Informal settlements and housing markets

Across the developing world, many governments have inherited broken, ex-colonial housing policies that do not work for ordinary residents. While most households in African cities struggle to afford a house for $15,0001, the cost of constructing a basic house that meets all legal requirements is over $42,000 2.

Large-scale ‘public housing’ schemes have not helped matters. The cost of providing this housing means that it is unable to keep up with demand, and often built on less expensive but disconnected urban peripheries. Kigali’s public housing units are cheap compared to other cities, but still cost upwards of $30,000; this is housing for the elite, not for ordinary citizens.

The result of these policy failures is that most people bypass the formal system completely. Urbanisation instead happens through informal settlement, without legal recognition, planning, or formal service provision. Globally, more than one billion people live in informal settlements and this number is set to double in the next fifteen years.

Putting this right will not only dramatically improve living conditions; it will create a huge amount of jobs for young and low-skilled workers to build their city. As the 19th century cities of Manchester and Melbourne rapidly expanded, their primary economic activity was their own construction.

This brief explores practical and realistic ways in which governments can make housing markets work – both to prevent future urbanisation from proceeding informally, and to make existing informal settlements more productive and liveable.

  1. Providing core infrastructure around which the city can expand is a more realistic policy aim than constructing public housing for everyone.
    Providing core infrastructure before people settle is three times cheaper than retrofitting it in existing unplanned settlements, and avoids disruptive and unpopular slum clearance policies.
  2. Small regulatory changes can have a big impact on house prices, and bring ordinary residents into the formal sector.
    Making housing affordable for ordinary residents means re-writing old colonial regulations.
  3. Once informal settlement has occurred, land readjustment can enable win-win solutions for occupiers, land-owners and governments. 
    Through readjustment schemes, infrastructure and planning can be funded by landowners giving up parts of their (more valuable) plots.

Footnotes

  • 1 Collier, P. and Venables, A. J.. (2014). “Housing and Urbanization in Africa : Unleashing a Formal Market Process.” Policy Research Working Paper;No. 6871. World Bank, Washington, DC.
  • 2 Centre for Affordable Housing Finance in Africa (CAHF website: http://housingfinanceafrica.org/dashboards/benchmarking-housing-construction-costs-africa/