Housing Informality (Working Paper)

An Economist’s Perspective on Urban Planning

Author(s): Smolka, Martím, and Ciro Biderman
Publication Date: June 2011

22 pages; Inventory ID WP11MS2; English

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Abstract

This paper addresses informality as a widespread and persistent settlement form in Third World cities, especially in Latin America. While providing the best housing option available to many low-income households, informal settlements are costly both to individuals and to society as a whole. Public policy responses to these conditions have been remedial in nature and, as such, may exacerbate rather than solve the problem. The main challenge is therefore to design policy alternatives that address the fundamental causes of informality, increasing the capacity of low-income families to pay for housing while at the same time holding down the prices of serviced land. Transportation improvements, property taxation, value capture, and smarter citywide land-use regulations are all approaches that deserve consideration.
There is much more to be learned about informal settlements, including the reasons that households opt for this housing solution even when they have affordable options in the formal market. A better understanding of these processes is instrumental in developing effective policies to reduce informality.

Key words: Informal settlements, housing for low-income households, public policy options to address informality; Third Word cities.