People who work with me are often surprised by the extent to which my philosophical canon derives from low-budget offbeat films, typically from the 1980s. When in need of wisdom, I frequently turn to the teachings of Repo Man or, for this essay, Terry Gilliam’s allegorical masterpiece Time Bandits. In the movie, a group of public workers are employed by the Supreme Being to fill holes in the time-space continuum left from the haste of creating the universe in seven days: “It was a bit of a botched job, you see.”

Like the Time Bandits, policy makers are often tasked to fill holes—actual potholes in roadways, or more theoretical holes that are the artifacts of dysfunctional private markets. One big hole that policy has struggled for decades to fill is the inadequate supply of affordable housing. For example, housing economists in the United States have become quite adept at tracking the size of the hole, which has only become harder to fill since the federal government committed to address it as a national policy priority beginning with the Housing Act of 1949, part of President Harry S. Truman’s Fair Deal.

Perhaps our collective failure to solve the affordable housing deficit over the last 66 years stems from wrongheaded analysis of the problem, and the conclusion that market-based solutions can be designed to solve the mismatch between the supply of affordable housing and demand for it. In his 1949 State of the Union address, President Truman noted that to fill the needs of millions of families with inadequate housing, “Most of the houses we need will have to be built by private enterprise, without public subsidy.”

To support this claim, permit me a short departure into market theory. From the now-preferred mathematical approach to economic analysis, a market is simply a system of partial differential equations that is solved by a single price. The partial differential equations capture the complex decisions made by consumers and producers of goods, reconciling tastes, preferences, and budgets of consumers with the technical complexities of producing goods to arrive at a price that clears the market by settling all transactions that suppliers and consumers of goods are willing to make.

Acclaimed economists Arrow, Debreu, and McKenzie proved the theoretical existence of a single set of prices that can simultaneously solve for the “general equilibrium” of all markets in a national or global economy. One important aspect of this Nobel Prize–winning contribution was the observation that a unique price cleared each market—one market, one price. There was no expectation that a single price could maintain equilibrium in two markets. But this is the fundamental flaw of the housing market—it is actually two markets, not one. Housing markets supply both shelter for local consumption and a globally tradable investment good made possible by broad capital markets that serve global investors. This dual-market status used to be more descriptive of owner-occupied housing, but, with the proliferation of real estate investment trusts (REITs), rental markets are now in the same boat.

Markets for consumption goods behave very differently than investment markets, responding to different “fundamentals.” On the supply side, prices for consumption goods are dictated by production costs, while prices in investment markets are dictated by expected returns. On the demand side, such things as tastes and preferences, household incomes, and demographics determine the price of housing as shelter. Investment demand for housing is dictated by factors like liquidity and liquidity preferences of investors, expected returns on alternative investments, or interest rates.

In developed countries, global capital markets and the market for shelter collide locally with little chance of reconciliation. Local households compete with global investors to decide the character and quantity of housing that is produced. In markets that attract global investment, plenty of housing is produced, but shortages of affordable units are acute, and worsen over time. This is because a huge share of new housing is produced to maximize investment return, not to meet the needs of the local population for shelter. For example, there is no shortage of global investment willing to participate in developing $100 million apartments in New York City. But affordable housing, being much harder to finance, is in short supply. And in markets that have been abandoned by global capital, house prices fall below production costs, and surplus housing accumulates and decays. In extreme cases such as Detroit, market order can only be restored by demolishing thousands of abandoned homes and buildings.

Perhaps it is time that we reconsider the analysis that led President Truman, and thousands of housing policy makers after him, to conclude that one could forge market-based solutions to the challenge of sheltering a country’s population. Truman concluded that “By producing too few rental units and too large a proportion of high-priced houses, the building industry is rapidly pricing itself out of the market.” But Truman was thinking about the market for shelter, not investment. It is remarkable to note that the number of housing units supplied in developed countries such as the United States significantly exceeds the number of households. In 2010, the U.S. Census estimated that there were 131 million units of housing in the country and 118 million households—one in seven housing units were vacant. It is even more shocking to note that in the United States this oversupply of housing characterizes every metropolitan market in the country—even metropolitan markets with extreme shortages of affordable housing. In 2010, 8.5 percent of housing units were vacant in Greater Boston, 9.1 percent in the San Francisco Bay area, and 10.2 percent in Washington, DC. The problem is that many households have insufficient incomes to afford the housing that is available.

In the end, rather than fill the holes in the fabric of time and space, the Time Bandits decided to take advantage of them to “get bloody stinking rich.” The bandits sought to capitalize on celestial imperfections in the same way that global investors seek returns from short-term market dislocations. To illustrate the dangers of naked speculation in unregulated markets, consider an apocryphal tale from a very different market. In 1974, heavy rains during planting season in Bangladesh suggested that rice might be in short supply at harvest time. In anticipation of these shortages, rice prices started to rise. Savvy commodity speculators realized that there would be a good return on any rice that was held off the market. Despite the fact that the actual harvest produced a bumper crop, the interaction between market expectations and market manipulations by commodity investors produced one of the worst famines of the 20th century—with an estimated 1.5 million famine-related fatalities. The famine was not the result of real food shortages. The collision of the market for goods and the market for speculative investment priced rice out of the reach of the local populations, with landless families suffering mortality at three times the rate of families with land.

Perhaps shelter and food are too important to be left to unregulated markets to allocate. In light of the damage that the conflict between the market for goods and the market for investment can inflict on local populations, perhaps public policy should focus on protecting a share of the market—and the public—from the ravages of speculation. In this issue, we describe some nascent efforts to produce permanently affordable housing by insulating it from speculation—through community land trusts, inclusionary housing, and housing cooperatives. Miriam Axel-Lute and Dana Hawkins-Simons discuss the mechanics of organizing local community land trusts. Loren Berlin describes efforts to preserve affordable housing in the form of manufactured homes and to promote permanent affordability of that stock through the conversion of manufactured housing communities to limited equity cooperatives.

On more cautionary notes: Cynthia Goytia discusses the ways that low-income communities circumvent housing regulations that drive up housing costs to produce their own affordable but substandard shelter in informal settlements around Latin American cities; and Li Sun and Zhi Liu discuss the tenuous status of one-quarter of urban Chinese households that purchased affordable shelter with uncertain property rights on collectively owned land at the rapidly developing edge of cities and in “urban villages,” former rural settlements now surrounded by modern construction. As capital markets deepen in these countries, the competition between housing as investment good and housing as shelter will likely exacerbate informality in Latin American cities and make property rights of these Chinese families more precarious. After almost seven decades of failed efforts to get private markets to meet populations’ needs for affordable shelter, it might be time to develop, and to export, another approach that is based on a more realistic understanding of the complexity of housing and capital markets.

A proud outpost of America’s Industrial Revolution, Johnstown, Pennsylvania, survived the Great Flood of 1889, when a 40-mph wave swept the city into the Conemaugh River. Johnstown rebuilt itself into a dynamic city teeming with factories and steel mills. Yet what the flood couldn’t kill, a changing economy nearly has.

In the space of a generation, Johnstown has hemorrhaged 40 percent of its population and seen its job base disintegrate–joining the growing ranks of U.S. industrial cities teetering on the brink of terminal illness. They are becoming places without purpose, experts say, ill-prepared for a new economic era except as recipients of transfer payments and warehouses for the poor, the aged, the infirm and, in big cities, the violently deviant. “Johnstown is a place where wealth has moved out, where there is no middle class and where the town frantically searches for a magic solution to stay alive,” said anthropologist Bruce Williams of the University of Pittsburgh at Johnstown.

As the Information Age unfolds, urban scholars see a disturbing new set of forces converging viselike on Johnstown and many U.S. cities. While the problems of a New York City or a Detroit command popular attention, smaller cities such as Johnstown–those with populations of 25,000 to 100,000–might be suffering most from wrenching economic changes. No longer are place and distance such vital factors. The new economy is driven by technological changes that allow those with means to live and work largely where they want. New suburbs are still the number one choice for both business and residential developers seeking large plots of cheap land.

Struggling for Relevance

Many old industrial cities, meanwhile, struggle for relevance. Their residents lack the training for–and access to–the modern work force. New offices and industries require less labor. Isolation and segregation of the urban poor feed a cycle of despair. Advantages such as a coast, river or rail line matter less. With dwindling public investment and little or no market for their services or products, scores of these older cities can’t nurse themselves back to health.

“If a city lacks the basics for economic viability, what does it have left except some type of massive support by the federal government?” said Dr. Irving Baker, a retired political scientist at Southern Methodist University. “Those cities . . . are expendable,” he said.

This phenomenon links aging central cities, decaying inner-ring suburbs and exploding Mexican border cities. One of every five U.S. cities larger than 25,000 people has a poverty rate greater than 20 percent–a prime symptom of urban decay, an analysis of U.S. Census Bureau data indicates. Dallas and other Sun Belt cities are repeating the trajectory of distressed Northern cities, where poverty rates soared and the concentration of poor worsened.

As the debate continues over Washington’s shifting budget role, some experts wonder whether one result might be disposable cities, like the 19th-century ghost towns that predated federal bailouts. Solutions seem elusive, the experts agree, because neither government-run urban renewal nor private enterprise alone appears equal to the task.

“I think we are in a struggle for America’s heart right now,” said Peter C. Goldmark, president of the Rockefeller Foundation, whose programs support efforts to revitalize communities. “Because I don’t think America can live if its cities are dying.” Neal Peirce, an urban affairs commentator and writer, noted: “As I see it, we have a civilization to defend. If we really come to the point of writing places off as cities and neighborhoods of no return, we have reached the point of giving up what made this country the civilization I think many of us really have much pride being in.”

Disturbing Trends in Distressed Cities

Analysis by The Dallas Morning News–based on more than 125 interviews, a review of hundreds of reports and creation of a computer-generated index of 148 distressed communities–documented a number of alarming urban trends:

The United States remains an urban nation. But of all urban dwellers, 60 percent now live in suburbs — not in the nation’s 522 central cities.

Concentrations of the poor are increasing in all cities, including Sun Belt cities. In 1968, 30 percent of the nation’s poor lived in cities. Now the figure is 42 percent.

Jobs are leaving cities in massive numbers and are not being replaced. About 70 percent of new jobs, most requiring extensive technical training, are being created outside cities. Although the number of poor Americans dropped in 1994 for the first time in four years, the gap between rich and poor continued to widen as low-skill, low-wage jobs disappeared, according to the U.S. Census Bureau.

Many older cities are burdened with foul physical sites created for a smokestack economy that no longer exists. Mayor Freeman Bosley said St. Louis’ dramatic population decline–a 50 percent loss since 1950–relates directly to his city’s inability to reclaim contaminated properties, known as brownfields. “Right now, there is no way the city of St. Louis can attract business to abandoned industrial sites,” he told a congressional panel recently. “The existing cleanup standards and related costs exceed the property’s value, and there are no compensating incentives.”

The revival of rural America comes at the expense of many cities. Following a decade of decline, three in four rural counties gained population between 1990 and 1994. Most of the gain was caused by migration from cities, not urban encroachment.

Few places have been able to reverse these trends once decline sets in. Said Brian Berry, an internationally recognized professor of urban geography at the University of Texas at Dallas: “To be blunt and brutal about it, there’s very little that policymakers can do [about these cities] short of bringing in the aspirins and making people feel a little better.”

The success stories of recent years have enjoyed some attractive geographic asset or been the target of a sustained intentional effort. Hoboken, New Jersey, once a rundown manufacturing hub, capitalized on its waterfront view of the Manhattan skyline. It is now a trendy suburb for young couples with children. Cleveland, Pittsburgh and St. Louis have stabilized after shedding population for decades. Yet even though each has poured tens of millions into successful downtown revitalization efforts, many neighborhoods remain deeply troubled.

Smaller cities such as Johnstown dominated The News’ list of distressed communities. “Small and medium-sized cities don’t have the great urban assets to draw on,” said David Rusk, former mayor of Albuquerque, New Mexico, and now an urban consultant in Washington, D.C. “They don’t have the legacy of parks, museums and recreational facilities that big cities have. And, most of all, they don’t have the old downtown core.”

What can be done to assist these communities? Gary Orfield, a professor of education and social policy at Harvard University, said, “If I were a mayor, my number one effort would be to try to help people to understand how serious these problems are and to convince the people in the rest of the society that if they don’t share in the solution, they are going to be sharing in a much, much more radical problem in the future.”

______________

Chris Kelley is urban affairs writer at The Dallas Morning News. This article is excerpted from a four-part series titled “Whither the Cities?” which ran December 3-6, 1995. A series reprint is available by calling The News at 1-800-431-0010, ext. 8472, or on the Internet at http://www.pic.net/tdmn/tdmn.html. Kelley participated in the Lincoln Institute’s 1995 Land Policy Forum for Journalists.

Although vast differences in standard of living exist among the native-born residents of Chinese cities, the distinction between all urban natives and rural migrants runs deeper. It is, in fact, the fundamental social division in Chinese cities for several reasons, including labor market segmentation that sees migrants doing dirty, dangerous, and low-paying work; institutional rules that favor urban residents in everything from health care access to university entrance exams; and cultural ideas about the backwardness of rural areas and rural people.

In the housing sector, it is therefore not surprising that migrants’ housing quality is quite low in an absolute sense and relative to that of other urban residents. What is less clear is the source of these differences. Research that we recently completed for the Lincoln Institute leads us to question the conventional wisdom that institutional rules linked to the hukou system are primarily responsible for the differential (Li, Duda, and Peng 2007). We believe that hukou status is only one of several factors responsible for migrants’ differential housing outcomes, and that the research literature has not spent enough time assessing the relative importance of these factors. While not definitive, our empirical results provide several reasons to question a hukou-centric modelof the sources of urban housing inequality.

Vivienda inclusiva: La creación y el mantenimiento de comunidades equitativas

Por Rick Jacobus

En diferentes ciudades, como Seattle, San Francisco, Chicago, y Portland, Maine, se ha desatado un debate sobre la vivienda inclusiva, es decir, el requisito de que los desarrolladores reserven un porcentaje de los nuevos desarrollos residenciales para viviendas asequibles. Algunos sostienen que esta política desalienta el desarrollo o, con alegación más polémica que podría llegar a la Corte Suprema, que constituye una amenaza a los derechos de propiedad. Mientras tanto, el alcalde de la ciudad de Nueva York, Bill de Blasio, se enfrenta a críticas desde ambas partes: que su propuesta de vivienda inclusiva va demasiado lejos, o que no es suficiente.

En este nuevo informe titulado “Vivienda inclusiva: Creación y mantenimiento de comunidades equitativas”, Rick Jacobus separa la realidad de los mitos y traza el camino a los gestores de políticas, mostrando cómo la vivienda inclusiva puede usarse de manera eficaz para reducir la segregación económica.

“En las ciudades con mercados inmobiliarios muy activos, el aumento de los precios de la vivienda, obliga a los residentes de clase media y de bajos ingresos a alejarse de los empleos mejor remunerados, del transporte confiable, de las buenas escuelas y de los barrios seguros”, sostiene George W. McCarthy, presidente y director ejecutivo del Instituto Lincoln. “La vivienda inclusiva por sí sola no solucionará nuestra crisis de la vivienda, pero es uno de los pocos baluartes que tenemos para contrarrestar los efectos del aburguesamiento, y únicamente si preservamos las unidades que tanto nos cuesta construir”.

Mediante un análisis de la bibliografía sobre el tema y casos de estudio, Rick Jacobus, de Street Level Urban Impact Advisors, ofrece soluciones para superar las principales barreras políticas, técnicas, legales y prácticas que enfrenta todo programa de vivienda inclusiva para tener éxito.

“Más de 500 comunidades han utilizado las políticas de vivienda inclusiva con el fin de mantener la vitalidad y diversidad de los barrios en transición, y hasta ahora hemos aprendido mucho”, señala Jacobus. “Según investigaciones realizadas, si los programas se diseñan e implementan concienzudamente, pueden llegar a ser una herramienta valiosa en tiempos en que la vivienda inclusiva se necesita desesperadamente”.

En particular, el autor se refiere en este informe a la preocupación de que la vivienda inclusiva podría impedir nuevas construcciones debido a que el desarrollo tendría un rendimiento económico menor. Según el informe, muchas ciudades han evitado dicho impacto otorgando flexibilidad a los desarrolladores para cumplir con las normas y ofreciendo incentivos, como la posibilidad de construir unidades con mayor densidad.

Otras conclusiones y recomendaciones clave que surgen del informe son las siguientes:

• La rápida construcción de viviendas a valor de mercado en realidad potencia la necesidad de más viviendas inclusivas, lo que cambia el carácter de los barrios.
• Los programas de vivienda inclusiva se han impugnado a nivel judicial, pero pueden diseñarse de manera cuidadosa para minimizar los riesgos legales.
• El seguimiento de los programas mediante la ejecución de las normas y la administración es fundamental. En algunas comunidades se han creado miles de hogares asequibles que, más tarde, desaparecen a consecuencia de ventas posteriores.

Durante muchos años, el Instituto Lincoln ha desarrollado estrategias para apoyar la vivienda permanentemente asequible, mediante, por ejemplo, el establecimiento de fideicomisos de suelo comunitarios y otros acuerdos de capital compartido. Estas medidas se han tomado teniendo en cuenta la actual crisis de acceso a la vivienda existente en muchas ciudades. Los precios estratosféricos de los precios de alquiler y compra de viviendas en los mercados inmobiliarios muy activos han ido desplazando a los antiguos residentes y cambiando el carácter de ciudades y barrios.

Para encargar ejemplares: http://www.lincolninst.edu/pubs/3583_Inclusionary-Housing.

Rick Jacobus, es experto nacional en vivienda inclusiva y en acceso a la propiedad de viviendas asequibles. Es director principal de Street Level Urban Impact Advisors (StreetLevelAdvisors.com). Fundó Cornerstone Partnership y actualmente es asesor estratégico en Cornerstone.

Una versión más actualizada de este artículo está disponible como parte del capítulo 2 del libro Perspectivas urbanas: Temas críticos en políticas de suelo de América Latina.

El precio excesivamente alto de la tierra urbanizada en América Latina es una de varias explicaciones del grado y la persistencia de los mercados informales de tierra. Contrario a las creencias populares, la informalidad es costosa y por lo tanto no es lo mejor y ni siquiera es una alternativa ventajosa para combatir la pobreza, pero por lo general es la única salida para las familias urbanas pobres. Una política más consistente para reducir la informalidad, y así reducir la pobreza, debería ser al menos neutra o aportar a la reducción de los altos precios de la tierra.

La Pobreza Sola no puede Explicar la Informalidad

Aunque el mapa de la ilegalidad urbana se parezca al de la pobreza, la extensión y la persistencia de la informalidad no puede ser explicada solamente por la pobreza. No todos los ocupantes de los asentamientos informales son pobres, tal como muchos estudios empíricos en América Latina lo han demostrado en los últimos años. La tasa de ocupación irregular de la tierra es mucho más alto que el aumento del número de familias nuevas pobres. En Brasil, por ejemplo, el número total de residentes en “favelas” ha aumentado cinco veces más rápido que el de residentes pobres, y una tendencia similar se observa en las más grandes ciudades Latinoamericanas.

Este crecimiento espectacular de los asentamientos informales ha ocurrido en las periferias y por densificación de áreas “consolidadas” irregulares urbanas, pese a que los índices de natalidad y de migrantes campo-ciudad hayan caído sustancialmente y el porcentaje de ciudadanos pobres haya permanecido relativamente estable. Otras explicaciones de este crecimiento informal incluyen la falta de programas de vivienda social, la inversión pública inadecuada en infraestructura urbana y, por último aunque no menos importante, debido a la cruda realidad de que los mecanismos informales son rentables para quienes los promueven.

El Alto Costo de la Tierra Urbanizada

La economía convencional formula que los precios de libre mercado reflejan el nivel en el que la capacidad y la disposición a pagar de un comprador coincide con la capacidad y la disposición a vender de un proveedor, pero esto no garantiza que se suplan las necesidades sociales. Es decir, el mercado para la tierra urbanizada puede estar funcionando bien mientras que muchas familias (incluso no pobres) no pueden acceder a él, y mientras algunos terrenos urbanos son mantenidos vacantes intencionalmente.

En las periferias de muchas ciudades Latinoamericanas, el precio de un metro cuadrado (m2) de tierra urbanizada, desarrollado por agentes privados, puede variar entre US$32 Y US$172. Estos niveles son cercanos en términos absolutos a los encontrados en el mundo desarrollado, donde los ingresos per-cápita son típicamente 7 a 10 veces mayores. Hasta una familia encima de la línea de pobreza que ahorre el 20% de su ingreso mensual (US$200) necesita ahorrar de 12 a 15 años para adquirir un lote urbanizado de 150 m2. Estos indicadores sugieren que la dificultad de acceso a la tierra urbana pueda ser uno de los factores que contribuyen a la pobreza.

El precio de la tierra urbana, como en cualquier mercado, es determinado por la oferta y demanda. El suministro de tierra depende de la cantidad habilitada (producida) por año, la cantidad que es retenida, y la intensidad de uso de la existente. La demanda depende de la tasa anual de formación de nuevos hogares, ajustada por su ingreso y/o poder adquisitivo, sus preferencias y los precios de otros artículos en sus presupuestos. Es difícil realizar una explicación completa de todos los factores que afectan el comportamiento de precios de tierra (Ver Smolka 2002), pero basta mencionar ciertos determinantes emblemáticos para entender algunas aparentes idiosincrasias del funcionamiento de mercados de tierra urbanos en América Latina.

Desde el lado de la oferta, los impuestos prediales, la mayor fuente potencial para financiar la producción de tierra urbana, es ridículamente bajo. Típicamente representan menos que el 0.5 por ciento del PIB, comparado al 3 y 4 por ciento en EE UU y Canadá. En general hay la sensación de que América Latina invierte poco en infraestructura y servicios comparado con su PIB per cápita. Los sustanciales incrementos observados en el valor de tierra, como resultado de inversiones en infraestructura urbana y servicios, generalmente son ignorados como una fuente para financiar tales inversiones, debido a mecanismos débiles de captura de la valorización (Smolka y Furtado 2001).

Además, la disposición de considerables áreas de tierra es controlada por agentes que no siguen la racionalidad económica (por ejemplo, las fuerzas armadas, la iglesia o entidades estatales como los ferrocarriles). De otro lado, la limitada disponibilidad de tierra habilitada es a menudo sometida a normas urbanísticas elitistas, diseñadas para “proteger” esos vecindarios haciéndolos inaccesibles para familias de bajos ingresos.

En el lado de la demanda, muchas familias, incluso con buenos ingresos, trabajan informalmente y son excluidos del mercado por no tener las credenciales requeridas por los bancos para otorgar créditos. La necesidad de auto-financiar la producción de la vivienda alarga el tiempo entre la adquisición y la ocupación del lote, aumentando tanto el costo de la financiación como la demanda global por tierra. Además, la herencia de alta inflación, mercados de capital subdesarrollados o inaccesibles, y la limitada cobertura del sistema de seguridad social, son responsables de alimentar una cultura establecida entre sectores de bajos ingresos de usar terrenos como reserva de valor y como un mecanismo popular de capitalización, lo cual también presiona la demanda de tierra. En otras palabras, retener terrenos rústicos y especular con tierra no es una conducta exclusiva de los sectores altos ingresos.

Los precios de los Lotes Informales

Más allá de estos argumentos convencionales acerca de la oferta y demanda, hay que tener en cuenta la interdependencia de los mercados formales e informales de tierra, como factores que contribuyen a su alto precio. Específicamente, el alto precio de la tierra urbanizada en el mercado formal, parece afectar los relativamente altos precios de los loteos informales, y viceversa.

Los precios de tierra revelan la diferencia que un comprador tiene que pagar para evitar caer en una situación peor (esto significa más lejos del trabajo, menos o peores servicios públicos, menos calidad ambiental, y otros). Entonces, si la “mejor” alternativa es un lote en un asentamiento informal, cabe esperar un precio mayor en los terrenos que si tienen servicios, lo cual también refleja el valor de los títulos legales que ostentan estos terrenos. De otra parte, si el precio mínimo de la tierra urbanizada (la tierra bruta más el costo de urbanización) sigue siendo inaccesible, entonces cualquier tipo de tierra que la familia pueda conseguir le representa una mejor alternativa. Esta alternativa puede variar desde el loteo más alejado, la invasión con la mediación de un urbanizador pirata o de movimientos organizados (ambos envuelven comisiones y otro tipo de pagos), hasta el más predominante mercado de tierra, consistente en subdivisiones irregulares de grandes parcelas en pequeños lotes con servicios precarios.

El precio de la tierra en los mercados informales es, por consiguiente, más alto que el precio de tierra bruta, pero normalmente menor que la suma de la tierra bruta más el costo de habilitarla. Al mismo tiempo, el precio tiende a ser menor (aunque no necesariamente por metro cuadrado) que el precio mínimo de la tierra completamente habilitada y comercializada en los mercados formales. En efecto, el mercado aprecia las formas más “flexibles” para acceder a la tierra, como por ejemplo tamaños de lote más pequeños que el mínimo legal, o la construcción sin respetar los códigos de construcción, o incluso la posibilidad de vender la azotea de una casa como espacio construible.

La mayoría de las familias de más bajos ingresos no escogen un asentamiento informal porque les brinde el mejor precio, sino simplemente porque con frecuencia solo tienen esa alternativa. “La decisión” de adquirir un lote informal es de todas maneras costosa. Estimativos conservadores obtenidos de una encuesta informal en diez grandes ciudades de Latinoamérica, muestran que el precio promedio de la tierra en loteos comercializados ilegalmente es de US$27 por metro cuadrado (Ver Tabla 1).

Tabla 1. Precios y rentabilidad en mercados formales e informales de tierra (US$)

Mercado Formal Mercado Informal

1. Tierra rural asignada para uso urbano $4 $4

2. Costo de urbanización Mínima = $5 Máximo = $25

3. Precio final en el mercado $27 $70

4. Beneficio sobre capital avanzado= (3-1-2)/(1+2) 200% 141%

El renglón de las utilidades (4) explica al menos en parte la cuestión (paradójica en apariencia): ¿Por qué, a pesar de los significativos márgenes de ganancia del mercado informal, uno encuentra tan poco interés en desarrollar tierra por parte del sector privado? Como lo indica la Tabla 1, la producción de tierra informal es más rentable que la producción formal. Incluso el resultado para el mercado formal está bastante subestimado, puesto que hay altos riesgos asociados con costos financieros, de seguridad y mercadeo, y otros costos incurrido por el desarrollador que no afectan al urbanizador informal. Estos datos también ayudan a explicar por qué la formalidad genera informalidad, y desnudan el hecho de que las ventajas de los arreglos informales no son necesariamente percibidas por los ocupantes de bajos ingresos, sino por los urbanizadores informales.

Efectos Inesperados de la Normalización

Miremos ahora la cuestión de las políticas utilizadas en esta materia. Dada la aparente imposibilidad o impracticabilidad de adoptar alguna otra política, la noción prevaleciente ha sido tolerar las “soluciones” informales para posibilitar el acceso a la tierra y después normalizar o “desmarginalizar” los asentamientos, como algo más barato en el largo plazo para los fondos públicos, y mejor para los ocupantes de bajos ingresos (Lincoln Institute 2002).

El argumento de las finanzas públicas consiste en que el arreglo existente es más barato porque se apoya en inversiones privadas, relevando las agencias públicas de responsabilidades y gastos que, en caso contrario, se entenderían como parte del “derecho a la ciudad”. Esta visión es cuestionable por dos razones. Primero, las condiciones físicas de las habitaciones son a menudo inaceptables como asentamiento humano, pese a lo imaginativas que resultan las soluciones informales bajo condiciones extremas. Los bajos estándares de utilización de la tierra y la alta densidad en estos asentamientos son tolerados solamente porque el daño ya ha sido hecho. Segundo, en relación con la infraestructura, algunas de alternativas promisorias han mostrado recientemente un pobre comportamiento y demandan gastos excesivos de mantenimiento.

Los impactos sobre las familias de bajos ingresos son también peores de lo esperado. No sólo los precios de la tierra son bastante altos sino que conllevan costos adicionales: aquellos sin una dirección de residencia (por vivir en un asentamiento irregular) a menudo son discriminados cuando buscan un trabajo o servicios; los alquileres como porcentaje del valor de las propiedades son más altos que los cánones observados en los mercados formales; el acceso al agua en camiones u otra fuente temporal resulta más costoso que por acueducto; y el costo de la inseguridad es mayor por vivir en un ambiente más violento.

Las políticas de normalización, evaluadas en un contexto amplio, pueden estar contribuyendo a agravar el problema que buscan remediar. En otras palabras, el enfoque curativo de estas políticas puede tener, al contrario, efectos perversos y contraproducentes , como se anotó antes.

Señales de Precios

La expectativa de que un área va a ser normalizada le permite al urbanizador subir el precio de los lotes. A menudo el comprador obtiene un terreno con evidencia escrita de que el desarrollador no tiene todavía los servicios requeridos por las normas de urbanísticas. Al mismo tiempo el desarrollador le promete que tan pronto como se vendan suficientes terrenos, los servicios y la infraestructura serán instalados, incluso a pesar de que esas promesas poco se cumplen. En el mejor de los casos una relación de complicidad se establece entre el comprador y el vendedor. En el peor, que es por desgracia el más común, el comprador es engañado en cuanto a la existencia de servicios, como por ejemplo tubos en el terreno que el urbanizador señala como parte de la infraestructura. Otros problemas en estos arreglos que pueden lesionar a los residentes pobres son títulos dudosos, formas de pago que esconden los intereses a pagar y detalles contractuales imprecisos y confusos.

Como en cualquier otro segmento del mercado de tierras, el precio refleja o absorbe las expectativas del uso futuro del terreno. El sector informal no es la excepción. Entre mayor sea la expectativa de que un terreno sin servicios los va a tener luego, tanto viniendo del urbanizador o, como es más frecuente, del gobierno a través de algún programa de normalización, más alto será el precio al cual se transa el terreno.

Normalización como una Atracción para Más Subnormalidad

Las investigaciones sobre las fechas de llegada de los habitantes de los asentamientos informales, sugieren que en muchos casos la mayoría de las personas se mudaron justo cuando se anunció o implementó un programa de normalización (Menna Barreto 2000).

La idea de que las expectativas de normalización tienen un efecto en la informalidad, es también corroborada por el gran número de invasiones y ocupaciones que ocurren en los períodos electorales, cuando los candidatos prometen nuevos programas de normalización. La historia latinoamericana de los efectos de las expectativas creadas por promesas populistas, es rica en ejemplos. Varios de los asentamientos existentes que necesitan ser normalizados hoy, deben su origen a la complacencia irresponsable de políticos que cerraron los ojos o, lo que es peor, que cedieron terrenos públicos por propósitos electorales.

Los Costos de Oportunidad de la Normalización

Los programas de normalización, que son de naturaleza remedial o curativa, tienen un costo de oportunidad alto comparado con el de proporcionar la tierra urbanizada en una manera preventiva. El costo por familia de un programa de normalización ha estado en la gama de US$3,000 a US$4,000. Tomando el tamaño de un lote alrededor 50 m2 y agregando el 20 por ciento para calles y otros servicios públicos, el costo se mueve de US$50 A US$70 por m2. Esto es mucho más alto que producir tierra nueva, que es inferior a US$25 por m2, y es similar al precio cargado por urbanizadores privados, incluso con un buen margen de ganancia. ECIA, un urbanizador de Río de Janeiro, vendió lotes completamente urbanizados desde US$70 a US$143 por m2 en precios 1999 (Oliveira 1999). En el mismo sentido, Aristizabal y Ortíz (2001) en Bogotá, estiman que el costo de corrección (“la reparación”) de un asentamiento irregular es 2.7 veces el costo de áreas planeadas.

Estas cifras sugieren las limitaciones de programas curativos a favor de los preventivos. Es también relevante que el permiso de desarrollar una subdivisión, formal puede tomar de tres a cinco años, mientras que la decisión de regularizar un establecimiento informal a menudo toma menos de seis meses.

” El Día Después ” de La Normalización

Un programa de regularización bien ejecutado (es decir el que integra con eficacia al área informal con la malla urbana) generalmente eleva la calidad de vida para todos los ocupantes y fortalece las comunidades. También trae valorización de la propiedad, causando alguna movilidad residencial de familias con ingresos debajo del promedio, que son presionadas a mudarse. Sin embargo, cuando el programa es mal ejecutado, el área puede consolidarse como un asentamiento irregular de bajos ingresos.

El Programa “Favela – Bairro” de Río de Janeiro es a menudo puesto de ejemplo como la experiencia más amplia y exitosa en su clase. Abramo (2002) estudió el impacto del programa y encontró valorizaciones relativamente pequeñas (28%). Aplicando este promedio a una vivienda típica o modesta con precios previos de US$12,000, el valor ganado es cercano a US$3,400, un número parecido al costo medio por familia en programas de regularización. Este resultado contrasta con en incremento de más del 100% obtenido en el proceso de urbanizar tierra rústica por agentes privados. Esta intrigante información parece mostrar que el “mercado” se entera poco del incremento en valor de los asentamientos mejorados. La inserción completa en los tejidos urbanos resulta ser menos frecuente de lo esperado. Muchas “favelas” que recibieron importantes inversiones de mejoramiento, permanecen estigmatizadas como “favelas” 15 años más tarde.

Conclusiones

La informalidad es costosa y exacerba las penurias de vivir en la pobreza. El diagnóstico de agencias como Hábitat, Banco Mundial, Banco Interamericano de Desarrollo y otros, parecen estar en lo correcto respetando los programas de mejoramiento como parte esencial de cualquier política para enfrentar la pobreza urbana. Sin embargo, debido al enfoque fragmentado y limitado de estos programas, no hay ninguna garantía de que la normalización de asentamientos sola contribuya a reducir la pobreza urbana. En efecto estos programas no sólo mantienen intactas y refuerzan las “reglas del juego” del mercado que contribuyen a la informalidad, sino que además generan efectos perversos. Esta situación plantea un dilema y un desafío. El dilema es que no regularizar simplemente no es una opción política (ni humanitaria). El desafío es cómo interrumpir el ciclo vicioso de pobreza e informalidad a través de intervenciones en el mercado de tierra. La tarea por hacer es formidable, pero hay lugares en América Latina donde los gobiernos locales están comenzando a poner nuevas reglas de juego.

Martim O. Smolka es “Senior Fellow” y director del Programa para América Latina y el Caribe del Lincoln Institute.

Andrés Escobar es Gerente de MetroVivienda, Empresa del Distrito de Bogotá, generadora de nuevo suelo urbano.

When the 2007–2008 class of Loeb Fellows from Harvard University’s Graduate School of Design met for the first time in May 2007 to discuss options for the study trip that would conclude a year at Harvard the following spring, we quickly agreed on a number of criteria. We were looking for a place where change was happening now; a place where a visit five years before or hence would be a different experience; a place dealing with significant environmental, transportation, and housing challenges; a place looking for ways to preserve some of its past while moving into the future; and a place where it was possible to see the role that outside designers and consultants were playing. Most of all, the Loeb Fellows were looking for a place where they could be inspired by the leadership and vision they would experience. China quickly moved to the top of the list of places to be considered.

Inclusionary Housing: Creating and Maintaining Equitable Communities

By Rick Jacobus

From Seattle to San Francisco to Chicago to Portland, Maine, debates are raging over inclusionary housing—the requirement that developers reserve a percentage of new residential development as affordable. Some say the policy discourages development—or, in an argument that could reach the Supreme Court, that it threatens property rights. Meanwhile, New York City Mayor Bill de Blasio faces dual criticisms that his inclusionary housing proposal goes too far, or not far enough.

This new report by Rick Jacobus, Inclusionary Housing: Creating and Maintaining Equitable Communities, separates myth from fact, charting a path forward for policy makers and showing how inclusionary housing can be used effectively to reduce economic segregation.

“In hot-market cities, skyrocketing housing prices push middle-class and low-income residents far away from well-paying jobs, reliable transportation, good schools, and safe neighborhoods,” says Lincoln Institute President and CEO George W. McCarthy. “Inclusionary housing alone will not solve our housing crisis, but it is one of the few bulwarks we have against the effects of gentrification—and only if we preserve the units that we work so hard to create.”

Through a review of the literature and case studies, author Rick Jacobus of Street Level Urban Impact Advisors offers solutions for overcoming the major political, technical, legal, and practical barriers to successful inclusionary housing programs.

“More than 500 communities have used inclusionary housing policies to help maintain the vibrancy and diversity of neighborhoods in transition, and we’ve learned much along the way,” Jacobus says. “Research shows that if programs are thoughtfully designed and implemented, they can be a valuable tool at a time when affordable housing is desperately needed.”

In particular, the report addresses the concern that inclusionary housing can impede new construction by making development less profitable. According to the report, many cities have avoided such impacts by allowing flexibility in how developers comply and offering incentives, such as the ability to build at greater densities.

Other key findings and recommendations in the report include:

• Rapid construction of market-rate housing actually fuels the need for more affordable housing by changing the character of neighborhoods.
• Inclusionary housing programs have been challenged in court, but programs can be thoughtfully designed to minimize legal risks.
• Follow-up in the form of enforcement and stewardship is critical. Some communities have created thousands of affordable homes, only to see them disappear after subsequent sales.

The Lincoln Institute has for many years developed strategies to support permanently affordable housing, including the establishment of community land trusts and other shared-equity arrangements. The effort is in recognition of the ongoing housing affordability crisis in many cities. Stratospheric rents and home prices in hot real estate markets are displacing longtime residents and changing the character of cities and neighborhoods.

To order, visit http://www.lincolninst.edu/pubs/3583_Inclusionary-Housing.

Rick Jacobus, a national expert in inclusionary housing and affordable home ownership, is the principal of Street Level Urban Impact Advisors (StreetLevelAdvisors.com). He was the founder of Cornerstone Partnership, and he currently serves as a strategic advisor to Cornerstone.

The largest of the post-World War II suburbs were the size of cities, with populations between 50,000 and 80,000, but they looked like overgrown subdivisions. In Levittown, Lakewood and Park Forest, model houses on curving streets held families similar in age, race and income whose suburban lifestyles were reflected in the nationally popular television sitcoms of the 1950s. The planning of these suburbs was often presented in the popular press as hasty, driven by the need to house war heroes returned from the Battle of the Bulge or Bataan; any problems could be excused by the rush. But, haste was not the case. Political lobbying during the 1920s, 1930s and 1940s shaped postwar housing and urban design. The postwar suburbs were constructed at great speed, but that is a different part of their story.

Postwar suburbs represented the deliberate intervention of the federal government into the financing of single-family housing across the nation. For the first time, the federal government provided massive aid directed to developers (whose loans were insured by the Federal Housing Administration, FHA) and white male homeowners (who could get Veterans’ Administration guarantees for mortgages at four percent, with little or nothing down, and then deduct their mortgage interest payments from their taxable income for 30 years). The federal government came to this policy after fierce debates involving architects, planners, politicians, and business and real estate interests.

Herbert Hoover, as secretary of commerce (1921-1928) and then as president (1929-1933), drew the federal government toward housing policy to promote home building as a business strategy for economic recovery from the Depression. Working closely with the National Association of Real Estate Boards (NAREB), Hoover’s Commerce Department had established a Division of Building and Housing in 1921, and went on to establish and support Better Homes in America, Inc. By 1930, this coalition had over 7,000 local chapters composed of bankers, real estate brokers, builders, and manufacturers who lobbied for government support for private development of small homes to boost consumption.

In 1931, Hoover ran a National Conference on Homebuilding and Home Ownership that explored federal investment, discussing not only financing and construction of houses, but also building codes, zoning codes, subdivision layout, and the location of industry and commerce. President Franklin D. Roosevelt followed Hoover and launched numerous New Deal programs in planning and housing. The National Housing Act created the FHA in 1934; the Resettlement Administration, created by Executive Order in 1935, sponsored the Greenbelt Towns; the U.S. Housing Act (Wagner Act) created the U.S. Housing Authority to sponsor public housing in 1937. Which of these programs would be the most influential?

The RPAA and the Labor Housing Conference

Housing activists such as Catherine Bauer and Edith Elmer Wood were members of the Regional Planning Association of America (RPAA), along with planners Lewis Mumford, Clarence Stein, and Benton MacKaye. They advocated federal support for public housing through the Wagner Act. Bauer, an architectural critic and author of Modern Housing, was also executive secretary of the Labor Housing Conference, which campaigned for the design of multi-family housing with child care centers and recreational amenities. Projects such as the Hosiery Workers Housing in Philadelphia and the Harlem River Houses for African Americans in New York, designed by teams of noted architects in the 1930s, demonstrated the excellence possible for multi-family urban projects. Nevertheless, conservative Republicans refused to vote for the Wagner Act in 1935 and 1936, passing it in 1937 with severe cost restrictions, means testing for tenants, and slum clearance provisions to protect private landlords. These provisions meant that design would be minimal and residents would be poor. The Labor Housing Conference members bemoaned the final result as the “Anti-Housing Act.”

The Realtors’ Washington Committee

Many of NAREB’s members, large-scale land subdividers of the 1920s, were originally real estate brokerage firms, not homebuilders. (They left the home building to small contractors or mail order house companies.) By the 1930s, many of these subdividers realized they could enhance profits by erecting houses on some of their lots to enhance the image of community and stability they were selling. They renamed themselves “community builders.” Herbert U. Nelson, NAREB’s chief lobbyist, became executive director of the Realtors’ Washington Committee, which lobbied hard for the FHA, so that federal sources of capital and guarantees of mortgages would provide a safety net for the subdividers’ building operations. Both the Urban Land Institute (ULI) and the National Association of Home Builders (NAHB) formed in the early 1940s as spin-offs from NAREB.

Beginning in 1934, the FHA insured bank loans to developers so they could purchase land, subdivide it, and construct houses on it with very little of their own capital involved. These loans of 80 or 90 percent of project cost eliminated risk and were made long before the developers had buyers. In return, the developers had to agree to submit site plans and housing plans for review by the FHA, which issued booklets offering conservative advice about architecture and site design. Meant to correct the worst abuses of corrupt builders, these manuals on small houses and on “planning profitable neighborhoods” rejected regional styles, scorned modern architecture and, according to architect Keller Easterling, instituted mediocre “subdivision products.” Kenneth Jackson has documented that the FHA’s concern for resale value also led it to refuse loans for racially mixed neighborhoods. Only all-white subdivisions, enforced by deed restrictions, would qualify.

The Realtors’ Washington Committee supported the FHA. It also lobbied against federal government funding for any other approaches to housing, including complete towns planned by the Resettlement Administration, wartime housing for workers constructed by the government that might provide competition for private efforts, and public housing in the cities. Allied with NAREB were the U.S. Chamber of Commerce, the U.S. League of Savings and Loans, the National Retail Lumber Dealers Association, and others.

Housing Hearings of 1947-1948

After the war ended, demand for housing was intense. People were doubled up with relatives, friends and strangers. Veterans lived in converted chicken coops and camped out in cars. The need for shelter was only expected to grow as waves of demobilized veterans, wartime savings at the ready, married and formed new households.

Although they were deeply disappointed by some aspects of the 1937 housing legislation, Catherine Bauer and other advocates of multi-family housing in urban residential neighborhoods did not retreat. They campaigned for expanded public housing through better legislation in the form of the bipartisan Taft Ellender Wagner housing bill first introduced in 1945 and supported by such groups as the AFL, the CIO and the Conference of Mayors.

These advocates found themselves in a shouting match with NAREB lobbyists who were busy discrediting public construction of shelter as “un-American” and promoting government subsidies for private housing development. Historians Rosalyn Baxandall and Elizabeth Ewen, in their book Picture Windows, document the hearings on housing dominated by Senator Joseph McCarthy in 1947 and 1948. McCarthy hassled proponents of public housing and planned towns. Attacking one federally funded multi-family project for veterans, he claimed the government had paid for “a breeding ground for communists.” NAREB’s Herbert U. Nelson also believed public housing was communistic, whereas public support for private businesses was fine. He argued that “public credit can properly be used to help sustain home ownership and private enterprise,” and he railed against the women housing activists trying to promote affordable housing for workers. McCarthy’s committee also attacked building workers in the AFL’s traditional craft unions as incompetents who produced “slack” work and would impede the postwar housing process.

McCarthy found in developer William Levitt an ally who testified that only federal aid to large private builders, coupled with abolition of zoning codes, building codes and union restrictions, could solve the postwar housing shortage. Levitt and Sons, of Long Island, became the nation’s largest home building firm by 1952, creating its first postwar suburb of over 70,000 inexpensive houses on small lots. Levitt followed FHA restrictions on race, refusing to sell to African Americans, so Levittown became the largest all-white community in the nation. There was never an overall town plan for Levittown, which spanned two existing Long Island towns, Hempstead and Oyster Bay, in Nassau County. Levitt and Sons provided no sewers, relying instead on individual septic tanks, and built residential streets that failed to connect with county and state highways. The project was all about selling houses, not about the basics of sheltering tens of thousands of people according to professional standards of housing or urban design.

By October 1952, Fortune magazine gushed over “The Most House for the Money” and praised “Levitt’s Progress,” publishing his complaints about government interference through too-strict FHA and VA inspections and standards. With a straight face, and despite receiving hundreds of millions of dollars of FHA financing, Levitt said, “Utopia in this business would be to get rid of the government, except in its proper function of an insurance agency.”

Meanwhile, Catherine Bauer and her allies faced the same kind of opposition they had confronted on the earlier housing bill. The 1949 Housing Act did not meet their expectations, and its provisions for demolition began the neighborhood destruction pattern that would later become “urban renewal.” With each succeeding year, fewer units of new public housing construction were authorized.

The Two-Tier Legacy

In Modern Housing in America, historian Gail Radford defines the 1930s and 1940s as the time when Americans developed a “two-tier” policy to subsidize housing. Cramped multi-family housing for the poor would be constructed by public authorities, while more generous single-family housing for white, male-headed families would be constructed by private developers with government support. This policy disadvantaged women and people of color, as well as the elderly and people of low incomes. It also had profound implications for urban design. Inadequate financial resources hampered multi-family housing complexes, while material resources were wasted in single-family housing production without proper urban planning. Worst of all, federal policy mystified many working-class and middle-class Americans, who saw minimal visible subsidies helping the poor but never understood that their own housing was being subsidized in a far more generous way through income-tax deductions that grew with the size of their mortgages.

Despite the greater scope for urban public amenities suggested by New Deal legislation enabling federal involvement in town building and public housing, it was the FHA’s mortgage insurance for private subdivisions that proved to have the greatest long-term effect on American urbanization patterns. As real estate historian Marc A. Weiss has stated: “This new federal agency, run to a large extent both by and for bankers, builders, and brokers, exercised great political power in pressuring local planners and government officials to conform to its requirements.” Between 1934 and 1940, Weiss concludes that “FHA had fully established the land planning and development process and pattern that a decade later captured media attention as ‘postwar suburbanization.'” Barry Checkoway notes that accounts of subdivisions “exploding” often attributed their growth to consumer choice, but in fact consumers had little choice. The well-designed urban multi-family projects Bauer and others had envisioned were not available as alternatives to the large subdivisions of inexpensive houses constructed by the big builders who now controlled the housing market.

The distrust and anger generated by the two-tier housing solution endure today. Public policy has separated affluent and poor, white and black, male-headed households and female-headed households, young families and the elderly. Advocates of affordable housing and urban amenities often see white suburbs and their residents as the enemy, while many affluent white suburban homeowners and successful builders don’t want to deal with city problems. The two-tier solution also dampened idealism in the planning and design professions. Architects lost the chance to build large amounts of affordable multi-family housing with sophisticated designs. Regional planners lost the chance to direct the location and site design of massive postwar construction. Sixty years later, metropolitan regions are still shaped by the outcome of these old debates.

Dolores Hayden is professor of architecture, urbanism and American studies at Yale University. With support from the Lincoln Institute, she is working on a new history of American suburbia, Model Houses for the Millions: Making the American Suburban Landscape, 1820-2000.

Her new working paper, Model Houses for the Millions: Making the American Suburban Landscape, 1820-2000, is currently available from the Lincoln Institute.

References

Catherine Bauer. 1934. Modern Housing. Boston, MA: Houghton Mifflin.

Rosalyn Baxandall and Elizabeth Ewen. 2000. Picture Windows: How the Suburbs Happened. New York, NY: Basic Books.

Barry Checkoway. 1986. “Large Builders, Federal Housing Programs, and Postwar Suburbanization,” in Rachel G. Bratt, Chester Hartman, and Ann Meyerson, Critical Perspectives on Housing. Philadelphia, PA: Temple University Press. 119-138.

Keller Easterling. 1999. Organization Space. Cambridge, MA: The MIT Press.

Dolores Hayden. 1984. Redesigning the American Dream: The Future of Housing, Work, and Family Life. New York, NY: W.W. Norton.

Kenneth T. Jackson. 1985. Crabgrass Frontier. New York, NY: Oxford University Press.

Gail Radford. 1996. Modern Housing in America: Policy Struggles in the New Deal Era. Chicago, IL: University of Chicago Press.

Marc A. Weiss. 1987. The Rise of the Community Builders: The American Real Estate Industry and Urban Land Use Planning. New York, NY: Columbia University Press.

The excessively high price of serviced land in Latin America is one of several explanations for the extent and persistence of informal land markets. Contrary to popular beliefs, informality is expensive and therefore is not the best or even an advantageous alternative to combating poverty, but it is usually the only one available to the urban poor. A more consistent policy to reduce informality, and in so doing reduce poverty, should be at least neutral or contribute to reducing high land prices.

Poverty Alone Cannot Explain Informality

Although the map of illegality corresponds to a great degree with that of poverty, the extent and persistence of informality cannot be explained by poverty alone. Not all occupants of informal settlements are poor, as many empirical studies in Latin America have proved in recent years. The rate of new irregular land occupations is much higher than the rate of increase in the number of new poor families. In Brazil, for example, the total number of favela residents has increased at five times the rate of poor residents, and a similar trend is seen in most large Latin American cities.

This spectacular growth in informal settlements has occurred through expansion on the peripheries and densification in “consolidated” irregular urban areas, even though the birth rate and the number of rural-to-urban migrants have declined substantially and the percentage of poor citizens has remained relatively stable. Other explanations for this growth in informality include the lack of sufficient social housing programs, inadequate public investment in urban infrastructure for public amenities and services (such as drainage and sewage systems) and, last but not least, the reality that informal arrangements are profitable for those who promote them.

The High Cost of Serviced Land

Conventional economics argues that free market prices reflect the level at which a buyer’s ability and willingness to pay matches a supplier’s ability and willingness to sell, but in practice no assurance is given with respect to meeting social needs. That is, the market for serviced land may be functioning well, even though many families (even non-poor ones) are unable to access such land, and some existing urbanized lands are being kept vacant intentionally.

On the peripheries of many Latin American cities, the price of a square metre (m2) of serviced land made available by private agents can vary between US$32 and US$172. These figures are close in absolute terms to those found in cities in the developed world, where the per capita income is typically 7 to 10 times higher than in Latin America. Even a family above the poverty line saving up to 20 percent of its monthly wages (US$200) would need 12 to 15 years to save enough to acquire an urbanized plot of 150 m2. These indicators suggest that the difficulty of gaining access to serviced land may be one of the factors that actually contribute to poverty.

The price of serviced land, like prices in other markets, is determined by supply and demand. The supply of land depends on the amount that is newly serviced (produced) per year, the amount that is retained from the market, and the intensity of the use of the existing serviced land. The demand depends on the annual rate of formation of new households, adjusted by their income and/or purchasing power, their preferences and the prices of other items in their budgets. It is difficult to provide a full discussion of all factors affecting the behavior of land prices (see Smolka 2002), but it suffices to mention certain determinants that are emblematic to understanding some apparent idiosyncrasies of the functioning of urban land markets in Latin America.

On the supply side, property taxes, a major potential source of revenue to finance the production of serviced land, are ridiculously low. Typically property taxes represent less that 0.5 percent of GDP, compared to 3 to 4 percent in the U.S. and Canada. Overall there is a sense that Latin America underspends on infrastructure and services compared to its per capita GDP. The substantive observed land value increments resulting from investments in urban infrastructure and services are basically neglected as a revenue source to finance such investments, due to weak sanctions on capturing land value increments or simply holding improved land from the market (Smolka and Furtado 2001).

In addition, the disposition of considerable amounts of land is controlled by agents that do not follow strict economic rules (e.g., some public agencies, the Army, the Church or even state-owned enterprises like the railroads for whom some statutory restrictions preclude the disposition of land according to the market’s highest and best use criteria). Furthermore, the limited amount of available land that is fully serviced is often subject to overtly elitist urbanistic norms and regulations (zoning) designed to “protect” those serviced neighborhoods by making it difficult for low-income families to comply.

On the demand side, many families, even those with relatively high incomes, work in the informal sector and are excluded from the market because they lack the credentials required by financial agencies to apply for a loan. The need to self-finance housing production on a piecemeal basis through nontraditional funding sources extends the time between acquisition and occupation of land, thereby adding to both the cost of financing and the overall demand for land. Further, the legacy of high inflation, ill-developed or inaccessible capital markets, and limited participation in the social security system are responsible for nurturing a well-established culture and preference by lower-income sectors to use land as a reserve of value and as a popular means of capitalization, which also adds to the demand for land. In other words, holding undeveloped land and the culture of land speculation are not exclusive to high-income areas.

Prices for Informal Plots

Beyond these conventional arguments about supply and demand, one may also consider the dynamics or interdependency of formal and informal urban land markets as a factor contributing to high land prices. Specifically, the high prices for serviced land in the formal market seem to affect the relatively high prices of unserviced land in the informal market, and vice versa.

Land prices reveal the difference that the purchaser has to pay to avoid falling into a worse situation (that is, farther from work; fewer or worse services, lower environmental quality, and the like). Thus, if the “best” alternative is a plot in an unserviced settlement, one would expect a premium on the existing serviced land, which would also reflect the value of the legal title that comes with serviced land. On the other hand, if the minimum price for serviced land (raw land plus the cost of urbanization) is still unaffordable, then whatever land one could have access to would represent an alternative. This alternative could range from outright squatter settlement, to invasion through the mediation of “pirate” operators or organized movements (both of which involve fees and other payments), to the more prevalent land market for irregular subdivision of large parcels into small plots with inadequate services.

The price of land in the informal market is, therefore, higher than the price of raw land but normally less than the sum of the raw land price plus the cost of providing services. At the same time, it tends to be lower (though not necessarily on a per square-metre basis) than the minimum price of fully serviced and commercialized land in the formal market. In effect the market values more “flexible” means to access land, such as plots smaller than the minimum lot size, or construction without building codes, or even the possibility of selling the roof of a house as buildable space.

Most low-income families do not choose an informal arrangement because it provides the best price option, but simply because it is often their only option. The “choice” of acquiring an informal plot is still expensive. Conservative estimates obtained from an informal survey of 10 large Latin American cities show the average price of land on a commercialized illegal plot was US$27 for one square metre (see Table 1).

Table 1: Prices and Profitability of Informal and Formal Land Markets (US$)

1- Rural land designated for urban use
Informal market: $4
Formal market: $4

2- Cost of urbanization
Informal market: minimal = $5
Formal market: full = $25

3- Final price in the market
Informal market: $27
Formal market: $70

4- Profit over advanced capital=(3-1-2)/(1+2)
Informal market: 200%
Formal market: 141%

The profit figure (4) explains at least in part the question (an apparent paradox): Why, in spite of a significant mark-up in the provision of urbanized land in the informal market, does one find so little interest in development from the private sector? As Table 1 indicates, the provision of informal land is more profitable than the provision of formally developed land. In fact, the figures for the formal market are largely underestimated since there are higher risks associated with financial, security and marketing costs, and other costs borne by the developer that are not incurred in informal developments. These data also help explain why formality begets informality and exposes the fact that the advantages of informal arrangements are not necessarily perceived by the low-income occupants, but by the subdivider or informal developer.

Unexpected Effects of Regularization

Let us turn now to the question of policy responses to this state of affairs. Given the apparent impossibility or impracticality of adopting any other policy, the prevailing notion has been that tolerating informal “solutions” to gain access to land and then regularizing the settlements after they are established is cheaper in the long run for public finances, and better for the low-income occupants (Lincoln Institute 2002).

The public finance argument claims that the existing arrangement is cheaper because it capitalizes on private (self-) investments in the consolidated settlements, thus relieving public agencies of social responsibility and expenditures otherwise associated with one’s full “right to the city.” This view is questionable on two accounts. First, the physical conditions and existing housing are often unacceptable as human shelter, in spite of the ingenuity and imagination of informal solutions under extremely unfavorable conditions. The poor standards of land use and density in these settlements are only tolerated because the damage has already been done. Second, with regard to infrastructure, some of the alternative technologies that look promising are ultimately shown to perform poorly and to require overly expensive maintenance.

The impacts on low-income occupants are also worse than expected. Not only are land prices much too high but there are additional costs: those without an official address (because they live in an irregular settlement) are often discriminated against when looking for a job or social services; rents as a percentage of property value are higher than the rates observed in the formal market; access to water from a truck or other temporary source is much more expensive than piped water; and the cost of insecurity is greater because of living in a more violent environment.

Regularization policies evaluated in a broader urban context may actually contribute to aggravating the problem it is supposed to remedy. That is, as a curative approach these policies may instead have perverse or counter-productive preventative effects, as noted below.

Price Signals

The expectation that an area of land will eventually be regularized allows the developer to raise the price. A purchaser often obtains a lot with written evidence that the developer does not yet have the services required by urban planning norms. At the same time the developer promises that as soon as enough lots are sold the services or infrastructure will be provided, even though such promises are often unfulfilled. At best, a relationship of complicity is established between buyer and seller. At worst, and this is quite common, the purchaser is tricked by the existence of services, such as pipes put into the ground, which the developer claims are part of the infrastructure network. Other problems in these arrangements that can harm poor residents are doubtful rights of tenure, payment terms that disguise the full amount of interest to be paid, and confusing or inaccurate details in the contract.

As in any other segment of the land market, the actual prices reflect, or absorb, expectations about the future use of the lot. The informal sector is no exception. The greater the expectation that the plot of land that is currently without services will get them eventually, either from the developer or, as is more likely, from the government through some regularization program, the higher the price at which the land is sold.

Regularization as an Attraction for More Irregularity

Research on the first arrival dates of inhabitants in informal settlements suggests that in many cases more people moved in just when some regularization program (such as the granting of titles or urbanization improvements) was announced or implemented (Menna Barreto 2000).

The idea that expectations about regularization have an effect on informality is also corroborated by the large number of invasions or occupations that take place either just before or just after electoral periods, when candidates promise new regularization programs. The victory of Miguel Arraes as governor of Pernambuco, Brazil, in 1986 led to 13 land invasions in just over a month (Rabaroux 1997, 124), and the Latin American historiography of the effects of the expectations created by populist promises is rich in other examples. Many of the existing settlements that need to be regularized today owe their origin to the irresponsible complacency of politicians turning a blind eye to the irregular occupation of public or unsuitable areas, or, which is worse, who ceded public land for electioneering purposes.

The Opportunity Costs of Regularization

Regularization programs, which are normally of a remedial or curative nature, have a high opportunity cost compared to the cost of providing urbanized land in a preventative manner. The rule of thumb cost per benefited family of a typical upgrading or regularization program has been in the range of $3,000 to $4,000. Taking the size of a plot to be around 50 m2 and adding 20 percent to account for streets and other public services, the cost works out to US$50 to US$70 per m2. This is considerably higher than the cost for servicing new land, which is less than US$25 per m2, and is similar to the price charged by private developers, even when allowing for a handsome profit margin. ECIA, a private developer operating west of Río de Janeiro, offered completely urbanized plots for US$70 to US$143 per m2 at 1999 prices (Oliveira 1999). The Municipal Secretariat of Urbanism in Río de Janeiro has a technical study, from 1997, which demonstrates that it is possible to commercialize urbanized plots for less than US$55 per m2. Along the same lines, Aristizabal and Gomez (2001) in Bogotá estimate that the cost of correction (“reparation”) of an irregular settlement is 2.7 times the cost of planned areas.

These figures suggest the limitations of preventative programs in favor of curative ones. It is also relevent that permission to develop a regular, formal subdivision may take from three to five years, whereas the decision to regularize an informal settlement often takes less than six months.

The “Day After” of Regularization

A well-executed regularization program (that is, one that effectively integrates the informal area with the urban fabric) would ideally result in the improved quality of life for all occupants and a stronger community. In particular, one would expect an appreciation of property values, causing some residential mobility as families with below-average incomes are forced to move. However, when the program is badly executed the area may be consolidated as a low-income irregular settlement.

The Favela-Bairro upgrading program in Rio de Janeiro is often used to exemplify the most comprehensive and successful experience of its kind. Abramo’s (2002) study of the impact of regularization programs found a relatively small increase in property values in the affected areas (28 percent). Applying this average figure to typical or modest houses with an ex-ante value estimated at US$12,000, the added value is about US$3,400, a number close to the average per-family cost of regularization programs. This result contrasts with the mark-up of more than 100 percent obtained in the process of servicing raw land through the market by private agents. This intriguing piece of information seems to show how little notice the “market” takes of the increased value of these regularized settlements. At the same time, full integration into the urban fabric turns out to be less frequent than had been expected. Many of the favelas that received important upgrading investments remain stigmatized as favelas even 15 years later.

Conclusions

Informality is expensive, and it exacerbates the conditions of living in poverty. The diagnoses of such agencies as the UNCHS (Habitat), World Bank, Inter-American Development Bank and others would seem to be correct in regarding upgrading programs as an essential ingredient of any policy to deal with urban poverty. However, because of the piecemeal and limited approach of such programs, there is no guarantee that the regularization of settlements alone will contribute to reducing urban poverty. In effect these programs not only reiterate and keep intact the land market “rules of the game” that contribute to informality, but they also generate some perverse effects. This situation poses both a dilemma and a challenge. The dilemma is that not regularizing simply is not a political option (nor is it a humanitarian option). The challenge is how to interrupt the vicious cycle of poverty and informality through interventions in the land market. The task ahead is formidable, but there are places in Latin America where local governments are beginning to set new ground rules.

Martim O. Smolka is senior fellow and director of the Program on Latin America and the Caribbean at the Lincoln Institute.

References

Abramo, Pedro. 2002. Funcionamento do mercado informal de terras nas favelas e mobilidade residencial dos pobres. Cambridge, MA: Lincoln Institute of Land Policy Research Paper.

Aristizabal, Nora, and Andrés Ortíz Gomez. 2002. Are services more important than titles in Bogotá?” in Land, Rights and Innovation: Improving Tenure Security for the Urban Poor, Geoffrey Payne, ed. 100-113. London: Intermediate Technology Development Group Publishing.

Lincoln Institute. 2002. Access to Land by the Urban Poor: 2002 Annual Roundtable. Cambridge, MA: Lincoln Institute of Land Policy.

Menna Barreto Silva, Helena. 2000. Programas de urbanização e desenvolvimento do mercado em favelas brasileiras. São Paulo: University of São Paulo: LAB-Hab.

Oliveira, Fabrício L. de. 1999. Valorização fundiária e custos de urbanização na XVII R.A. – Campo Grande: uma primeira aproximação com o caso do Rio de Janeiro. Cambridge, MA: Lincoln Institute of Land Policy Research Paper.

Rabaroux, Patrice. 1997. La Regularizacion en Recife (Brasil). In El acceso de los pobres al suelo urbano. Antonio Azuela and François Tomas, eds. México: Centro de Estudios Mexicanos y Centroamericanos del Instituto de Investigaciones Sociales de la UNAM.

Smolka, Martim O. 2002. The High and Unaffordable Prices of Serviced Land. Cambridge, MA: Lincoln Institute of Land Policy Research Paper.

Smolka, Martim O., and Fernanda Furtado, eds. 2001. Recuperación de plusvalías en América Latina: Alternativas para el desarrollo urbano. Santiago, Chile: EURELIBROS.

Many historic centers in Latin America have been the focus of government and private initiatives seeking to rehabilitate the building stock and position the areas to serve the tourism industry. In most cases these efforts have led to the displacement of lowincome residents or of residential activities altogether, due to gentrification and commercialization of the district (Scarpaci 2005). More recently, the rehabilitation of these historic cores has been framed as part of broader debates and efforts that pursue the recovery of the city centers (historical or otherwise) because of their key role as collective symbols or spaces of social interaction, or because of their potential efficiency as dense, well-serviced urban districts (Pérez, Pujol, and Polèse 2003; Rojas 2004).

This article seeks to advance this discussion based on the experience in Panama City’s historic center, “Casco Antiguo.” It describes some recent, innovative policies that have explored the intersections of tourism, affordable housing, employment, and culture in a historical context, and draws some general insights and lessons.