Monday, August 10, 2015

Affordable housing - just build it!

Sharon Barnhardt and Co have an NBER working paper which provides empirical proof for the widely held belief that slum relocation beneficiaries sooner or later go back to squatting. They examined the impact of a lottery-based allotment for a low-income housing colony in Ahmedabad, which moved people from a city-center slum to the suburbs. They tracked the 110 families over a 14 year period and found,
Fourteen years later, relative to lottery losers, winners report improved housing farther from the city center, but no change in family income or human capital. Winners also report increased isolation from family and caste networks and lower access to informal insurance. We observe significant program exit: 34% of winners never moved into the subsidized housing and 32% eventually exited. Our results point to the importance of considering social networks when designing housing programs for the poor... Our findings suggest that alternative policies such as neighborhood-wide relocation programs may be more appropriate for slum- dwellers. Alternatively, slum upgrading programs that do not try to move people at all may be a less wasteful approach to public housing policy in developing countries.
At a theoretical level, this is a reinforcement of the Schelling segregation model, where forced admixture of heterogeneous communities invariably result in desegregation. I have blogged about it in the context of housing and school choice.  

However, the policy takeaways suggested are pretty much dead-ends. Neighborhood-wide relocation runs into the constraint of land availability. As to slum upgradation by redevelopment (PPP or not), it is too complex and challenging to do in any reasonable scale. Slum upgradation by improving infrastructure while keeping the existing stock runs into execution challenges (5-10 feet roads, and that too varying widely, makes infrastructure augmentation a nightmare, even an impossibility) given the extremely congested nature of most slums and squatter settlements. If, for implementation in scale, upgradation of any kind is less that satisfactory and neighbourhood relocation is prohibitive, then we are left only with relocation to the suburbs as a decidedly second-best alternative. 

This blog has consistently held the view that it may be a wrong framing to assess low income housing programs in terms of its ability to retain residents. Such programs, including the recently launched Government of India's Housing for All program, should be seen as instruments to increase the supply of formal affordable housing stock. At a time when land has been priced out of the reach of low income households, any low-income stock addition happening is basically in the informal sector, most often by way of densification of already congested slums and squatter settlements. 

In fact, in view of the near absence of formal affordable housing, the low-income migrants in any case mostly squat in the suburbs. The units sold away by the original allottees are merely transferred to the newer migrants, thereby providing formal low-income housing for them. The relocation colonies, by adding to the housing stock, are actually limiting the further slumification of the city. 

Further, given the implementation challenges (identification etc), resource constraints (massive demand likely from new migrants), and the political difficulty associated (with targeting newer migrants when older ones are themselves without housing), this process of internal transactions between the original beneficiaries and the new buyers may be a less-distortionary and acceptable second-best affordable housing strategy. This would be the case even with the inevitable political cronyism that accompanies such transactions.

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