961 1972 1981 1993
Total National Population (mn) 6.2 9.9 13.5 17.0 22.0
Largest 32 cities (mn) 1.1 3.0 5.4 7.8 11.1
Largest 32 cities (as % of total population) 18% 30% 40% 46% 51%
Lima population (mn) 0.65 1.85 3.30 4.57 6.32
Lima population (as % of total population) 10% 19% 24% 27% 29%
Source: INEI.
Historically, population centers in Latin America have generated a disproportionate share of a country’s economic
activity, as can be seen in the below table.
Major cities vs. GDP generated
City Country
% of population in
capital city
% of national GDP
generated
Buenos Aires* Argentina 35% 50%
Bogotá* Colombia 20% 25%
Lima Peru 30% 50%
*metro area Source: Various official sources
Additionally, in Brazil, three cities, Brasilia, Rio de Janeiro, and São Paulo are expected to contribute almost 25 percent
of Brazil’s GDP growth, compared to just over 10 percent of the total population.These three cities are forecasted to
account for 8% of overall growth in all of Latin America between now and 2025, despite having 3% of its people.
Page 3
Urbanization in Latin America:The reasons
We cite several factors that account for the urbanization
trends that occurred during the last several decades:
1. Economic reasons, which can be described by the
higher levels of wealth in the cities and the better job
opportunities that residents can access.
2. Quality of life reasons, i.e. access to medical care,
education, safeguards provided by the government.
3. In certain cases, better living conditions due to safety
reasons, i.e. fleeing unrest in the countryside.
Economies of scale
Research by the United Nations shows a positive link
between urbanization, national productivity and wealth
creation, in high and middle income regions, including
Latin America. In the latter half of the 20th century, cities
in the region were able to generate robust economic
activity, while many rural areas remained mired in
poverty. These rapidly growing cities began to attract
greater and greater numbers of migrants from the
countryside. The main reason for this phenomenon
was industrialization, as the transfer of capital from
agriculture to manufacturing gained momentum in the

4. Urbanization Trends in Latin America and Implications for the Housing Market - August 2014
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1950s and 1960s, aided in part by import substitution
policies.4
Urban centers also provided a diversified base
of economic activities and more varied employment
opportunities, unlike the rural areas which traditionally
had been dominated by agriculture and in many cases
subsistence farming. Greater industrialization allowed
businesses in urban areas to develop economies of
scale, which had the positive impact of generating
economic growth and employment opportunities, since
manufacturing activities tended to be labor intensive.
Research from consulting firm McKinsey indicates that
the cost of delivering basic services such as water,
housing, and education can be 30%-50% cheaper in
urban centers than in rural areas.These network effects
enhance productivity and attract inward investment and
human resources.
Infrastructure
Enterprises also benefited from cities’ infrastructure.
Though substandard compared to cities in developed
economies, infrastructure in Latin American cities is
vastly superior to that in the countryside, thus providing
another attraction for citizens and firms to establish
themselves in large cities, adding to the economies
of scale enjoyed by urban settings. Adequate
infrastructure contributes to the sustainability of urban
development, while also enhancing competitiveness,
labor productivity and the investment climate – features
that are generally non-existent in more remote areas.
Businesses in metropolitan areas also enjoy better
connectivity to foreign destinations via ports and
airports, public transport that moves workers to and
from home to work and roads and highways that allow
for the movement of goods and services – all of which
contribute to economic opportunities for potential
migrants from rural areas.
Employment
Consequently, over time, the gap in employment
opportunities and economic development between
the metro areas and the countryside grew, which only
served to attract more migration. In all Latin American
countries, disparities in wealth from region to region
can be striking. Any visitor to the Peruvian sierra will
notice major contrasts with most of Lima for example.
Indeed, 53% of rural residents in Peru are below the
poverty line as compared to 17% in urban areas. Just
8% of Lima residents are considered to be part of the
lowest socioeconomic class, versus 38% for the entire
country.5
Average income in urban Peru is 2.5 times
that in rural Peru.6
Poverty levels in the rural areas of
Latin America have historically been higher than in
urban settings, providing a motivation to migrate to
the large metropolitan areas. According to a survey
by Peruvian statistics agency INEI, domestic migrants
typically represented 40% of Lima’s population in the
1960s-1990s.7
We can trace the historical case of Brazil as an example
that is representative of rural and urban employment
gaps:
• By the end of the 1970s, São Paulo represented 42%
of the country’s manufacturing GDP, allowing it to
attract migrants from other areas of the country
where employment opportunities were sparse and
socioeconomic indicators worse.
• In 1985, the more urbanized south and southeast
regions of Brazil comprised 18% of the country’s
territory, yet accounted for 59% of the total population
and 74% of GDP. This economic imbalance served
to attract more and more migrants from the poorer
regions of the country, such as the northeast, which
then accounted for 29% of the population but just 13%
of GDP.
Page 4
4
Fix, Mariana. “The Case of Sao Paulo, Brazil.” http://goo.gl/qHwdzc
5
Ipsos Apoyo.
6
INEI.
7
INEI reports that in 1961, 45% of residents of Lima came from other areas of the
country; in 1972, the figure was 46% and in 1993 39%. In 1993, Ancash, located in
the northwest, was the province that accounted for the most migrants to Lima.

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• In 1990, the proportion of urban poor in Brazil was
22.5%, much less than that of the rural poor, 50.1%.8
• Currently, cities in Brazil are, on average, wealthier
than the rest of the country, and hence continue to
attract migrants from other regions of the country.The
table below shows that on average, residents of major
cities in Brazil are wealthier than the national average,
offering a clear impetus to internal migration, even
now:
Brazil - GDP per capita in reais for 10 largest cities
GDP Per
capita
vs
National
Avg
São Paulo 42,152 95.7%
Rio de Janeiro 32,940 53.0%
Belo Horizonte 23,053 7.0%
Fortaleza 16,963 -21.2%
Brasilia 63,020 192.6%
Salvador 14,411 -33.1%
Porto Alegre 32,203 49.5%
Recife 21,435 -0.5%
Curitiba 32,916 52.8%
Campinas 37,166 72.6%
NATIONAL AVG 21,536
10 largest vs national avg 46.9%
Source: IBGE data (2011).
Colombia also displayed gaps in the economic status of
the countryside versus the urban areas:
Colombia Comparative Poverty Indicators
National Poverty
Rate
Urban
Poverty Rate*
2002 49.7% 36.2%
2013 30.6% 17.5%**
* in Colombia’s 13 largest urban areas. Source: DANE.
** 10.2% in Bogotá.
Overthelastdecade,theGinicoefficient,arepresentative
measure of inequality, in rural areas has remained above
that displayed in Colombia’s largest cities.9
Better Safety Nets
Quality of life within cities – although fraught with major
issues – has also encouraged migrations to these large
metro areas. Factors that attract people to cities in the
region, but are in short supply in rural areas, include:
safety nets provided by the government, better medical
care, access to education and sanitation, and clean
drinking water.
The state is often absent in the rural areas of the region,
leaving the poorer demographic there without a social
safety net. Rural Latin Americans have typically lacked
access to public services that are often available in
metropolitan areas, as governments have done a poor
job of reaching more remote areas, for logistical or
geographic reasons. In contrast, cities can deploy a
number of safeguards against a variety of socioeconomic
risks. Municipal authorities can prioritize expenditures
on social security nets, and local/regional infrastructure,
with a view toward securing long-term growth while
stimulating consumption and employment in the long
term.10
Health Care and Quality of Life
As Latin American societies have become more
urbanized, life expectancies have increased, as more
and more citizens have access to quality medical care,
which is often lacking in more remote areas.11
Since
1990, in concert with increased levels of urbanization,
life expectancy in Brazil has risen from 66 to 74, in Chile
from 73 to 80, and in Peru from 70 to 77.
The UN Development index attempts to measure
quality of life indicators with a composite measure that
includes factors such as life expectancy, educational
8
http://goo.gl/RQC0ue
9
A Gini of 1 would be a scenario where one person owns all the wealth in a society
while a coefficient of 0 would represent perfect income equality.
10
From State of the World’s Cities: 2012-13. “UN Habitat: For a better human
future.” World Urban Forum Edition.

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attainment and income. Quality of life indicators are
generally superior in urban areas than in non-urban
ones throughout the region: the human development
index in São Paulo city of 0.81 and in Rio de Janeiro
of 0.80 surpasses that of the Brazilian average of 0.74.
Meanwhile the more densely populated states of the
country also have higher indices than the more sparsely
populated ones:
Brazil - Human Development Indices
The five highest and lowest ranking states
Ranking
Population /
sq km
Distrito Federal 0.82 460
São Paulo 0.78 166
Santa Catarina 0.77 70
Rio de Janeiro 0.76 370
Parana 0.75 52
Bahia 0.66 25
Paraiba 0.66 67
Piaui 0.65 13
Maranhao 0.64 20
Alagoas 0.63 110
Source UNDP
Access to Formal Housing
Studies show that that there is a high correlation between
access to adequate housing and urbanization, across
the world.12
A greater proportion of rural residents live
in substandard housing compared to urban dwellers.
In 1985, 26% of Colombians living in rural areas were
deemed to be living in inadequate housing versus 7% in
urban areas.13
In 1993, 88% of Colombians living in cities
had adequate electricity, versus just 50% in rural areas.14
Over 80% of urban areas in Brazil, Colombia and Peru
have improved sanitation facilities, according to the
World Bank, well above the levels in rural surroundings
in these countries (48% in Brazil, 65% in Colombia, and
38% in Peru).15
Social Conflict
In some Latin American countries, avoiding social
conflict in rural areas was another factor that contributed
to Latin America’s urbanization. In Colombia, cities such
as Bogotá and Medellin received large numbers of
migrants fleeing rural areas to escape chaos sewn by
the FARC, a Marxist-Leninist rebel group whose origins
trace back to 1959. A similar trend also occurred in Peru
from 1980 to 2000, where residents from some rural
areas migrated to Lima to escape violence wrought by
clashes between government forces and Maoist-Shining
Path rebels.16
Urbanization in LatinAmerica:The Challenges
In most cities some advantages of urbanization are
reaching their limits, as infrastructure and services are
unable to keep pace with population growth.
Traffic
Residents of Lima or São Paulo for example often
complain about traffic that adversely impacts worker
productivity. In the UN Habitat survey, 88% of
respondents stated that traffic was the main form
of infrastructure deficiency for Latin America, an
enormous concern for a region that has the highest
level of motorization in the developed world. A great
majority of experts in the UN-Habitat survey, over 80%,
indicate that the roads in major Latin American cities
are congested. Traffic disruption alone costs São Paulo
over US$2.0 billion a year in lost productivity per year.17
Page 6
11
Witness Brazil’s usage of imported doctors from Cuba.
12
Urban Infrastructure: Bedrock of Prosperity.
13
DANE: Necesidades Basicas. Even by 2005, the gap was large: 28% in rural areas
were in inadequate housing compared to 5% in urban areas.
14
Ibid.
15
http://goo.gl/Ynpqjc
16
The impact of the FARC and Shining Path rebel groups has fortunately dimin-
ished in recent years and no longer provides a major impetus for migration from
the countryside to the city. In each case, governments aggressively pursued
these groups, in rural areas.

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Time spent in traffic also worsens quality of life, causing
pollution, traffic accidents, increased fuel consumption,
and emission of greenhouse gases.
Environment
Environmental issues have also started to constrain
growth. According to a World Bank study, the effects
of outdoor air pollution, a particularly urban problem,
costs 1% of national GDP in Colombia per year. In fact,
a World Health Organization (WHO) study shows that
only 12% of the world’s urban population breathes clean
air.18
The WHO also reports that Lima has the worst air
quality in Latin America. Its database, which covers
1,600 cities worldwide, measures outdoor air pollution
by calculating the average fine particulate matter in a
city over a five year period (2008-2013). Lima’s “PM10”
score of 63 is double the level in Los Angeles, which
has the highest average of any large city in the United
States.19
Declining Economies of Scale
Despite the surge in population, economic growth
rates in the largest urban centers have been below the
national average over the longer term, which might
seem counterintuitive given urbanization’s benefits.
For example, since 1970, GDP growth at a compounded
annual rate in Rio de Janeiro and São Paulo has been
1%-2% points below the Brazilian national average,
implying that the secondary cities are actually enjoying
stronger headline growth, or that many poor towns,
starting from a lower base, are generating faster
economic expansions. Analysts believe that the
economies of scale generated by urban centers tend
to decline over time, due to bottlenecks that eventually
form. In São Paulo, similiar to other large Latin American
cities, infrastructure capacity has not kept pace with its
dramatic population growth.20
Given declining economies of scale and the attendant
challenges in major cities, some firms and individuals
are starting to favor second-tier cities, where snarling
traffic is not as impeding, pollution is less (the air quality
indices of Lima, Mexico City, Rio and Santiago are all
worse than Baltimore, MD, which has the poorest ranking
of any city in the US), and “quality of life” indicators are
better.21
A city such as Campinas, with a population of 1
million and located an hour from São Paulo, possesses
many of the benefits of its larger neighbor: a top notch
university, a significant airport, and important transport
links to other parts of São Paulo state. Additionally, its
pollution index of 45.3 rates 40% better than São Paulo’s
73.7.22
Urbanization in Latin America: The effects on
real estate
Fortherealestatemarket,urbanizationandconcentration
of economic wealth are particularly important. Among
the conclusions one can draw are:
Housing deficits in the major cities are large and should
remain sizeable. While migration to the major cities
may not be growing to the extent evident in years past,
there are still significant numbers of people moving into
cities such as São Paulo and Mexico City in search of
better jobs and quality of life. When one factors in the
organic growth of these cities, the numbers become
quite staggering. According to estimates by McKinsey,
2.1 million new households will be formed in Mexico
City between 2007-25. The current housing deficit in
Mexico’s capital is estimated to be 570,000. When the
current housing deficit is combined with estimated
new household formation (a function of population
growth, married couples that move in together, etc.)
plus expected second home demand, Mexico City will
require nearly over 8 million dwellings in the time frame
17
Canassa, H. (2008) ‘São PauloTraffic Jams Mean Lost Business, Stress, Helicop-
ters’,Bloomberg, July 14, http://goo.gl/ioqjwS
18
http://goo.gl/bNemg3
19
http://goo.gl/GJRGqC
20
The new Plano Director in São Paulo is an urban plan intended to offset some of
the problems that have resulted from a fast pace of urbanization, namely traffic,
and pollution resulting from a car-dependent culture.
21
http://goo.gl/Gf9X21
22
Ibid.

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from 2007-2025. The same study estimates that Bogotá
will need to double its housing stock by 2025, and that
demand for housing in São Paulo will rise by more than
50% by that same year.
Total housing requirements by 2025
In thousands of dwellings
Cities’ inability to cope with large migrations contributed
to the development of informal housing (known in
Brazil as favelas). It is estimated by the United Nations
that nearly 20% of Latin Americans live in shanty towns/
favelas, the majority of which are located in urban areas.
In Brazil, 27% of urban residents live in favelas, while
36% of Peru’s city dwellers live in slums. Many who
migrated to these urban centers lacked the resources to
obtain adequate housing, building ramshackle homes
on hillsides or on the periphery of major cities. Years
later, residents of slums in Latin America remain with
many now possessing decent jobs, while many of the
younger generation pursues higher levels of education
and improved economic opportunities. As a result,
increased demand for formal housing by favela dwellers
also contributes to the housing deficit. Meanwhile,
urban planners face a dilemma. While favelas present
a host of problems, there is little desire by many favela
residents to relocate far from city centers, since they
would lose proximity to amenities, employment, and
services. In Rio de Janeiro, for example, some large
favelas lie adjacent to the city’s wealthiest areas while
in Caracas, slums line the hillsides which lie at the entry
to the valley that contains the city center and business
districts.
Many secondary cities are enjoying faster economic
growth due, in part, to the strains on capacities of
largercities. Consequently, in the years to come, one
can expect demand for housing, especially upper-
middle and upper class quality in secondary cities to
accelerate. While international investors tend to focus
on the major business centers, over time, there may be
attractive opportunities in second-tier cities, which have
scale, adequate demand, and increasingly favorable
economic conditions, especially those towns that lie
in close proximity to the major metropolitan centers
(examples would include Jundiai and Campinas, both
within 60 miles of São Paulo).
Going forward, look for population density to increase
around public transportation corridors. São Paulo’s
newly revised (and approved) city plan is a prime
example of urban planning legislation that will
encourage more dense development in proximity to
preexisting infrastructure and transport. In the future,
cities will increasingly follow São Paulo’s example.
This suggests that real estate investors will prioritize
development of properties that enjoy proximity to these
transport hubs, while also realizing indirect economic
incentives to build properties located near subway lines,
bus paths, etc.
Page 8
Source: McKinsey Global Institute
Dwelling Stock
2007
Current
New
Households
2007-2025
2nd home
demand
2007-2025
Total dwelling
demand
2007-2025
Mexico City 5,636 570 2,124 172 8,501
São Paulo 6,632 550 2,864 289 10,336
Rio de Janeiro 3,892 323 1,724 132 6,072
Bogotá 1,931 370 1,304 155 3,760

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While Latin American cities are not as densely
populated (as the table below indicates) as the largest
urban agglomerations in China and India, they are more
densely populated on average than the major metro
areas in Europe and the United States. Bogotá, Lima,
São Paulo, Santiago, and Rio de Janeiro are all more
densely populated than London, Tokyo, Paris, and New
York. In Latin America’s large dense cities, land prices
tend to be high, and can impact investment returns
especially in areas where the cost of land outstrips
affordability.
Geographic barriers create natural constraints that
restrict the availability of developable land. The Andes
that line the eastern side of Bogotá or the hillside
areas of Rio de Janeiro limit growth of these cities in
certain directions creating scarcity, increasing density
and the cost of land. Consequently, these cities have
seen substantial land price appreciation in recent years,
especially in the more desirable areas. In most cases,
land now represents a larger percentage of a project’s
budgeted costs.
Page 9
World Ranking City Country Density
1 Dhaka Bangladesh 44,000
3 Mumbai India 32,300
7 Hong Kong China SAR 25,700
39 Bogotá Colombia 16,600
154 Lima Peru 11,300
345 São Paulo Brazil 7,100
402 Santiago Chile 6,300
448 Rio de Janeiro Brazil 5,800
448 London UK 5,800
588 Tokyo Japan 4,400
663 Paris France 3,900
830 New York USA 1,800**
Urban Density Ratios - Population per square km
* For cities of over 500,000. Source: Demographia World Urban Areas, 2014 edition.
**Population density of Manhattan is 25,846 per square kilometer.