Regularizing Informal Settlement in Latin America

Informal settlements - unregulated, makeshift housing - create substantial safety and health risks in Latin American countries. While clearing of settlements is not a solution, letting them be is not an option. Gregory K. Ingram suggests that regularizing programs combined with upgrading assistance can be effective means of improving conditions. 

Informal settlements – the shantytowns, favelas, and makeshift neighborhoods built as illegal occupations of public or private land -- are a fact of life in cities in both Latin America and most other developing regions. According to a 2001 estimate, nearly 130 million people-a quarter of urban residents-live in informal settlement in Latin American cities. Their dwellings have no legal title, are often constructed in a precarious location, and many lack basic urban services such as water and sanitation.

For many years, the great challenge facing Latin American nations and metropolitan areas has been to work with these areas in situ – to improve conditions and begin integrating them into the formal city. Wholesale removal with evictions and massive relocations to new public housing is neither tolerated nor economically feasible in most countries. At the same time, because governments need to prevent additional informal settlements, their improvement policies must not create incentives that stimulate yet more illegal development.

Informality has many causes, including low income levels, unrealistic urban planning and building regulations, a lack of serviced land and social housing, and a dysfunctional legal system. Residents of informal settlements face many costs, including insecurity of tenure, lack of public services, discrimination by others, environmental and health hazards, and inequitable civil rights. Informality also poses both high direct costs for local governments when they undertake upgrading programs, and substantial indirect costs when they address other impacts of informality such as public health, criminal violence, and related social problems.

What is known as the "regularization" of informal settlement has taken two major forms: legalizing parcels by awarding titles to property occupants-as exemplified in Peru-and Brazil's broader approach that combines titling with extensive upgrading of public services.

Both approaches have had an impact, but a report recently published by the Lincoln Institute, Regularization of Informal Settlements in Latin America, suggests that these efforts are very much a work in progress. Titling by itself is relatively inexpensive but has triggered few neighborhood improvements, while upgrading is much more costly and can stimulate additional irregular development by those hoping to benefit from future upgrading.

The report's author, Edesio Fernandes, a lawyer and international expert on regularization, who was a visiting fellow at the Lincoln Institute in 2008-2009, concludes that regularization programs need to be designed carefully to avoid both making conditions worse for the programs' intended beneficiaries and encouraging the development of new informal settlements.

Peru's approach is inspired by Hernando de Soto's hypothesis that tenure security is a trigger for development that will stimulate access to finance, economic activity, and residential upgrading. From 1996 to 2006 Peru issued over 1.5 million freehold titles at an average cost of $64 per household. Evaluations indicate that the titling programs had little impact on access to credit, but yielded some investment in housing, and may have contributed to some poverty alleviation. The programs also increased property values by about 25 percent, well in excess of the titling cost.

Brazil's broader regularization programs combine legal titling with the upgrading of public services, job creation, and community support initiatives. At $3,500 to $5,000 per household, these programs are much more costly than Peru's titling system, and Brazil has had more modest coverage of households. Ironically, service upgrading in Brazil has often occurred with little or no change in legal tenure status, although the number of titles is increasing. The few evaluations that exist indicate that the increase in property values associated with Brazil's upgrading exceeds its cost, as in Peru, albeit to a lesser extent than in new urban development.

Ironically, many residents in informal areas feel secure with their de facto property rights of ownership based on customary practices. For example, residents in informal settlements developed on private land often have bills of sale or similar documents, and such properties are bought and sold regularly. Some residents seem to prefer this system of informal titling and often do not embrace the legal titling system, even though properties with legal titles have higher values than those without.

Looking ahead, the report recommends evaluating regularization programs systematically, based on collecting both baseline data before program implementation and subsequent data on program costs and outcomes; using appropriate titling systems (freehold, leasehold, cooperatives, land trusts, or communal ownership) to ensure the socioeconomic sustainability of the community; seeking the participation of both men and women to avoid building gender bias into the process; and careful monitoring to determine if the situation is improving or worsening in particular cities, and to prevent the establishment of additional informal settlements, particularly when they are thought to be caused by the regularization program itself.

Few regularization programs have levied fees or taxes on residents. Because the lack of revenue associated with regularization has inhibited the scaling up of such programs, there is a clear need for more self-sustaining finance systems, through property taxes and charges that capture some of the increases in land value caused by legal titles and urban infrastructure service improvements. Payments for urban services in regularized areas should be equitable, following the same principles as in formal areas, and be affordable to residents whose current payments for some services, such as truck-delivered water, typically exceed the costs of regular services.

As noted by Martim O. Smolka, director of the Program on Latin America and the Caribbean at the Lincoln Institute, cities in Latin America are finding that addressing informality on site is now a political imperative, but the long-run challenge is to provide infrastructure and services ahead of development and in an affordable and sustainable manner, pre-empting future illegal occupations.

Customized, cost-effective, and sustainable approaches to upgrading have the potential to improve the lives of the many millions of people living in informal settlements. We need to learn more about what works best.

Gregory K. Ingram is president of the Lincoln Institute of Land Policy, a think tank in Cambridge, Mass.