What are the effects of policy on housing supply? Is the public sector good at producing, owning and financing housing? What impact do land market regulations have on housing affordability? Are arguments about the benefits of market-oriented and private sector approaches valid?

These questions are examined in a paper from the World Bank which condenses lessons from recent research. The authors report that while some of the benefits of market approaches have been exaggerated, they are delivering welfare gains for poor people. They suggest that the common view that just establishing effective property rights will necessarily have a widespread developmental impact is exaggerated.

Poverty is rapidly becoming an urban phenomenon. Many slum dwellers are second-generation residents, not recent arrivals from rural areas. In India poverty rates in some large states are now higher in cities than in the countryside. Half of the world’s poor are expected to be living in cities by 2035.

Until recently, a significant number of developing and transitional states had active public housing programmes. Many attempted to discourage private housing production. Unreasonably high standards left the public sector unable to meet demand and drove much housing supply into the informal and illegal sectors. Interest rates charged by public lenders were often commercially unsustainable and hindered the entry of private finance. Rent control turned out to be ineffective and counter-productive.

There is increasing awareness that if the public sector continues to own and control large amounts of serviced land, increased demand will lead to higher prices. Having the public sector enable, rather than control or displace the private sector is essential to making housing more affordable for all income groups. It is vital to focus on providing the kind of housing units that poor people can afford without subsidies.

Research lessons are having an impact:

• Post-Soviet states have realised that public sector domination of housing is inefficient and private sector incentives must be encouraged.
• Central government urban real estate reforms in India are encouraging states to eliminate regulatory constraints such as binding rent control and restrictions on urban land ownership.
• China, Chile, Colombia, Malaysia and Mexico are among countries enabling consumers to borrow at market rates for the kind of housing they want.
• Slum-dwellers themselves, the most market-oriented of all consumers, have formed an international federation to help address their problems.

The emerging consensus among housing market analysts is that:

• Existing land market policies restrict the economic growth of cities and constrain not only housing opportunities but prospects for equitable growth.
• While community participation is desirable, it can provide opportunities for rent-seeking and lead to capture of benefits by aggressive local elites.
• Simply providing title will not magically transform the housing circumstances of poor people.
• It is essential to incorporate the views of poor people on how to address their concerns.
• Policies that favour the market must be designed to exploit local conditions.
• Market-oriented housing and land market policies cannot completely address the shelter problems of poor households.

Source(s):
‘Housing policy in developing countries: conjectures and refutations’ World Bank Research Observer, No 25 pp 233-257, Oxford University Press, by Robert M. Buckley and Jerry Kalarickal, September 2005 Full document.

Funded by: World Bank

id21 Research Highlight: 14 February 2006

Further Information:
Robert M. Buckley and Jerry Kalarickal
World Bank
1818 H Street, NW
Washington, DC 20433
USA

Tel: +1 202 473 1000
Fax: +1 202 477 3288
Contact the contributor: rbuckley@worldbank.org; jkalarickal@gmail.com

World Bank

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