CSI.SP: Tale of Two Cities by Erhard Berner (11 Mar 2009)

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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.

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CSI.SP: Tale of Two Cities by Erhard Berner (11 Mar 2009)

  1. 1. 1
  2. 2. A tale of two cities Market failures, haphazard policies and the global proliferation of informal settlements
  3. 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
  4. 4. Question for research • How can the gaping breach between (expensive, exclusive) formal housing and (deficient, insecure) informal housing be bridged? 10
  5. 5. 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
  6. 6. 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
  7. 7. 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)
  8. 8. 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
  9. 9. 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
  10. 10. 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
  11. 11. 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
  12. 12. 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
  13. 13. 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
  14. 14. 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
  15. 15. Forms of tenure security Individual titles (freehold) communal titles (not alienable) leasehold contracts (long- and short-term) certificate of residence/moratorium on eviction 21
  16. 16. 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
  17. 17. 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. 23
  18. 18. For more lectures visit: www.UrbanDetectives.com PARALLEL WORLDS LECTURE SERIES 2009

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