In the large cities in the developing world, only a privileged minority of the population finds access to land and housing through the commercial market. Mushrooming ‘irregular’ settlements are filling the gap but are themselves beset by deficiencies and insecurity. The paper [on which the presentation is based on] argues that the failure of formal markets is systematic and structural, and that attempts to open them up for the poor have fallen short of overcoming these inherent limitations. In order to mitigate the widening gap between gated communities and ghettos, government intervention needs to be much smarter than the present mixes of negligent tolerance, brutal eviction, market-fundamentalist privatization, and populist titling.

1. 1

2. A tale of two cities
Market failures, haphazard policies and the
global proliferation of informal settlements

3. Daunting challenges
and modest goals
• Urban areas will have to absorb almost all of the
world’s future population growth.
• At present, 70-85% of housing is produced in an
irregular manner.
• Governments destroy more shelter than they produce.
• MDG 7 implies an increase of people in unimproved
slums by 400 millions.
• Cities are divided/fragmented/torn apart between
citadels and ghettos.
3

10. Question for research
• How can the gaping breach between
(expensive, exclusive) formal housing and
(deficient, insecure) informal housing be
bridged?
10

11. What's wrong
with the housing market?
• Land:
Increasing demand (migration, economic growth)
meets inelastic supply (land cannot be produced).
Result: steep price increase.
• Labour:
Supply is highly elastic: New jobs and opportunities
attract additional supply through migration.
Result: Stagnating wages even in growth periods.
• Location
The poor need to live close to places where they can
make a living, and where they meet stiff competition. 11

12. Systematic market failure
(also in developed countries!)
• If urban land goes to the highest bidder, then
there is oversupply at the high end;
speculation is unavoidable, leading to large bubbles;
large parts of the population are excluded from legal
access.
• Government intervention may aggravate (but
does not cause) the problem:
Inappropriate building regulations (often copied from
ex-colonial powers);
Inefficient use of public land. 12

13. Land price in conventional
development sequence
700
600
500
400
300
200
100
0
Planning Servicing Building Occupation
(Figures: Rio de Janeiro, agricultural use = 1)

14. Informal developers’
(age-old) secret
• Reversal of sequence: occupation (with shacks),
incremental building and servicing, (possibly)
regularization;
• spread of investments over many years (a form
of saving);
• relative insecurity constrains demand and limits
prices;
• speculation is minimized as idle land is quickly
lost (although there are slumlords and absentee
owners). 14

15. Extra-legal subdivision 1
(in most cities, 70-95% of new housing
is produced this way)
Idle land (often marginal, zoned for other purposes
and/or at the urban fringe) is 'bought' by a
syndicate.
Some basic infrastructure (water supply, traffic
connection) is provided.
'Serviced' land is subdivided and sold to settlers
and/or slumlords (no acquisition of legal title).
Going price rates within a city depend on location/
centrality, security of tenure and quality of
infrastructure.
15

16. Extra-legal subdivision 2
Houses are built without permits, quality may be
(initially) below regular standards – which is
precisely what makes them affordable for low-
income groups.
As the title remains with original owner or
syndicate, added value can be later realized.
• Special cases:
non-commercial invasions;
settling on communal/tribal land;
tolerated squatting around new factories. 16

17. Slum as a solution?
• Rapid growth of illegal settlements in and
around cities can be viewed not as the
growth of slums but, in a very real sense, as
the development of cities which are more
appropriate to the local culture, climate and
conditions than the plans produced by the
governments of these same cities.
Hardoy & Satterthwaite
17

18. What’s then wrong
with informal housing?
• Squatting is not cheap (high transaction
costs, prices for services).
• Profits go to syndicates, corrupt officials etc.
• Insecurity prevents investments in:
upgrading (beyond a certain level);
infrastructure, services and environmental
improvements (including maintenance);
productive ventures (immobile capital)
and thus becomes a cause of poverty.
18

19. Tackling housing poverty
• Imperatives for innovative approaches:
Learn from informal housing production, enable
incremental development!
Facilitate compromises in ownership disputes!
Provide security of tenure!!
• 2 ways to go:
curative (upgrading): Improving housing conditions,
services and infrastructure;
preventive (S & S): Increasing housing supply by
‘guided squatting’. 19

20. A clash of logics
• The planner: ‘It is extremely expensive to lay
sewage pipes in existing settlements. All
underground works should be completed
before building starts.’
• The poor: ‘ We cannot possibly afford fully
serviced plots. We’ll dig pit latrines now, and
improvements can be done when we repaid the
costs for house and plot.’
20

21. Forms of tenure security
Individual titles (freehold)
communal titles (not alienable)
leasehold contracts (long- and short-term)
certificate of residence/moratorium on
eviction
21

22. Policy dilemmas
• Widespread illegality creates insecurity, ‘dead capital’
and massive transaction costs for dwellers, legal
owners and governments.
• But: Upgrading and regularization increase
attractiveness and outside demand − rising costs lead
to market eviction.
• Any preventive approach (guided squatting) involves
procuring land at (way) below market price.
• But: If the land is idle, there is no reason for private
(and even public) owners to compromise.
22

23. Conclusions
• Government intervention is of crucial importance, but
needs to be much smarter than the present mixes of
negligent tolerance, market-fundamentalist
privatization, and populist titling.
• Tenure security is a condition for successful upgrading
and economic development, but individual, alienable
titles have undesirable side effects.
• Gentrification is not fully avoidable (needs to be
covered by M&E), but increases sharply if the speed of
improvement of quality and security is too high.
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PARALLEL WORLDS LECTURE SERIES 2009