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Affordable Housing Institutewww.affordablehousinginstitute.org 15-Feb-14www.affordablehousinginstitute.org Formalizing the informal slum When the law and.

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Presentation on theme: "Affordable Housing Institutewww.affordablehousinginstitute.org 15-Feb-14www.affordablehousinginstitute.org Formalizing the informal slum When the law and."— Presentation transcript:

1 Affordable Housing Institutewww.affordablehousinginstitute.org 15-Feb-14www.affordablehousinginstitute.org Formalizing the informal slum When the law and the facts clash, how can this be resolved? Presented at the South Asia Housing Forum: Delhi, India, January, 2010 David A. Smith Founder Affordable Housing Institute

2 Affordable Housing Institutewww.affordablehousinginstitute.org 15-Feb-14 // Slide 2www.affordablehousinginstitute.org Affordable Housing Institute: What we do Non-profit (US §501c3) pro-poor consulting and research firm –Boston, MA, USA: work worldwide, mainly global south –Developing successful affordable housing financial ecosystems worldwide –India, Colombia, South Africa, Kenya, Brazil Consulting –Pro-bono/ low-bono investment banker –Financial product design/ program design –Program development: Market principles + government aid = affordability Research –Develop, explore, test, refute what we believe –Two-day working symposium in Mexico City, October 2009 Major grant from Bill & Melinda Gates Foundation

3 Affordable Housing Institutewww.affordablehousinginstitute.org 15-Feb-14 // Slide 3www.affordablehousinginstitute.org Affordable Housing Institute: What we believe 1.Housing is the key to improving cities Improve housing and cities improve Fail to improve housing and cities worsen 2.Mission Entrepreneurial Entities (MEEs) are key to improving housing 3.Scalable finance is key to MEE growth 4.Municipalities are the right level of government to own slum upgrading

4 Affordable Housing Institutewww.affordablehousinginstitute.org 15-Feb-14 // Slide 4www.affordablehousinginstitute.org Is a slum good or bad? Spontaneous community Private investment outruns public infrastructure –People do for themselves Business incubator Busy, lively Hive of innovation Self-built, self-improved Ever-changing Neighborhoods Voice of the poor –Vote bank? Density, overcrowding Private investment outruns public notice –No infrastructure Wealth extraction machine Unhealthy for children Haven of crime Physical and legal reality diverge Alternate power structures

5 Affordable Housing Institutewww.affordablehousinginstitute.org 15-Feb-14 // Slide 5www.affordablehousinginstitute.org Informal settlements and slums: Some economic/ political definitions Spontaneous community Economically rational solution to the challenge of rapid urbanization Private investment has outrun public infrastructure Wealth-extraction machine –Investing in property does not yield increased property value Physical reality and legal documentation are wildly at odds –In the formal city, physical and legal are the same

6 Affordable Housing Institutewww.affordablehousinginstitute.org 15-Feb-14 // Slide 6www.affordablehousinginstitute.org When physical and legal diverge, whole community suffers If investing in property yields no increase in property value, why do it? –Slums do not physically improve –Cannot go above single-story (ergo, they must spread out) If formal government does not recognize and protect real estate property rights, who will? –People transact informally, invisibly, without touching the electronic or credit world –People live in an economic parallel universe If formal government does not provide order, who does? –Alternate power structures (e.g. organized crime) replace formal ones –Government loses legitimacy with slum dwellers

7 Affordable Housing Institutewww.affordablehousinginstitute.org 15-Feb-14 // Slide 7www.affordablehousinginstitute.org Financing formalizing communities: Two flows of forces: money and voice Local government Municipals Businesses Co-ops Equity in entities Program related investments Domestic private capital Hard capital (foreign providers) National government Public capital/ subsidy Intermediate FIs Micro FIs Public goods Private goods Water Sanitation Political expression Cash flows

8 Affordable Housing Institutewww.affordablehousinginstitute.org 15-Feb-14 // Slide 8www.affordablehousinginstitute.org Enumeration of informal settlements: Once its mapped, it has formal existence

9 Affordable Housing Institutewww.affordablehousinginstitute.org 15-Feb-14 // Slide 9www.affordablehousinginstitute.org Slum formalization in São Paolo: Financing slum upgrading as health and sanitation Collaboration between water company SABESP, World Bank & city Water and sanitation retrofit Little demolition – streetscape transformed Cleaning up the water by cleaning up the slums –Slum upgrading purely incidental Link to formal registration systems –Named streets, numbered addresses Upgrading package comprehensive –Pavement and landscape –Collection of sewerage –Channeling storm drains –Retaining walls –De-densification Going up!

10 Affordable Housing Institutewww.affordablehousinginstitute.org 15-Feb-14 // Slide 10www.affordablehousinginstitute.org Formalization in Nagpur: Propositions and working conclusions Four propositions define slum upgrading 1.Existing housing backlog already 2.Customers are very poor … cannot pay more 3.Local government needs capacity support 4.Will government put subsidy on the table? Money. Land. TDRs. Infrastructure. Financing Three working conclusions 1.The state should stop trying to solve it 2.The private sector will not rush in to solve the problem 3.Already most solutions come from the poor themselves

11 Affordable Housing Institutewww.affordablehousinginstitute.org 15-Feb-14 // Slide 11www.affordablehousinginstitute.org Slum resettlement and slum upgrading: Going up means formalizing Mankhurd: co-op housing built after slum dwellers resettled from rail right-of-way Oshiwira II: SPARC/ NSDF new co- operative high-rise

12 Affordable Housing Institutewww.affordablehousinginstitute.org 15-Feb-14 // Slide 12www.affordablehousinginstitute.org Prevailing winds of slum formation and formalization 1.Unstoppable and continuing inflow of very poor people into cities 2.Self-organizing groups of poor people are emerging at unprecedented rates 3.People become urban without moving 4.All great cities grew by formalizing their slums 5.Informal markets have huge economic might 6.A home is a process, not a product (Housing is a verb)

13 Affordable Housing Institutewww.affordablehousinginstitute.org 15-Feb-14 // Slide 13www.affordablehousinginstitute.org Slum dwellers formalization of identity is a step toward citizenship Front Back Family identity card (Mumbai, India) Enumeration of slum dwellers List household, domicile Basis for making people visible to the government

14 Affordable Housing Institutewww.affordablehousinginstitute.org 15-Feb-14 // Slide 14www.affordablehousinginstitute.org A theory of slum formalization: Just do it … but pay for it Just do it: transfer land rights to the poor –Recognize theyre never moving out –Once transferred, state must be guardian of poors ownership Poor become economic citizens Theory of Change: to break the stalemate, durable rights transfer¹ of built² land³ to its very poor existing dwellers –Use eminent domain to transfer land ownership Poor pay what they can afford Land owner receives the lands fair market value –Lack of infrastructure, adverse occupancy, political risk/ cost of relocation Government pays difference –1. Rights transfer is grant, cheap sale, or sale with debt –2. Built and occupied with informal housing –3. Extant or equivalent (if extant is unsafe or uninhabitable)

15 Affordable Housing Institutewww.affordablehousinginstitute.org 15-Feb-14 // Slide 15www.affordablehousinginstitute.org Formalizing informal slums: Obstacles to government action 1.Local government hesitant to use compulsory purchase/ eminent domain 2.Amnesty creates moral-hazard risk 3.I dont know how to do it – lack of precedent 4.Not on my shift – cannot finish during time in power

16 Affordable Housing Institutewww.affordablehousinginstitute.org 15-Feb-14 // Slide 16www.affordablehousinginstitute.org Formalizing informal slums: Imperatives to compel change 1.Facts on the ground are strategically irreversible 2.They vote … or they will vote 3.Its the only way property has ever regularized Roman soldiers sovereign land grants homesteading Londons East End New Yorks Lower East Side 4.By regularizing, you can make more land 5.Improves health and safety for the middle class 6.Global competitiveness rests on efficiency of cities Cities without slums are more attractive to global business

17 Affordable Housing Institutewww.affordablehousinginstitute.org 15-Feb-14 // Slide 17www.affordablehousinginstitute.org Questions? Sao Paolo: Were building a house.

18 Affordable Housing Institutewww.affordablehousinginstitute.org 15-Feb-14www.affordablehousinginstitute.org Formalizing the informal slum When the law and the facts clash, how can this be resolved? Presented at the South Asia Housing Forum: Delhi, India, January, 2010 David A. Smith Founder Affordable Housing Institute


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