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In the Chilean housing sector, the combination of free-market imperatives guiding investment decisions and a long tradition of social housing subsidies has generally had remarkable success in quantitative terms but has also contributed to the large-scale segregation of poor families on the urban periphery. With the goal of a better socio-spatial mix and, ultimately, social integration, the Chilean government recently revised its guidelines for housing subsidies, promoting small-scale social housing in central locations. This paper examines the early effects of this new housing policy in a cluster of the so-called “pericentral” municipalities in Santiago de Chile. Specifically, it raises the question of whether the policy has a chance of achieving its objectives in light of prevailing free-market conditions. We demonstrate strong interrelations between the current dynamics of real-estate investment and government-led housing programs which together continue to promote uneven socio-spatial development and segregation of the urban poor on a smaller scale. [ABSTRACT FROM PUBLISHER]