Setting the right regulatory environment

Until now, housing development in low-income cities has been largely informal. Informal housing is often highly innovative and entrepreneurial, but a lack of legal recognition or standardisation makes housing difficult to finance on any kind of large scale. Legal recognition and standardisation were both crucial in 19th century Britain as they enabled easy valuations and large-scale financial innovation; individuals were then about to form co-operative ‘building societies’ to pool together savings and finance decent housing.

To make formal housing accessible to ordinary residents, coordinated reforms will need to target the regulatory barriers that drive up formal housing costs. In particular, reforms to land rights and land use regulations can significantly reduce land costs – these are responsible for up to 80% of housing costs in developing cities.

Reforming land rights

Across many developing cities, unclear land rights put urban land in a state of gridlock and paralyses formal housing development. Conflicting land records and weak land governance means land ownership is not secure enough for owners to make substantial property investments, and not marketable enough to enable the transfer of land to those best placed to develop it. 80% of African court cases are disputes over landownership,9 whilst in cities such as Lagos, the cost of property transfer can reach 36% of property value. The result is low-intensity and inefficient use of land: in cities such as Harare and Maputo, 30% of urban land within 5km of the central business district is currently vacant. 10

Enabling urban land markets to work in a way that can facilitate the provision of formal housing typically requires significant investment in land administration systems in advance of large-scale programmes of formal land registration. Research from Peru shows that a large-scale land registration programme in Lima led to a 60% increase in housing investments and a 134% increase in land market transactions. These benefits were made possible by efficient and accessible systems governing transfer and ownership dispute.

Like infrastructure provision, land registration programmes are easier to implement before settlement has occurred. Clear land ownership complements public infrastructure – security of ownership meant that where residents had legal titles in a World Bank ‘Sites and Services’ programme in Senegal, they invested $8.20 for every $1 invested by the World Bank.11 Once an informal settlement is established, clarifying ownership becomes more challenging. Well-connected interest groups often take advantage of this lack of clarity to gain quasi-legal land ownership claims and frustrate attempts at reform.

Reforming land-use regulations

The detrimental effect of land use regulations on house prices has been documented across the world – particularly in those cities which seek to restrict density by setting low building heights, low floor-area ratios and high land plot sizes. Research has shown that these kinds of local regulations in San Francisco have increased housing prices by 20-40% in affected areas.12 Restrictions can be even more distortionary in developing cities, where regulations are based on out-dated colonial planning laws, completely removed from local contexts and income levels. In Dar es Salaam, the minimum housing plot size is 375m2 – as compared to 30m2 in Philadelphia when it was at similar stages of economic development. The majority of urban residents simply cannot afford to purchase land parcels this big. This pushes them into informal housing and hindering the emergence of a large-scale formal housing market. 10

Reforming construction regulations

All cities need construction regulations to ensure safety and standardization across designs. This is particularly important for features of housing units that are not observable to occupiers, such as building materials and construction techniques. Unlike plot sizes and floor areas, occupiers may not be able to identify and make informed decisions on housing based on these features. Construction techniques may therefore require more regulation and standardization to ensure households do not purchase sub-standard or dangerous housing.

But it is also important that such regulations do not constrict housing markets without adequate justification. In many cities, restrictions on functional local building materials in favour of expensive imported materials serve to drive up housing costs significantly, with the end result that most housing does not obey any standard at all. In Kigali, the government is planning reforms to allow the legalization and standardization of high-quality localised construction materials, including fired earth bricks, to reduce housing informality and encourage local construction sector growth.

In many cities, reforms to construction regulations to allow for ‘incremental housing’ solutions can allow the private sector to provide housing at a far lower cost than would otherwise be possible. ‘Incremental housing’ programmes provide just the parts of a house which owners are less able to provide themselves (such as foundations and roof structure), enabling owners to invest in completing their house as and when they earn the money to do so.

Housing designs by Elemental in Chile have enabled  incomplete, lowcost housing (left) to be delivered to low-income residents and completed by them over time (right).

Footnotes

  • 9 Collier, P. and Venables, A.J. (2016) “Urban infrastructure for development”, Oxford Review of Economic Policy, 32 (3) pp391-409
  • 10 Lall, S. V., Henderson, J. V., and Venables, A. J. (2017), “Africa’s Cities: Opening Doors to the World”. Washington, DC: World Bank.
  • 11 Patrick Wakely and Elizabeth Riley, “The Case for Incremental Housing,” Cities Alliance Policy Research and Working Paper Series (Cities Alliance, 2011).
  • 12 Lawrence Katz & Kenneth Rosen, (1987), “The Interjurisdictional Effects of Growth Controls on Housing Prices” Journal of Law and Economics 30, 149
  • 13 Lall, S. V., Henderson, J. V., and Venables, A. J. (2017), “Africa’s Cities: Opening Doors to the World”. Washington, DC: World Bank.