Modes of Housing Provision in Developing Countries

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Modes of Housing Provision in Developing Countries
Article in Progress in Planning · February 2001

DOI: 10.1016/S0305-9006(00)00022-2
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PERGAMON Progress in Planning 55 (2001) 65±118
www.elsevier.nl/locate/pplann
Modes of housing provision in developing countries

Ramin Keivani a,*, Edmundo Werna b
a
Faculty of Built Environment, South Bank University, 202 Wandsworth Road, London SW8 2JZ, UK
b
Research and Development Unit, Headquarters of the United Nations Volunteers Programme, Postfach 260
IIID-53153, Bonn, Germany
Abstract
In the face of an estimated one billion people living in inadequate housing conditions in devel-
oping countries the need for scaling up housing supply has become an urgent focus of policy debate.
To this end the expansion of the role of the private markets has formed the central thesis of the
ènabling strategy' for developing the housing sector as a whole rather than relying on project based
approaches such as sites and services and settlement upgrading programmes. Policy recommenda-
tions emanating from such a standpoint concentrate on adjustments to supply and demand through
deregulation and institutional development of the land and housing markets in developing countries
in order to overcome largely external constraints to a more ef®cient market mechanism. This
conception of the enabling strategy, however, has been subject to much debate and criticism for
its over-concentration on the private markets and exclusion of alternative/complementary modes of
housing provision from serious policy consideration. By utilising the structure and agency approach
as its basic methodological tool of analysis this paper provides a comprehensive review of the scope
and potential of different modes of housing provision in different contexts in developing countries.
Thereby providing a ®rm comparative basis for examining the potential for expanded private market
activity.
The paper concludes that the severe underdevelopment of institutional capacities and human and
material resources coupled with intricate and complex social, political, cultural and economic
interactions between various agents and structures of provision create major obstacles to the ef®-
ciency of private land markets in developing countries. Therefore, while private markets can and
should be supported they can not form the focus of the enabling strategy in most developing
countries. Instead, the paper argues for a comprehensive approach to enabling strategies which
combines adjustments to overall supply and demand conditions with the identi®cation and inclusion
of different modes and agents of housing provision in a holistic integrated policy. q 2001 Elsevier
Science Ltd All rights reserved.
* Corresponding author. Fax: 144-171-815-7030.

E-mail addresses: moatazr@sbu.ac.uk (R. Keivani), edmundo.werna@unv.org (E. Werna).
0305-9006/01/$ - see front matter q 2001 Elsevier Science Ltd All rights reserved.
PII: S 0305-9006 (0 0)0 0022-2
66 R. Keivani, E. Werna / Progress in Planning 55 (2001) 65±118
CHAPTER 1
Introduction
The issue of low income housing provision through the private market mechanism in
developing countries has been on the agenda of housing studies since the mid 1970s
(Grimes, 1976; World Bank, 1975). During the 1980s, however, there was an almost
universal acceptance of reducing the role of the government in direct provisory roles in
the economy and increased reliance on the private sector (Israel, 1990; World Bank,
1988). In different degrees most countries irrespective of ideology, political structures
or levels of development have pursued this policy (Israel, 1990; World Bank, 1988).
Consequently, the expansion of the role of the private market in the ®eld of housing
provision in developing countries also became increasingly the focus of attention during
this decade. This was particularly advocated by the World Bank and its allied writers
during the 1980s who developed an enabling strategy for public sector support of private
market activity in housing provision in developing countries (World Bank, 1988; LaNier
et al., 1987; Cohen, 1983; Kimm, 1987; Linn, 1983; Loh, 1987). This approach also
formed the basis of the Global Strategy for Shelter to the Year 2000, which was adopted
by UNCHS in 1988. The latest World Bank housing sector policy paper (1993) shows that
the enablement of private housing markets has become the main focus of World Bank
housing policy in developing countries as a basis for scaling up housing production and
developing the housing sector as a whole. Similarly, while UNCHS has moved on to adopt
àdequate shelter for all and sustainable human settlements' in its 1996 Habitat II confer-
ence in Istanbul, enabling strategies for private markets still form the main plank of its
shelter policies and recommendations (UNCHS, 1996a,b).
What does increased private market activity mean, however, in the context of housing
provision in developing countries?
All the main urban services in developing countries such as health, education, waste
disposal and water and electricity supply have thus far been largely dominated, either
completely or partially, by direct public provision (Batley, 1996; Nickson, 1996; Bennet et
al., 1995). Such provision has invariably, involved large scale government bureaucracies
and agencies in the form of outlets for service provision such as public hospitals, clinics,
schools, universities, etc., and operational organisations at the regional and local levels for
planning, management, provision and maintenance of the above services (Batley, 1996;
Nickson, 1996; Bennet et al., 1995). These have inevitably involved large scale bureau-
cracies, resources and personnel. This has been in addition to the requirement for national
and regional organisations for strategic policy formulations and management of the sectors
concerned such as ministries and their regional of®ces.
The provision of housing, on the other hand, has been largely dominated by the non-
public sector, which includes the formal and informal private sectors, private households
and co-operatives (UNCHS, 1996a,b,c; Okpala, 1992). Indeed, on the whole, the share of
public housing provision in developing countries has only been around 10 per cent of the
total housing stock (UNCHS, 1996a,b,c; Okpala, 1992). Moreover, unlike the other
services where direct public provision has actually meant the actual physical provision
of the service by public organisations, the actual physical production and in many cases
R. Keivani, E. Werna / Progress in Planning 55 (2001) 65±118 67
design and consultancy work of public housing projects and sites and services programmes
have in fact been carried out by private building ®rms and consultants (UNCHS,
1996a,b,c; Okpala, 1992; Batley, 1996; Nickson, 1996; Bennet et al., 1995; Ofori,
1994). Consequently, while public works departments have existed in many developing
countries their main focus has been on the design and management of public infrastruc-
tural projects rather than construction of housing. Similarly, the various housing ministries
and organisations have been largely responsible for policy formulation, implementation
and strategic management rather than actual production and consultancy work. The excep-
tion to this being a few centrally planned economies in developing countries such as China
and Vietnam where the actual construction of public housing projects was also carried out
by public building entities (Wu, 1996; Nhuan and Mathey, 1990).
The above differences have major implications for increased private sector participation
in the provision of these services. The complete domination of public sector direct provi-
sion of the former group of services and their large and centralised bureaucracies and
organisations require the transfer of some or all of their activities to private operators. This
can be achieved through a variety of methods including service, management, lease or
concessions contracts, or even divestiture (Batley, 1996; Nickson, 1996; Bennet et al.,
1995). These correspondingly imply greater private sector control over the various aspects
of service provision from servicing out some aspects of the work to private operators to
complete sale of the service including its physical assets, i.e. buildings, machinery, etc.,
and personnel (Batley, 1996; Nickson, 1996; Bennet et al., 1995). In the case of housing,
on the other hand, the private sector is already dominant. Therefore, the issue here is not to
introduce greater private sector activity in the area, rather than improve the ef®ciency of all
aspects of private housing provision (World Bank, 1993; UNCHS, 1996a,b,c). To this end
the proponents of market ènabling strategy' have devised certain policy recommenda-
tions which aim at adjusting the overall supply and demand conditions through speci®c
policy reforms for eradicating what are deemed to be, largely government imposed,
barriers to expanded private market activity (UNCHS, 1996a,b,c; Okpala, 1992). This is
largely based on the withdrawal of governments from direct public provision, their support
for private housing provision and institutional development of formal private markets,
particularly housing ®nance and land registration systems (UNCHS, 1996a,b,c; Okpala,
1992). There may of course be exceptional cases in developing countries where the public
sector has built up large quantities of public rental housing such as Singapore, Hong Kong
and Israel (UNCHS, 1996a,c; Mohd et al., 1996; Tan and Sock-Yong, 1991). In such cases,
private sector participation can also involve the sale of such units to sitting tenants (Mohd
et al., 1996; World Bank, 1993; Werczberger and Reshef, 1993). In addition, service and
management contracting can also be used to give part or all of the maintenance and
management of such housing to private operators while they are still in public hands.
In our view the emphasis on the private markets is somewhat misplaced. Private
markets can and should be supported. However, they need not necessarily be the focus
of attention in all or even the majority of cases in developing countries. In the context of
developing countries the operation of private land and housing markets are hampered by
serious internal constraints which largely stem from severe institutional underdevelop-
ment, scarce human and material resources and interaction with, and undue in¯uence of,
social, political and cultural factors which impinge on their ef®ciency. In most cases, such
constraints are unlikely to allow the expansion of private markets to the degree that would
satisfy the objectives for scaling up housing production to meet the needs of large sections
of the low income urban households. More importantly, perhaps, is the availability of a
wide range of modes of housing provision through the public, community, co-operative
and informal private sectors which to different degrees are already involved in low income
housing provision. Scaling up low income housing, therefore, requires a more compre-
hensive and pluralistic approach to enabling housing strategies, whereby the different
modes and agents of housing provision are identi®ed and co-ordinated in a comprehen-
sively integrated policy. The purpose of this paper, therefore, is to examine the scope for
private market activity as a basis for expanding low income housing provision in devel-
oping countries, through an extensive review of existing modes of housing provision and
the policy debate surrounding the role of private markets in this area.
The remainder of this paper is divided in to four main sections. First the paper develops
a conceptual de®nition for identifying and examining modes of housing provision. Follow-
ing, the paper carries out an in depth examination of modes of housing provision in
developing countries. In the third section, the paper begins a more detailed examination
of the role of private markets by a consideration of the economic rationale for expanded
private market activity. This is then followed by examining the role of private markets in
practical terms in developing countries in the light of the market enabling strategy. Finally,
the paper presents its conclusion.
CHAPTER 2
Conceptual de®nition of modes of housing provision
Systems or modes of housing provision can be de®ned by the processes through which
such provision is achieved. A useful analytical tool for identifying and examining these
processes is the concept of structures of provision which is based on the identi®cation of
social relations and interactions of agents involved in all aspects of housing provision,
i.e. production, exchange and consumption (Ball and Harloe, 1992; Healey and Barret,
1990; Ball, 1983, 1986). The most comprehensive formulation of this conceptual tool of
analysis, however, albeit for the property market as a whole, is probably provided by
Healey and Barret (1990). The key to understanding the processes involved in land and
property development, including housing, is identi®ed as the relationship between the
interests, strategies and actions of agents involved in land development and the socio-
economic and political framework including values regarding land, property, buildings
and the environment which governs or structures their decisions. There is, therefore, a
need to understand the `relation between structure, in terms of what drives the devel-
opment process and produces distinctive patterns in particular periods, and agency, in
terms of the way individual agents develop and pursue their strategies' (Healey and
Barret, 1990, p. 90). The former relates to the framework created by the economic
and political organisation of the country, interventions of the state at the macro and
micro economic levels and the social and economic values of the society regarding the
built environment. The latter, on the other hand, relates to land owners, investors,
developers, consultants, public sector planning of®cers, politicians, community groups
and any other agents involved in land development. The relationship between the struc-
ture and agency, moreover, is not seen to be static or one sided. Rather such a relation-
ship is de®ned as being dialectical and dynamic. Whereby the agents are not just passive
players within the structure without any in¯uence on its form and extent, instead they are
actively and continuously involved in reshaping the structure through individual and
organised pressure and activity in pursuit of their interests which is itself affected and
shaped by the external pressures put upon them by the structure. At any given point in
time, therefore, the form of the structure and its relationship with agents is determined by
the balance between the need of the state to safeguard the strategic interests of the
dominant mode of production as a whole and the needs of the individual agents involved
in this sector of the economy.
It can be concluded, therefore, that the type of agents and their social relations with each
other and the structure is an integral part of the form and the de®ning characteristics of the
structure. Consequently, while agents may be separated from the structure at some levels
of analysis they may be taken to constitute an integral part of it at another level.
An example of the variations in structure and its in¯uence on the behaviour of agents
can be seen in the investment behaviour of British and Swedish house building ®rms. The
structure regulating house building activity of Britain allows large scale land banking by
private ®rms and the integration of land development gains into the pro®t strategy of major
house builders (Ball, 1983; Duncan, 1986) Consequently, British ®rms are mainly inter-
ested in maximising their land development gains which relies heavily on speculation and
manipulation of the market rather than increased productivity and ef®ciency 1 (Batley,
1996; Nickson, 1996; Bennet et al., 1995). This requires, ®rstly, the buying of land
from the original owner at minimum possible prices and, secondly, the successful devel-
opment of land for housing at the right time and right place which maximises the
development value of the site. Therefore, housing production by ®rms is entirely reliant
on the overall speculative strategy of the ®rm and not the housing shortage in the country
(Ball, 1983). Conversely, the Swedish structure is characterised by extensive acquisition
powers of local authorities in acquiring land for housing and urban expansion, vast public
land reserves for this purpose and attractive conditional public ®nancial incentives to
builders through State Housing Loans (SHL) which specify how, when and where housing
is produced together with its ®nal price (Duncan, 1986). As a result a situation has
developed where there is very little opportunity for pro®t maximisation through land
development gains and speculative pro®ts. Instead, the public authorities have used
these leverages to foster large scale public-private joint venture schemes for housing
provision. Indeed, between 1940 and 1980 over 87 per cent of completions had used
the SHL scheme, the vast majority of which (since 1974 all) was on government land.
Consequently, with their easy access to development gain and speculative pro®ts blocked,
the house building industry in Sweden has been pushed towards earning its pro®ts through
higher ef®ciency, higher quality, increased productivity and reduced costs (Batley, 1996;
Nickson, 1996; Bennet et al., 1995).
The underlying rationale of the structure and agency model is also applicable to devel-
oping countries. Indeed, much of the literature on low income housing provision in
developing countries have implicitly or explicitly adopted either fully or partially a struc-
ture and agency approach since in the majority of cases the housing solutions of the low
income groups have been through the informal and unconventional sectors and practices.
These require invasions of public and private lands and/or illegal subdivisions of such land
and contravention of conventional building and town planning regulations (Baross and
Van der Linden, 1990b; Gilbert and Ward, 1985; Drakakis-Smith, 1981). As a result low
income housing solutions in developing countries have often led to either confrontation
with, or disapproval of, the state, private landed interests and even other industrial and
®nancial interest groups who may be in competition for some of the land occupied by the
low income groups. In addition such housing is always unacceptable in terms of the
dominant bourgeois norms and social values (Drakakis-Smith, 1981). These have in
many cases led to the eviction and resettlement of squatters and demolitions of their
houses (Mitra, 1990). In other cases, however, political expediency and requirements of
social stability has led to the development of patron/client relationships between such
settlement groups and governing or opposition political parties and their regularisation
through service provision and/or legalisation (Baross and Van der Linden, 1990b; Gilbert,
1990; Nientied and Van der Linden, 1990). There are, therefore, complicated and intricate
processes at work in low income housing provision in developing countries. Any mean-
ingful examination of such processes inevitably requires the examination of the dominant
1
Land speculation occurs when land is withheld and sold for increasing land rent or revenues from unbuilt land
and is usually carried out by the original landowner. Land development gain, on the other hand, is the revenue
earned from the development value of land as an integral part of housing or other built forms (Ball, 1983).
social, political and economic organisation and development processes of the society
which have led to the situation being created in the ®rst place and which de®ne the
legal and operating framework for housing provision. In addition roles and social relations
of all agents involved in each settlement both with each other and the external structure
which mainly manifests itself in the form of the state apparatus and its rules and regula-
tions must also be examined. These agents include individual households, community
groups and leaders, NGOs, local and central government of®cials dealing with security,
planning and service provision and ®nance, central and local politicians, private ®nanciers
and money lenders and private land developers. This approach is evident in the works of
all the authors mentioned so far as well as others such as most contributors to such
collective works as Jones and Ward (1994a), Mathey (1992) and Baross and Van der
Linden (1990a) to mention but a few.
Practically all authorities on housing provision in developing countries agree that the
vast majority of shelter and housing for the middle and low income groups is provided
through the informal sector. However, a small share of low income housing and practically
all higher income ones are provided through the formal channels of the government and
the private sector. Public sector housing programmes for the low income groups can take
the form of direct public provision of completed units, aided self help programmes and
settlement upgrading (Okpala, 1992; UNCHS, 1996b). There have also been recorded
cases of commercial and speculative low income housing provision by the formal private
sector in some developing countries (Garg, 1990; Yap, 1996). However, with the excep-
tion of Bangkok, the scale of such activities by formal private builders has been relatively
small in developing countries. Finally, low and middle income housing provision is also
attained through the co-operative sector which in some countries operates in close
association with the public sector while in others is more independent.
In summary, therefore, the chosen analytical tool for the identi®cation and examination of
modes of housing provision in developing countries will be based on the conceptual model
of structure and agency. There are, however, no de®nitive rules for separating systems of
housing provision since the de®nition and number of possible structures would be entirely
dependent on the level of abstraction or generalisation adopted for purpose of analysis (Ball
and Harloe, 1992). The most important criterion in this regard is identi®ed as ªsigni®cant
interaction within similar sets of social relationsº (Ball and Harloe, 1992, p. 4).
In this regard within the overall socio-economic, political and cultural structure of
housing provision in developing countries a bio-polar sub-division of conventional/uncon-
ventional or formal/informal structures or modes of housing provision can be identi®ed by
the aforementioned writers on the subject of housing provision in developing countries.
Similar to the typology used by Drakakis-Smith (1981), a conceptual model of the main
modes of housing provision in developing countries can be developed by subdividing the
abovementioned two main structures in to several other secondary substructures or
submodes. Therefore, the conventional or formal mode can be divided into public, private
and co-operative substructures, while the unconventional or informal structure can be
divided in to squatter settlements, illegal subdivisions and low income rental housing.
This conceptual model is shown graphically in Fig. 1.
This model can be elaborated even further by adding more components to the secondary
substructures to represent any other forms or modes of housing provision which may exits
Fig. 1. A conceptual model of housing provision in developing countries.
in a particular city and not represented here. However, it is felt that in the main the model
would cover all the main systems of housing provision identi®ed in this review.
A point of clari®cation with regard to the main substructures of conventional/formal and
unconventional/informal should be made at this point. It should be noted that basically the
same concepts as conventional/formal and unconventional/informal have also been
respectively referred to as legal/regular and illegal/irregular in the literature. However,
whatever name is given to these substructures they essentially represent a dichotomy
between two opposing processes. The former group represents housing that is produced
through the of®cial channels of recognised institutions, e.g.: planning authorities, banks
and building and land development companies, and observing formal legal practices,
building standards and land use and subdivision regulations (Drakakis-Smith, 1981). In
the main using semi-industrial to industrial mode of production utilising wage labour,
modern industrially produced materials and being relatively capital intensive (Drakakis-
Smith, 1981). The latter group, on the other hand, represents those housing units which are
usually produced outside of®cial channels without of®cial development permits and do not
conform to land use and subdivision regulations (Drakakis-Smith, 1981; Baross and Van
der Linden, 1990b). This group in the main uses a traditional mode of production which is
relatively labour intensive, utilising a large input of self-help labour and indigenous and
traditional materials (Drakakis-Smith, 1981). However, a considerable number of uncon-
ventional dwellings may also utilise modern industrial materials, semi-industrial methods
of production and wage labour or contract builders for at least some parts of their building
activities (Tipple and Wilkinson, 1992; Schutz, 1992; Brumlik, 1992).
2.1. A hierarchy of structures
The rationale of the model presented in Fig. 1 is such that a hierarchy of different modes
or structures of housing provision can be identi®ed in any given context. The place and
function of each mode in this hierarchy is dependent on the level of chosen abstraction.
Consequently, the secondary substructures described above may be subdivided into even
lower subgroups as required. For example, the public mode of housing provision can be
subdivided into sites and services, settlement upgrading and public provision of complete
housing units. Similarly, housing provided through the squatter settlement or informal
subdivision modes can be subdivided further depending on the extent of use of wage
labour, degree of incremental building, extent of commodi®cation, etc. A clear example
of this can be seen in the provision of land and complete housing units as opposed to empty
land plots in the illegal subdivision mode. While housing provision through both forms
share many agents and aspects in the same context, provision of a complete housing unit
necessitates the involvement of more agents and creates different forms of social relations
between them. This even in¯uences the relations of the agents with the state since addi-
tional building regulations and standards apply to the building and commercial exchange
of a complete unit than the subdivision and sale of an empty plot. Similarly, the require-
ments of both developers and consumers of an empty plot and a complete housing unit,
which inevitably leads to pressure for government or formal sector assistance and regu-
larisation, would also be different due to differences in the levels of ®nancial commitment,
housing standards and settlement development. Consequently, therefore, due to differ-
ences in agents and their social relations these would constitute two different structures or
modes of housing provision under the overall structure of informal subdivision of land.
The elements of a generic mode or structure of housing provision has already been
identi®ed earlier in the previous section as (a) the existence of a social, economic, political
and cultural framework which governs the processes of provision and consumption of
housing in any particular period and (b) the existence of agents involved in these processes
and whose actions lead to the actual provision and consumption of the housing unit. It is
the interaction and relations between this overall framework and agents which determines
the ®nal form of the structure. Moreover, it has also already been stated that agents
involved in a structure or mode of housing provision range from the consumer households
and community leaders to private developers, NGOs and various government organisa-
tions. The precise composition of a structure of provision, however, depends on its
position within the hierarchy of structures in any given context and period.
Nevertheless, the literature reviewed in this work allows the identi®cation of the overall
socio-economic and political organisation of the state and cultural and social values of the
society at large for creating the initial framework for any structure of housing provision in
the urban areas of developing countries. These, however, must be complemented by
landowners, developers, ®nanciers, builders, building materials producers, consumers,
government regulatory departments and of®cials in the ®eld of urban planning and build-
ing standards as agents directly involved in this process. Together, they constitute the most
basic elements and agents of a generic structure of housing provision in the urban areas of
developing countries which are common in all modes of housing provision to be reviewed
in the following sections. It should be noted, however, that in some cases the roles of some
of these agents may be combined. For example in its most rudimentary form of housing
provision the roles of developer, ®nancier, builder, building materials producer and con-
sumer may be combined by the self-help producer and consumer. Alternatively, in other
cases some functions may require the participation of more than one person to be accom-
plished but can be grouped together for the purposes of this analysis. An example of this is
the function of the builder agent, which in the case of building companies would involve a
whole organisation ranging from building workers, engineers, architects and managers to
accountants and secretaries.
CHAPTER 3
Unconventional or informal modes of housing provision
Unconventional or informal modes of housing provision in developing countries

primarily exist due to the inability of low income groups to purchase high quality and
professionally designed and constructed housing produced through the conventional
sector (UNCHS, 1996c; Gilbert, 1990; Drakakis-Smith, 1981). This situation itself is
brought about by the inability of peripheral capitalist development to absorb large sections
of the urban population in formal sector employment on the one hand or to provide
adequate wages and salaries to large sections of those that are employed by the sector
on the other. As a result the unconventional mode of housing provision has become a
necessary part of urban growth and development in developing countries in order to
provide housing for the vast majority of urban poor who can not gain housing through
the formal sector (UNCHS, 1996c; Gilbert, 1990; Drakakis-Smith, 1981). Consequently,
the state is forced to tolerate and accommodate a certain degree of illegality and
irregularity (UNCHS, 1996c; Gilbert, 1990; Drakakis-Smith, 1981).
However, the exact form of such provision depends on the political, socio-economic and
cultural conditions of the relevant countries and cities within each country (UNCHS,
1996c; Gilbert, 1990; Drakakis-Smith, 1981). In this regard the consolidation of state
power and its willingness to use force to prevent invasions, much in¯uenced by the
main landowners, may be regarded as the main reason for the predominance of a particular
type of informal housing provision (UNCHS, 1996c; Baross and Van der Linden, 1990b;
Gilbert, 1990). Land invasions and illegal occupation, for example, may be tolerated more
in cities with a high degree of public or communal rather than private ownership of land
and also a relatively low value of peripheral land (UNCHS, 1996c; Gilbert, 1990). In
Valencia and Lima squatter settlements have been enhanced by the existence of large
amounts of vacant public land and a tolerant attitude to land invasions and informal house
building (UNCHS, 1996c; Gilbert, 1990). In some west African cities such as Accra and
Kusami, however, squatter invasions are rare despite the availability of large tracts of
communal tribal land. This may be attributed to the power of local chiefs over customary
land and tribal beliefs in supernatural laws of land occupation (Tipple et al., 1999). In
Mexico City, on the other hand, land invasions are much less common than other Latin
American countries due to the harsh response of the state, as a result illegal subdivision of
land has become the dominant form of informal housing provision in the city (Ward, 1990;
Gilbert and Ward, 1985). In a general overview of many cases in Asia, Africa and Latin
America Baross and Van der Linden (1990b), moreover, argue that both the degree of
penetration of market relations in the informal housing provision system and the conso-
lidation of state power in preventing land invasions have led to the replacement of squatter
housing by informal subdivision as the dominant mode of housing provision for low
income households in developing countries during the 1980s. This trend is also acknowl-
edged by UNCHS (1996c) who state that governments are often more prepared to accept
illegal subdivisions since they do not threaten land owning classes in the way that squatter
invasions do.
3.1. Squatter settlements
In the years between 1950 and the mid-1980s squatter settlements provided the most
common form of housing provision in developing countries with an annual expansion rate
of between 15 and 20 per cent up to the mid 1970s (Baross and Van der Linden, 1990b;
Drakakis-Smith, 1981).
These settlements primarily refer to the illegal occupation of land by households for
their shelter purposes. At the same time the low quality and make shift nature of much of
the housing units, particularly at the earlier stages of occupation, also contravenes building
and land use regulations in many developing countries (UNCHS, 1996c; Drakakis-Smith,
1981).
Following the development process identi®ed by Turner in squatter settlements of Lima
many squatters then go on to consolidate and improve their housing units as they get
established and their economic situation improves. Similar Processes have been identi®ed
for settlements in Caracas, Sao Paulo, La Paz and Mexico (Ramirez et al., 1992; Taschner,
1992; van Lindert, 1992; Ward, 1977 quoted in Drakakis-Smith, 1981; Turner, 1976). It
should be noted that such a developmental typology does not necessarily apply to all
squatter settlements and all families in such settlements. Some researches have noted,
for example, that in many poorer squatter settlements in the poorer cities of Asia and
Africa such as Calcutta, Karachi, Dakar and Kinshasa the squatters are trapped in an
extended reception period with no potential for improvement. In other words they do
not move on from their initial stage of occupation (Rosser, 1971; Van der Linden,
1977; Huque, 1982;Gilbert and Gugler, 1982 all quoted in Shakur, 1987). Indeed, even
in Latin American countries where there seem to be the most experience of squatter
settlement improvement through consolidation a distinction must be made between
dynamic improving settlements and static and stagnant ones (Van Lindert, 1992; Ward,
1977 quoted in Drakakis-Smith, 1981). The distinguishing features of the former seem to
be owner occupation, strong group cohesion and the emergence of political leaders and
Community Based Organisations which induce investment in housing and in¯uence
national political leaders for recognition and service provision. While the latter is
characterised by high levels of renting, low group cohesion and community representation
(UNCHS, 1996c; Gilbert, 1990). The determining factor in this situation seems to be the
level of owner occupation that induces both personal investment and group cohesion
(UNCHS, 1996c; Gilbert, 1990). A similar situation is also identi®ed for some informal
settlements on rented land in Bangkok (Yap, 1996). While these settlements are not strictly
squatter settlements since they are on rented land, they still share many of the features of
stagnant squatter settlements in the reluctance of the households in consolidating and
investing in their houses and settlements due to the insecurity of tenure and ease of
eviction by land owners which requires only one month's notice (Yap, 1996).
Squatter invasions occur through two methods of organised mass invasions and gradual
in®ltration by individual families or small groups (UNCHS, 1996c; Taschner, 1992;
Drakakis-Smith, 1981). While both processes have occurred in most developing countries,
the ®rst type has been more common in Latin America and the second type in Africa and
Asia (Drakakis-Smith, 1981). On the whole, however, it can be stated that large scale land
invasions are relatively rare and have generally occurred at times of particular political
situations when either the government has been too weak to enforce eviction or that it has
required political support and therefore accepted the invasions (UNCHS, 1996c; Ward,
1990). Examples of these are large scale invasions in Buenos Aires in 1981 which coin-
cided with the crisis in the military government and in Karachi in 1979 which coincided
with the hanging of the ex-prime minister Zul®qar Ali Bhutto (UNCHS, 1996c).
Moreover, in order to avoid eviction both types of invasion, and particularly large scale
ones, require careful planning which demands relatively complex organisations (UNCHS,
1996c; Drakakis-Smith, 1981). Thus not only some form of organising committees are
formed to choose the place, time and extent of the invasion but also applicants are care-
fully screened prior to joining and some form of implicit or explicit backing is secured
from relevant national or local political agents to ensure against immediate post-invasion
reprisals (Drakakis-Smith, 1981). In the case of Mexico City, for example, it is essential
that invasions are negotiated in advance with the ruling party, otherwise they would be
ruthlessly and quickly evicted by the estate (Gilbert and Ward, 1985).
The actual settlement development and construction varies widely across cities depend-
ing on the income level of squatters and the general socio-economic and political situation
of the city concerned. In certain cases very sophisticated and expensive methods are
employed even at the earliest stage of land development. In one settlement in Lima, for
example, a group of topographers were hired by the squatters to survey, subdivide, and
mark out the land at a cost of US$1000 in the mid 1960s (Turner, 1967 quoted in Drakakis-
Smith, 1981). In the majority of cases, however, the priority for the settlers is to build on
the land as soon as possible. Hence, rough subdivisions by the squatters and very simple
structures in the shortest possible time to gain de facto possession of the land at the initial
stage (Ramirez et al., 1992; Drakakis-Smith, 1981). In most cases such units are then
improved up on by the owner-occupiers over a period of several years depending on their
income and political situation of the country with regard to the acceptance of their settle-
ments. In Bangalore, India, the mean time for the construction of housing units in squatter
settlements is ®ve years, with a minimum of three and a maximum of eight years (Igel and
Srinivas, 1996). Case studies of gecekondu settlements in Ankara and several barrios in
Caracas, on the other hand, have shown that the eventual building standards of many units
are comparable in most or all aspects to conventional middle class housing units in terms
of internal services and building materials.(Drakakis-Smith, 1981; Ramirez et al., 1992).
Moreover, the initial stage mainly involves building through using the household's own
labour and that of friends and family. However, further improvement stages increasingly
involve the use of paid labour and contractors, even for the entire process, and industrially
produced materials (Drakakis-Smith, 1981; Ramirez et al., 1992; Tipple, 1994).
The social organisation of squatters and the regulation of subsequent settlers in the more
established settlements and organised invasions occurs through settlement committees or
associations; while in the individual and gradual invasions the original settlers infer on
themselves a sort of authority in charge of land register to new comers. In both cases,
however, residents with the longest history in the settlement seem to have more in¯uence
than others (Taschner, 1992; Drakakis-Smith, 1981). The role of community organisations
and also NGOs can be crucial in supporting squatters in land invasions to consolidate their
position and conduct negotiations with the politicians and government agencies for recog-
nition and extension of services (Taschner, 1992; Drakakis-Smith, 1981; De Sampaio,
1994; Ward and Chant, 1987). With the experience of Bombay, Desai (1996) states that
community organisations are formed to manage all common affairs of informal settle-
ments including adjudicating in local differences on the use of resources. However, their
primary objective is identi®ed as obtaining basic services such as water, drainage, street
networks and electricity. Moreover, in 1992, in the Bombay slum of Wadala these orga-
nisations were substantial and well organised and were being administered by manage-
ment committees of 10 to 15 elected members including a president, vice president,
secretary and treasurer which required full time commitment by community leaders.
The above settlement in Bombay had 42 community organisations covering about 3500
households (Desai, 1996). Consequently, the activities of the different community orga-
nisations would some times have to be co-ordinated to gain settlement wide bene®ts and
services. However, decision making processes in Bombay slums were dominated by the
community leaders who were invariably better educated, better off ®nancially and better
connected politically than other slum dwellers (Desai, 1996). There was, in addition, no
facilitation of participation in the decision-making processes for the majority of slum
dwellers despite annual elections for the management committees (Desai, 1996).
The supporting role of NGOs in squatter settlements, on the other hand, can be shown
clearly by the case of Basic Ecclesiastic Communities(CEBS) and private organisation of
lawyers, the Centro Oscar Romero, and law students of the Sao Paulo Ponti®cal Catholic
University in supporting the favelados of Sao Paulo against both private developers,
grilerios, intimidation and the public agent landowners' threats of eviction (De Sampaio,
1994).
In addition to the above, NGOs can assist squatter settlements through helping in the
development of appropriate community organisations and mobilisation, providing tech-
nical and organisational skills for aiding self help house building and increasing their
access to housing ®nance through creating ®nancial co-operatives, providing loans
directly or acting as intermediaries with formal commercial banks as guarantors for low
income borrowers (Mitlin and Satterthwaite, 1992; Igel and Srinivas, 1996; Desai, 1996;
UNCHS, 1996a,b,c). The Housing and Local Management Unit in Chile, for example, in
addition to offering a package to low income households which includes both direct credit
and technical assistance for housing improvement, also acts as guarantor for borrowing
from commercial banks (Mitlin and Satterthwaite, 1992). Similarly, FURPROVI in Costa
Rica integrates low income households into the formal housing ®nance system in a gradual
manner by placing them in a separate credit programme on easier terms while their
incomes and creditworthiness improves (UNCHS, 1996b). It should be noted, however,
that a related facet of incremental building is incremental expenditure which overcomes
the problem of large scale loan requirements for house construction since it usually occurs
in several consolidated stages over several years (UNCHS, 1996b; Igel and Srinivas,
1996). Consequently, actual borrowing by any one household at any one time is small
amounts over short periods. In Bangalore, India, for example, informal loans in squatter
settlements are normally repaid within 10±24 weeks and households are reluctant to
accept ®nancial obligations for longer periods due to the irregularity and uncertainty of
their own incomes (UNCHS, 1996b; Igel and Srinivas, 1996). It is partly because of this
characteristic that the vast majority of housing ®nance in squatter settlements is actually
provided through informal channels of the squatters themselves, i.e. personal savings, sale
of previous houses or shacks and borrowing from family and friends. This is clearly
illustrated by the study of three barriosin Caracas by Ramirez et al., (1992). In Sri
Lanka, Thailand and India the share of friends and relatives in ®nancing informal housing
provision, as a whole, accounts to 77, 65 and 70 per cent respectively, with an additional
19 per cent coming from work colleagues and sale or mortgage of property in India and
Thailand (Okpala, 1992).
In addition money lenders and pawnshops account for 9 and 14 per cent in Sri Lanka
and Thailand respectively while formal ®nancial institutions only account for 14 per cent
in Sri Lanka, 10 per cent in India and 0 per cent in Thailand (Okpala, 1992). It is inter-
esting to note that in the case of Kumasi, Ghana, informal lending rates of 15 per cent per
month are common and are used by low income owner occupiers as part of their strategy
for raising building capital (Tipple et al., 1999). This compares to of®cial bank rates of
30±35 per cent per annum. This clearly illustrates the extra ®nancial burden placed on low
income households due to their exclusion from formal banking systems. Consequently,
even though low income housing provision in Kumasi is more in line with informal land
subdivision rather than squatter settlement it is still ®nanced mainly through the house-
holds' own resources which may take the form of savings, windfalls, foreign currency
remittances and family members rather than borrowing (Tipple et al., 1999).
3.2. Informal land subdivisions
As already stated, since the early 1980s illegal subdivision of land by private developers
is gradually replacing squatter settlements as the dominant form of housing provision in
most developing countries (UNCHS, 1996c; Baross and Van der Linden, 1990b). The
change in Nairobi's informal settlements between 1969 and the mid 1990s, from areas
where housing was primarily characterised by self build to areas where commercial and
market mechanisms dominate the low income housing scene both for rent and owner
occupation, exempli®es this changing process (Amis, 1996). This mode of provision is
dominated by private developers who either work with private land owners or take over
and subdivide suitable public land. Such land is then sold to low and middle income
households or even incipient building contractors for housing purposes (UNCHS,
1996c; Baross and Van der Linden, 1990b). In addition in some cities such as Bangkok
there is also an increasing tendency for provision of complete housing units on informal
subdivisions by the above-mentioned developers (Angel and Pornchokchai, 1990).
In some other countries particularly many West African cities and Papua New Guinea
there is also a high degree of informal subdivisions on customary land which was given to
households as gifts by original customary owner or another person who has the right to
allocate it (UNCHS, 1996c; Tipple et al., 1999). However, these gifts also involve some
form of payment which has increasingly become more in line with the commercial price of
the land (UNCHS, 1996c; Tipple et al., 1999). With regard to Abidjan, Nigeria, for
example, the 1996 UNCHS (Habitat) report on human settlements states that the price
of such gifts were originally very symbolic such as ªthe price of a drink and the price of
pulling up crops; now they involve much more substantial gifts and may occasionally
reach the size that is comparable to the commercial value of the landº (UNCHS, 1996c,
p. 241). Similarly, Tipple et al. (1999, p. 260) note `commercialization of community and
ancestral land in Ghana is becoming increasingly common; from pure tribute before the
1960s, drink money has become a notional market price in modern times. In areas where
the demand for residential land has outstripped the pace at which the planning authority
prepares its sector layouts, landholding chiefs are resorting to preparing their own (paral-
lel) layouts'.
The actual characteristics of informal subdivisions, their integration into local housing
and land markets, and the social position of developers and type of families who buy such
land varies from city to city. However, the following general features can be identi®ed:
1. Planned layout, where the developer hires an engineer or surveyor to subdivide the land
into residential plots and in some cases even public utility spaces such as parks and
schools and the road networks, etc. These usually follow the pattern set by formal
subdivision lands (Baross and Van der Linden, 1990b).
2. Service standards can vary from non-existence to basic. However, usually settlers are
promised higher standards at later stages (Baross and Van der Linden, 1990b).
3. The receipt of sale documents by settlers which register the sale and the belief in the
connection of the developers gives settlers a high degree of con®dence in their security
of tenure (Baross and Van der Linden, 1990b).
4. Similar to squatter settlements there is a high degree of self building in the housing
development process of informal subdivisions. However, due to the commercial nature
of land provision, wage labour and contractors are used more often and at earlier stages
than squatter settlements. In addition, there is also a relatively high degree of spec-
ulative house building by incipient contractors and building for rental purposes by
household settlers and others from the very beginning (Baross and Van der Linden,
1990b; Tipple et al., 1999; Amis, 1996; Amis, 1984 quoted in Payne, 1988).
The bene®ciary households of this mode of provision, in general, tend to be the higher
income groups of the low income and also the middle income households who have been
hit hardest by the withdrawal of government provision of direct housing and have saved up
to gain access to land for housing. This is clearly shown in the case of informal subdivi-
sions in Cairo, Bangkok, Karachi and Nairobi (Amis, 1996; Baross and Van der Linden,
1990b; Steinberg, 1990; Angel and Pornchokchai, 1990; Niented and Van der Linden,
1990). Hence the higher use of wage labour, contract builders and modern industrial
materials. In the case of Cairo, for example, settlers in informal subdivisions are usually
workers who have saved by working in oil rich countries and buildings are usually either 2
or 3 storey or 4±6 storey apartment blocks which are also used for rental purposes
(Steinberg, 1990).
Land plots chosen for informal subdivision are usually located in the periphery of cities.
Development on such plots is usually either prohibited or subject to strict regulations due
to their value as agricultural land or limitations of Master Plans, etc., (Steinberg, 1990). In
addition such subdivisions are usually much lower than of®cial standards required for plot
sizes, building density, right of way, public utility spaces, degree of infrastructure
provision, etc. (Steinberg, 1990). Consequently, while the modus operandi of these
developers is very much similar to legal developers, layout approval is not sought.
The social organisation in such settlements, while having many similarities, is also
some what different to squatter settlements. In this case the developer undertakes all the
negotiations with the related government agencies to ensure de facto security and service
provision and with neighbouring land owners to ensure the right to pass an access road to
the site (Baross and Van der Linden, 1990b; Angel and Pornchokchai, 1990). Indeed, in
some cases the developers have been so effective in in®ltrating and manipulating of®cial
agencies that of®cials in such agencies have become de facto employees of the developers
(Hassan, 1986 quoted in Payne, 1988). In Karachi, for example, government of®cials
normally receive a percentage of the sums agreed as compensation for land transfer and
up to 30 per cent of all plots on which they can speculate (Hassan, 1986 quoted in Payne,
1988). In Nairobi, on the other hand, 35 per cent of local administrators who are in charge
of building rights in informal areas were found to also be landowners in those areas during
the early 1980s (Amis, 1984 quoted in Payne, 1988). Additionally, in many cases devel-
opers have a continuous involvement in the affairs of the settlements even after all the
plots have been sold by continuing negotiations with the authorities for infrastructure
provision and the general consolidation of the settlements (Baross and Van der Linden,
1990b; Hassan, 1988 quoted in Payne, 1988). Moreover, village headmen and tribal
leaders can also play a role by assisting in the negotiation process between the developer
and other landowners in the area (Angel and Pornchokchai, 1990). In spite of this,
however, NGOs and CBOs can still play similar roles as in squatter settlements,
particularly in settlements where developers are only involved in the initial stage of
land subdivision and sale.
The categories of sources of ®nance for house building described in the squatter settle-
ments also apply to land purchase and house building in informal subdivision. However,
the price of land itself is usually paid with a down payment of 20±30 per cent and the rest
in instalments over 2±3 years (Angel and Pornchokchai, 1990). In addition, the developers
and local building materials yards can also provide technical assistance and additional
®nance to the settlers as in the case of settlements in Karachi (Hassan, 1988 quoted in
Payne, 1988).
Provision of complete housing units on informal land subdivisions
Finally, it must be noted that in some countries there is an increasing trend towards the
provision of the full package of land and housing unit by the informal sub-dividers. In
Bangkok, for example, land and house projects began to overtake the pure land subdivi-
sion projects during the late 1970s and the early 1980s (Angel and Pornchokchai, 1990).
Indeed, between 1974 and1984 the market share of the former increased by 124.5 per cent
while the share of the latter increased by only 26.4 per cent (Angel and Pornchokchai,
1990).
3.3. Informal low income rental housing
Many sections of the low income and ®rst time immigrants to urban areas, however,
neither have the effective demand for an informal subdivision plot nor a ®rm foothold in
the urban environment with the appropriate social connections to join a squatter settlement
as owner-occupiers. Consequently, they ®nd rented shelter in overcrowded central city
slums, specialised rental slums in the periphery areas or in squatter settlement and infor-
mal subdivisions (Amis, 1996; UNCHS, 1996c; Rakodi, 1995; Gilbert, 1990; Roy 1983;
Drakakis-Smith, 1981). Alternatively, low income households may also build their own
units on rented land (Yap, 1996; UNCHS, 1996c; Rakodi, 1995). The proportion of
households in rental accommodation tend to vary between different countries and cities.
However, the available data suggests that, in the main, in comparison with the various
forms of owner occupation the rate of tenancy reduces with economic development of the
countries concerned and improvements in the income of households. This is shown by the
fact that the proportion of renters in urban centres of India have fallen from 53.7 per cent in
1961 to 46.4 per cent in 1981 and 37 per cent in 1988 2 (UNCHS, 1996c). Similar reduc-
tions can also be seen for the Colombian cities of Cali and Bogota where the proportion of
tenants has respectively reduced from 42 and 50 per cent in 1973 to 27 and 40 per cent in
1985 (UNCHS, 1996c). Moreover, the available data also suggests that during the 1980s
the highest amount of renting occurred in the cities of West and sub-Saharan Africa with
some cities such as Port Harcourt, Nigeria, and Thika, Kenya, respectively having as much
as 88 and 91 per cent of their households in rental accommodation (UNCHS, 1996c). It
should also be noted that in most cities in developing countries commercial rental accom-
modation in the low income areas is still provided on a small scale and in many cases by
owner occupier landlords (Rakodi, 1995; Kumar, 1996).
Some authors have argued that the situation of renters is much more pessimistic than the
owner occupiers of the previous two modes (Drakakis-Smith, 1981). As already noted for
squatter settlements the main factor in dynamic and improving settlements seems to be the
dominance of owner occupiers which induces both group cohesion and spending on
improving the housing units as opposed to rented accommodation which tends to have
the opposite effects. Moreover, landlord±tenant relationships in low income areas have
also been traditionally perceived as highly exploitative with minimum security of tenure,
bad living conditions and relatively high rents for the tenants (Amis, 1996; Kumar, 1996,
and Rakodi, 1995).
However, new evidence by Tipple et al. (1999) with respect to the Ghanaian cities of
Accra, Kumasi and Berekum largely points to low rental levels and low levels of exploita-
tion of tenants. It is interesting to note that rental levels in the studied cities have remained
very low in international terms despite the effective abeyance of government controls
since the mid 1980s. As a percentage of household incomes average rents for a single
room in traditional compounds ranged from 2.04 per cent in Accra to 2.37 per cent in
Kumasi (Tipple et al., 1999). Consequently, there is an established custom of advanced
rental payment of 2±3 years with some tenants volunteering such advances in order to
assist landlords with repairs and improvements (Korboe, 1993 quoted in Tipple et al.,
1999).
However, new evidence provided by Amis (1996) from low income rental accommoda-
tion in Nairobi's Informal settlements suggests that the level of exploitation of tenants by
landlords in terms of high rents is dependent on the level of commercial informal housing
development and rental housing output. Thus in Nairobi's informal settlements there has
been a general decline in the real value of rent levels in line with the decline in the real
2
It should be noted that these ®gures include the public and formal private rental sector as well as the informal
sector. However, as UNCHS itself has acknowledged it is safe to assume that the vast majority of these renters are
accommodated through the informal rental market (UNCHS, 1996c).
value of wages and stable conditions of overcrowding between 1970 and 1992 (Amis,
1996). This has been largely due to the signi®cant increase of rental housing provision in
informal settlements which is due to defacto recognition of these settlements and tolerance
of informal commercial housing activity by the government which has led to an annual
compound rate of growth of 12 per cent in Kibera the largest informal settlement in
Nairobi (Amis, 1996). To this must be added the inability of landlords to extract higher
rents due to the shear poverty of tenants (Amis, 1996). At the same time, Amis notes that,
in Zimbabwe the government has successfully constrained the growth of informal settle-
ments in Harare and Gweru but the cost has been increased rents and overcrowding in the
existing low income rental stock (Amis, 1996). Moreover, as noted by several authors, in
many cases rented accommodation is also the only or preferred option for housing for
many low income households, due to their particular circumstances and the advantages it
provides in terms of central location, relatively lower costs and ¯exibility, despite any
shortcomings they may have (UNCHS, 1996c; Rakodi, 1995).
The physical conditions of such housing tend to vary depending on the type of rental
shelter. The conditions of squatter settlements and informal subdivisions has already been
described. Overall, the rental stock in these areas tends to be of low quality (Amis, 1996,).
Rental accommodation in central city slums on the other hand tends to consist of large
buildings or tenement blocks which were once occupied by the high and middle income
groups but are now in a state of dilapidation and disrepair due to neglect by new landlord
owners. In these cases while the actual buildings themselves are not illegal in terms of land
and construction the accommodation provided tends to be extremely overcrowded, unhy-
gienic and in a dilapidated condition with houses and tenements divided in to cubicles or
single rooms and minimal, communal or even non-existent service facilities for hygiene
and cooking (UNCHS, 1996c; Rakodi, 1995; Drakakis-Smith, 1981; Ha®zi, 1981).
Special rental areas, on the other hand, refers to situations where major and minor
landlords develop their land particularly for renting to low income migrants. The best
example of this type of housing provision is probably the bustees of Calcutta (UNCHS,
1996c; Roy, 1983). This type of settlement grew near the industrial areas in the periphery
of the city and the dock area and were created when feudal landlords leased their land to
middle men who in turn built huts for rental to migrants (UNCHS, 1996c; Roy, 1983). The
physical conditions of such huts are very rudimentary and consist of bamboo, mud, tiles
and corrugated iron sheets with each hut containing eight cubicles which are then rented to
families (Roy, 1983). The population of bustees varies from 100 to 20,000 persons (Roy,
1983). Another example of this type of rental accommodation can be found in buildings
which were originally built as hostels or dormitories for industrial workers and domestic
servants such as the mesones in San Salvador which housed 22 per cent of the city's
population in 1986 and were mainly owned by rich families (Rakodi, 1995). This type
of housing can be found in both central and peripheral areas of cities (Rakodi, 1995).
3.4. Self built housing on rented land
In addition to the above, in some cases low income households have also built their own
units on rented land (Yap, 1996; UNCHS, 1996c; Rakodi, 1995). As already stated, this
form of informal settlement exists in some areas of Bangkok (Yap, 1996; UNCHS, 1996c;
Rakodi, 1995). However, while the households have more control over their housing units
due to their own efforts they are still subject to lack of security of tenure over the land and
resultant unwillingness to invest in their housing units and consolidate their settlements
(Yap, 1996; UNCHS, 1996c; Rakodi, 1995). Other examples of self built housing on
rented land are to be found in Papua New Guinea, Fez in Morocco, Calcutta, Mombassa
and Abidjan (UNCHS, 1996c; Rakodi, 1995).
CHAPTER 4
Conventional or formal modes of housing provision
The conventional or formal mode of housing provision mainly caters for the high
income groups of the urban population in developing countries. This is mainly achieved
through the private market. In addition the state, either directly or indirectly, also provides
housing units for some sections of the low income groups and essential government
employees through this mode. To these must be added co-operative housing provision
which can be formed either through government channels or independently. As already
stated this mode in the main utilises of®cial channels for access to land, ®nance and
building materials. In addition units are built according to of®cial building standards
mainly using industrial materials and semi-industrial to industrial building techniques.
4.1. Government housing provision
Governments get involved in housing provision either to strengthen the state apparatus
by building housing units for essential employees such as technocrats, middle±high
managers and security and military personnel or for the lower income groups. This can
be done either directly by initiating building programmes for complete housing units or
indirectly through aided self help and settlement up grading programmes. These are
discussed below.
4.1.1. Direct government housing provision

Apart from house building for government employees many Governments attempted to
solve the housing shortage of the low income population by initiating mass house building
programmes during the 1950s, 1960s and 1970s in order to resettle the residents of squatter
settlements (UNCHS, 1996b,c; Okpala, 1992; Drakakis-Smith, 1981). Some writers have
also noted that the political motive of pacifying the low income population, nation build-
ing and being seen to be doing something were the main reasons behind such programmes
(Drakakis-Smith, 1981).
These programmes are usually ®nanced directly by the central government or parastatal
®nance institutions (UNCHS, 1996b,c; Okpala, 1992). In most situations there was little
planning with regard to matching the needs of the low income population and the physical
characteristics of such programmes (Drakakis-Smith, 1981). The architecture, size and
technology of construction of these programmes were in most cases in¯uenced by the
interests of private contractors who were involved in the actual construction of such
projects. As a result many projects were grossly inadequate for the living conditions of
the low income groups (Drakakis-Smith, 1981). In addition, such blocks were in many
cases very small and highly inadequate for larger families and/or had very basic services
with communal kitchens, toilets and washing facilities (Drakakis-Smith, 1981; Yap,
1996). Moreover, the need for reducing costs meant that many projects were on cheap
land in the periphery of cities with bad access to jobs and also cutting back on the general
construction work which has led to severe shortcomings in the overall quality of construc-
tion as well (Okpala, 1992; Ogunshakin and Olayiwola, 1992).
The technology adopted in many cases was based on industrial building systems in the
hope that the rationale of factory and industrial production will lead to more ef®cient
housing production and lower costs (Okpala, 1992). In reality, however, the massive initial
costs of investment, shortages of skilled labour, materials and foreign exchange for the
ef®cient running of prefabrication factories, importation costs, etc., led to much higher
costs than alternative techniques. A study of three building systems of load bearing tradi-
tional construction, reinforced concrete skeleton and brick in®ll, and large panel prefab-
ricated advanced construction, in Egypt has shown, for example, that the fully industrial
and semi-industrial systems are respectively 30 and 10 per cent more expensive than the
traditional one (Okpala, 1992). This only refers to the cost of construction and does not
include the cost of initial capital outlay required to set up the industrial system.
One of the more famous cases of such projects occurred in Caracas when 85 super-
bloques were constructed between 1954 and 1958 during a crash programme. Residents of
squatter settlements were transferred to these bloques with out any preparation. The
mismatch between resident requirements and housing provision and the general inade-
quacy of social facilities in the area, particularly education, has led to substantial social
problems in the area (Drakakis-Smith, 1981).
Due to the mismatch of government built apartment blocks and resident requirements
they have in some cases made ingenious and extensive but illegal changes to the original
buildings. One example of such changes is the illegal extensions of government built
apartment blocks in Helwan, Egypt (Tipple and Wilkinson, 1992). These extensions
normally involve building ®ve-storey framed concrete column and/or brick structure to
any side of the blocks which then provides an extra room to the residents of the blocks in
each apartment (Tipple and Wilkinson, 1992).
Nigeria, on the other hand, undertook mass housing provision in 1971. The original
target of 54,000 units over two years was amended to 202,000 units per year in 1976
(Ogunshakin and Olayiwola, 1992). In reality, however, the programmes have been miser-
able failures with only 19±20 per cent target completion rates with tremendous collusion
between contractors and of®cials in squandering resources allocated to the projects
(Ogunshakin and Olayiwola, 1992). Moreover, in many cases projects have been delivered
in an incomplete state with no windows, doors or ¯oor covering. The general quality of
work is very poor and projects are located in peripheral areas with problems of access and
security (Ogunshakin and Olayiwola, 1992). Worse still corruption, political pressures and
of®cial indecision mean that thousands of ¯ats remain not allocated with more than 5 years
delay in allocation (Ogunshakin and Olayiwola, 1992). In any case the cost of the units and
favouritism in allocation means that practically no low income person can afford or ever
hope to obtain such units (Ogunshakin and Olayiwola, 1992).
Sadly, the case of the Nigerian housing programme is not unique in developing
countries. While degrees of success vary in different countries, it can be stated that,
with the exception of relatively few countries such as Singapore and Hong Kong where
85 and 45 per cent of the population are housed through government housing provision,
and some socialist countries such as China, direct public housing programmes in devel-
oping countries have been a complete failure with direct public housing contributing to
only about 10 per cent of the total housing stock in general (UNCHS, 1996a,b,c; World
Bank, 1993; Okpala, 1992; Tan and Sock-Yong, 1991). This applies practically to all
aspects of housing provision including inadequacy of design for cultural and geographical
conditions, bad location, poor construction, inability to meet targets, and high costs. A
combination of these factors has either put such housing beyond the reach of low income
groups or has trapped them in unsuitable housing (UNCHS, 1996a,b,c; World Bank, 1993;
Okpala, 1992; Tan and Sock-Yong, 1991). In addition such units can only be allocated to
low income households with very high subsidies. In Bangkok, for example, the rent for
public housing apartments is set at 300 Baht per month to make them affordable for low
income households while the actual minimum economic rent for these units is estimated at
1000 Baht per month (Yap, 1996).
4.1.2. Indirect government housing provision

Faced with increasing housing shortages and the inability of making an impact through
direct provision and the in¯uence of major aid agencies such as the world bank many
governments in developing countries adopted indirect housing provision strategies for the
low income urban populations through aided self help projects such as sites and services
and settlement upgrading, during the 1970s and 1980s (Burgess, 1992; Pugh, 1994;
Drakakis-Smith, 1981).
4.1.2.1. Sites and services The main rationale of this mode of housing provision is to repeat
the success of the incremental house building and improvement process of the informal
settlements in providing affordable housing units for the urban low income households
through government sites and services projects. This would be achieved by the provision
of subdivided and serviced sites to households who would then be primarily responsible
for the building of their own housing units, at their own pace. An alternative version of this
form is the provision of core units, i.e. a minimum-shelter unit which can be occupied
relatively quickly by the household and extended when the occupier can afford the time or
money. A major assumption with these projects is that a large degree of the work would be
carried out by the occupants in the form of self help labour thus reducing the cost of
construction. In reality, however, most self help projects involve a high degree of paid
labour and contract building. In Matero in Lusaka, for example, 92 per cent of households
in the sites and services projects used hired labour (Tipple, 1994).
The main actors involved in sites and services projects are international agencies,
international consultants, central and local governments, local consultants, local planning
organisations and of®cials, local construction companies for carrying out the actual work
of land preparation, and the households (Soliman, 1986). Obviously, if the project is solely
®nanced by the central or local government then international agencies and consultants
may be absent from these actors. The implementation procedure of such projects involves
a whole range of negotiations which must be undertaken between at least some of these
actors at the international, national and local levels (Soliman, 1986). In addition to the
main actors, landowners whose land may have been chosen for the project, local builders
and of®cial and unof®cial ®nanciers may also be involved in the process of project
implementation and building construction. As already stated most projects are ®nanced
by international agencies. However, national governments can also ®nance projects on
their own accord. After the 1979 revolution, for example, sites and service programmes on
expropriated land became the mainstay of the Iranian housing policy for all income groups
in all urban areas (Moatazed-Keivani, 1993).
After some 25 years of implementation; government sites and services projects have
also failed to deliver the original promise. The failures of sites and services projects and
self help policies in general can be summarised as follows:
Firstly, levels of output have been very low in comparison to the housing shortage.
Between 1972 and 1981, for example, 9 million people in developing countries had been
reached through both sites and services and settlement upgrading projects while at the
same time an annual production rate of 8.7 million was required to address the housing
shortage of the low income population (Burgess, 1992).
Secondly, the organisation of these projects is such that they require setting up different
of®ces and agencies to overlook the project and involves negotiations between many
parties even prior to the implementation. All these require staff, incur additional costs
and are time consuming. Indeed, many sites and services projects take between 8 and 10
years from inception to completion (Soliman, 1986). Similar problems wit regard to the
acquisition of land have been identi®ed as one of the main reasons for the failure of sites
and service programmes in Bangkok (Yap, 1996). Moreover, such projects imply a
monthly charge, down payments and different fees for registration, building permission,
etc. These and other bureaucratic costs of the projects which can account for up to 50 per
cent of the total budget are such that it puts them out of the reach of many low income
households. Consequently, many of the low income households are either screened out in
the selection stage or sell out to the middle income groups (Burgess, 1992, and Soliman,
1986).
Thirdly, the bad location of many projects on cheap peripheral land and inadequate
transport facilities still causes problems of access for settlers to places of jobs in the cities
(Soliman, 1986).
Fourthly, residents do not get adequate technical and ®nancial support for improving
their housing conditions (Soliman, 1986).
Fifthly, government involvement in such projects can often lead to land speculation and
price increases in urban land around the site since this will be deemed as gradual govern-
ment recognition for the development of the area as a whole (Soliman, 1986).
Finally, it has also been argued that by introducing residents through auctions from
different backgrounds and locations into such sites the homogeneity and co-operative
spirit which exists in spontaneous squatter settlements is destroyed (Soliman, 1986).
Consequently, it would be impossible to recreate the processes which in many squatter
settlements eventually lead to good affordable housing (Soliman, 1986). In addition, other
authors have also pointed out that the main advantages of informal housing processes
derive precisely from their informal nature of being able to evade much of the costs
inherent in the formal processes such as building permits, adherence to regulations,
taxes, etc. (Burgess, 1985; Jones and Ward, 1994b). Therefore, any attempt to gain
those bene®ts through imitating the processes in a formal setting will inherently lead to
failure (Burgess, 1985; Jones and Ward, 1994b).
4.1.2.2. Settlement upgrading Settlement upgrading, in itself, does not constitute additions
to housing stocks but as the name implies it leads to higher standards of housing for
existing informal settlements. In carrying out such a process, however, some housing units
in existing settlements may be destroyed and therefore lead to other projects such as sites
and services to resettle displaced families.
As with sites and services, slum upgrading programmes are usually on a project basis.
However, in some cases such as the slum upgrading programme of Karachi and Kampung
Improvement Programme of Indonesia it can become an essential part of the overall
physical planning process of the urban areas of the country affecting all informal settle-
ments (Saleem, 1983; Silas, 1983). Again as with sites and services the projects are mostly
®nanced and organised at an international level, however national governments also carry
out independent projects as well such as the Karachi upgrading programmes (Burgess,
1992; Saleem, 1983; Soliman, 1986). The main actors involved in these projects are,
therefore, similar to those for sites and services. Similarly, these projects may share
some of the problems of sites and services programmes such as complex organisations
and delays in project completion. In addition such projects can suffer from further delays
due to the reluctance of original landowners to allow upgrading in settlements on their
lands whether legally rented out or squatter settlements (Yap, 1996).
The basic aims of these projects are:
² Regularisation and provision of security of tenure through of®cially leasing the land to
the occupants. This can also involve negotiation with the original landowner for
nominal payments for the land.
² Provision of services with immediate provision of basic services such as water and road
networks and designation of space for further infrastructure work and public utilities.
Cost recovery for the projects occurs through household payments on the basis of the size
and type of land use occupied (Saleem, 1983; Silas, 1983).
Apart from problems of implementation the other main issue that has been raised with
upgrading programmes is that they mainly work to the bene®t of owners as opposed to
renters. This is due to the fact that these programmes always lead to very high increases in
house prices due to regularisation and provision of infrastructure and hence increased
commercial viability (Varley, 1987 quoted in Payne, 1988). In Karachi, for example, a
price rise of 39.8 per cent was recorded in average house prices between 1977 and 1979.
This is against the more general of®cial housing in¯ation of 11.9 per cent for this period
(Saleem). Such high prices inevitably lead to much higher rents which can drive out many
existing low income tenants.
4.1.2.3. Co-operative housing Housing co-operatives can be formed through different

means depending on the socio-economic organisation of a country. In Zimbabwe and
Iran, for example, housing co-operatives are actively encouraged by the government
through the work and work place medium (Vakil, 1996; Moatazed-Keivani, 1993). As a
result many housing co-operatives have been formed either through factories, of®ces,
ministries, etc., or through professional associations and trade organisations such the
teachers associations or guild of taxi drivers, tailors, shoe makers, etc. (Vakil, 1996;
Moatazed-Keivani, 1993). At the same time in Zimbabwe and some other countries
such as Mexico, neighbourhood and social organisations and movements, some times in
conjunction with political parties also play a large role in the formation of housing
co-operatives such as the Kugarika Kushinga Co-operative in Harare which was
initiated by a local ZANU political party of®cial in a high density area of the city
which was formerly a designated African township and the UCISV-Libertad (Union of
Settlers, Renters and HomelessÐFreedom) in Mexico City (Vakil, 1996; Meffert, 1992).
Housing co-operatives, therefore, may also be identi®ed as a form of Community Based
Organisation with a generally higher and more formal type of organisation than the CBOs
described in the informal modes of housing provision. As a result this type of CBO is more
readily accepted by local and central governments and operates mainly within the formal
channels and rules and regulations of housing provision.
This system allows groups of people to organise themselves and pool their resources
and efforts into a formal organisation which can then negotiate on behalf of its members
for acquiring land from the government or the private market, applying for and receiving
credit or mortgage loans from government and formal sector institutions, receive building
materials and commission contractors for building the housing units (Vakil, 1996; Okpala,
1992). Members, usually contribute in agreed proportions to the house building fund of the
co-operative to supplement the ®nancing or construction of the groups programmes or
projects (Vakil, 1996; Okpala, 1992). In some situations members can also contribute
through their labour in order to reduce the cost of construction. In the case of one co-
operative housing project in Mexico City, for example, the members of the co-operative
provided a large degree of self help labour and administration to the contractor in the
construction of the housing project which led to about 10 per cent savings in the total costs
(Meffert, 1992). Similarly, while many co-operatives in Zimbabwe utilise contractors and
contract labour to meet the required building standards and for more convenience in terms
of balancing their own work and the house building work, they also provide some self help
labour for reducing costs (Vakil, 1996). Moreover, in the case of Cotton Printers co-
operative in Harare the co-operative organisation has even manufactured some of the
building components such as door and window frames and bricks and moulded concrete
parts to reduce costs (Vakil, 1996). As can be gathered from the utilisation of formal
channels and contractors the technology of production in this system is usually semi-
industrial and conventional using factory produced modern materials, while richer
co-operatives may even use industrialised building systems (Okpala, 1992). In addition
such housing is produced according to of®cial building standards and land use regulations.
The level of involvement and control of members in the activities and decisions of the
co-operative including the design and construction of housing projects varies in different
socio-economic settings. In the case of UCISVÐLibertad in Mexico and the Zimbabwean
co-operatives there is a high degree of involvement of members in all aspects of decision
making of the co-operative and over their projects (Vakil, 1996, and Meffert, 1992). The
trade and work co-operatives in Iran, on the other hand, offer very little scope for member
involvement and decisions are concentrated in the hands of management committees.
In most developing countries, however, the impact of the co-operative system on the
overall provision of housing has been very limited (Okpala, 1992). Nevertheless, in a few
countries such as India, Turkey and Iran the share of this system in overall housing
provision is substantial. In 1984, 18 Apex co-operative Housing Societies in India covered
some 34,000 housing co-operatives and by 1982 had provided loans for the completion of
480,000 dwellings (Okpala, 1992). In Turkey, on the other hand, the contribution
of housing co-operatives to the total housing production during 1978 to 1980 was more
than 13 per cent (Okpala, 1992). In Iran, housing co-operatives were responsible for about
6 per cent of the total investment in housing in 1985 (Moatazed-Keivani, 1993).
4.2. Private sector housing provision
To date formal private sector housing provision in developing countries has, by and
large, been for the middle and high income groups of urban population of developing
countries (Tipple et al., 1999; World Bank, 1993; Baken and Van der Linden, 1993;
Duran-Lasserve, 1987; Drakakis-Smith, 1981). The Contribution of this system to overall
housing provision in developing countries, varies from about 20 per cent in most devel-
oped countries to about 60 per cent in the more developed and higher income countries
(Okpala, 1992; Drakakis-Smith, 1981).
Housing provision through this mode can take many forms from individual house
building which is initiated and ®nanced by the individual owner-occupier and built by a
small contractor to small and large scale speculative residential developments. The deter-
mining factor in this regard is the level of development of the private housing market and
the presence of commercial housing developers whose function is the initiation and
speculation in housing development (Drakakis-Smith, 1981). Consequently, the larger
the presence of housing developers the higher the share of large scale speculative building.
The presence of developers also encourages active joint venture schemes on the side of
both the government and the developers in order to expand low cost housing provision in
the country (Drakakis-Smith, 1981).
4.2.1. Formal private housing development by individual owner occupiers

Given the low level of development of the housing markets of developing countries, it
can be assumed that the most common form of housing provision through the formal
private sector is that initiated by an individual owner occupier and designed and built
by commissioned architects and builders. In the urban areas of Iran, for example, the share
of house building for personal consumption ranged between 76 and 92 per cent of the total
annual production in the 10 year period of 1976 to 1986 (Moatazed-Keivani, 1993). While
being part of the formal private sector provision, a major part of the ®nancing of the
production of such units, however, were from personal means of savings, sale of jewellery
and other valuable items and borrowing from family and friends. Formal housing ®nance
through the banking system usually provided about one third of the actual cost of construc-
tion of these units during the late 1980s (Moatazed-Keivani, 1993). Given the general
under-development of ®nancial institutions and markets in developing countries it is fair to
assume that this situation also applies in most other countries of the developing world.
Speculative housing provision by the private sector, on the other hand, can occur on a
large scale which requires the involvement of formal banks for the provision of credit and
is usually intended for the high income groups of the population whose effective demand is
guaranteed (Baken and Van der Linden, 1993).
4.2.2. Commercial formal private housing development

In Bangkok, Thailand, a combination of high economic growth and increased real
wages and effective demand among all sections of the population, supportive policies
by the government in the form of tax incentives and credit allocation and ample supply
of mortgage ®nance from both commercial banks and the Government Housing Bank has
led to a situation where the share of developer built housing has increased from 26 per cent
of all housing units in 1974 to 50 per cent in 1993 (Yap, 1996; Dowall, 1992, 1989). The
share of individually produced units, on the other hand, has reduced from 45 to 35 per cent
during the same period (Yap, 1996). At the same time private developers have increasingly
targeted the lower middle income groups with small condominium apartments of 21±35
square metres consisting of one large multi purpose room, a bathroom/toilet and balcony
(Yap, 1996). The share of such units in private developers' activities has increased from 3
per cent in 1974 to 34 per cent in 1993 (Yap, 1996). Moreover, the affordability of the
cheapest housing unit produced by private developers has increased from 15 per cent of
the population in 1980 to 55 per cent in 1988 and 70±80 per cent in 1994. (Yap, 1996). At
the same time it should be stated that a relatively large percentage of these units have been
taken up by higher middle income groups as investment. This is shown by the fact that in
1995 some 35 per cent of over 300,000 such units built in the Bangkok area remained
vacant despite having been sold (Yap, 1996). Moreover, Baken and Van der Linden (1993)
have noted that the small size of such condominiums has made them unsuitable for the
consolidating and larger low income households, particularly as they are also too small for
home economic activities. At the same time increased land prices has led to increased
eviction of slum dwellers and reduced opportunities for renting land or a house in slum
areas (Baken and Van der Linden, 1993). Consequently, the effect of increased formal
private sector activity in housing production in Bangkok is seen as leading to reduced
access of the lowest income groups to housing and shelter, even in slum areas. While at the
same time having minimal impact on low income housing situation in general in spite of
the increased affordability of the above mentioned small condominiums (ibid).
4.2.3. Joint venture between small scale developers and land owners
While much of housing development in Bangkok is carried out by small scale devel-
opers there are still situations where many formal speculative house building projects are
carried out on even smaller scales, often by developers who are themselves short of ®nance
and working capital and who, in the main, do not utilise the formal credit systems. In
Turkey, for example, a major part of speculative residential development is carried out by
small scale developers who make a joint contract with landowners to develop their lands
into apartment blocks in return for a share of the apartment units (Baharoglu, 1996). In
these cases developers usually have a small amount of working capital to start with,
comprising about 26 per cent of the total cost of the development (Baharoglu, 1996).
With this capital developers start their work build a basement and ground ¯oor ¯ats which
are then sold (Baharoglu, 1996). With the money gained from the sale of the basement and
ground ¯oor ¯ats work is restarted and the remaining ¯ats are pre-sold before completion
which provides additional working capital. In this way the small scale developer normally
secures about 60 per cent of the total cost of the project, borrows another 14 per cent from
building materials producers and others as required and ®nishes the project with out any
recourse to the formal institutions at all (Baharoglu, 1996). This mode of housing provi-
sion increased particularly after 1984 when the Turkish government legalised all gece-
kendu squatter areas which then attracted many private developers for speculative house
building. A similar process of starting work with limited capital and pre sale of units by
small scale developer/builders was also observed by the author in Iran during the 1990s. In
this case, however, while cases of the exchange of land for shares in the built apartments
were also observed, developers usually bought the land from owners and also utilised the
banking system for some of their working capital.
4.2.4. Developer±community co-operation

There are also rare examples of situations where there is a high degree of co-operation
between private developers and low income households for the provision of cheap afford-
able housing. In one such case in India, the developer, not only acted as developer and
builder but took on the role of NGOs and CBOs in organising the community to save
regularly in order to be able to afford monthly payments into a construction fund for their
housing units (Garg, 1990). In addition the developer also negotiated with the banks and
acted as guarantor for extending credit to the low income people who would then repay the
banks in stages. Finally, the developer also adopted a ¯exible approach to construction
where by the project was phased in stages in such a way as to account for the low income
of the households (Garg, 1990).
4.3. Public±private joint venture schemes
Joint venture schemes between public and private sectors provide the ®nal form of
housing provision by the formal private sector. In this case public authorities usually
provide cheap suitable land and tax incentives and private ®rms ®nance and build housing
units on these land in exchange for being able to sell an agreed part of the projects on the
open market and offer the rest to low income households at agreed prices. Such schemes
have been tried in many countries including Malaysia, India and Iran (Billand, 1993;
Moatazed-Keivani, 1993; Drakakis-Smith, 1981). Depending on the context, the design
criteria of at least the low income section of the project is negotiated with, or determined
by, the government side (Moatazed-Keivani, 1993). The success of such schemes is
primarily dependent on the political will of governments to pursue the policy on the
one hand and the attractiveness of the scheme to private developers in terms of pro®t-
ability, on the other. In Iran, for example, until 1990 these schemes had not been very
successful due to the bad locations of the land plots offered by the government which
created problems of sale of the units on the open market (Moatazed-Keivani, 1993).
CHAPTER 5
Concluding remarks on modes of housing provision
The above discussion on modes of housing provision in developing countries shows the
failure of public housing programmes particularly direct housing provision. Indeed, in the
main only around 10 per cent of housing has been produced through the public sector in
developing countries and even then many of these units have proved to be inadequate for
the needs of the low income populations.
The vast majority of the urban population are, therefore, being housed through the
formal and informal private market mechanisms. Given the social, economic and political
situation and the level of income of the populations of the countries and cities concerned,
each of the main forms of squatter settlements, informal subdivisions and even informal
rental housing has proved to be the most appropriate form of provision for the majority of
the urban population in each given situation. Nonetheless, many of housing units provided
through these forms are in places of lowest environmental quality and with inadequate
services and materials which lead to major health and safety problems (World Bank,
1993). In addition, large sections of the low income populations can not afford to have
their own housing units even through the informal mechanisms and are therefore renting
rooms in very inadequate shelters and can be subject to exploitative pressures by their
informal landlords in situations of scarcity of such housing (Amis, 1996, and Tipple,
1994). Formal private market activities, on the other hand, are in the main appropriate
for, and only limited to, the high and middle high income groups or about 10±20 per cent
of the urban population (Ibid and Okpala). Co-operative housing provision, on the other
hand, is only signi®cant (6±13 per cent) in a few and largely underdeveloped in most
countries.
Consequently, it is now recognised that in the face of one billion people living in
severely inadequate housing conditions it is not possible to meet the full housing require-
ment of such a large number of people through project based policies which have
dominated public housing policies in developing countries thus far (Tipple, 1994;
UNCHS, 1996a). As a result, there is a consensus among international agencies for scaling
up housing production through all possible means in developing countries (Tipple, 1994;
UNCHS, 1996a,b,c; World Bank, 1993). This requires the replacement of project based
policies, which in themselves have not been very successful, with sustainable housing
policies that can work on a national level. Given that already around 90 per cent of housing
is produced through the formal and informal private sectors, including self help housing by
the households themselves, great emphasis is placed on developing enabling policies to
expand housing production on a national scale by public support for the activities of the
formal/informal markets and self help activities of the low income households in general.
This is re¯ected in the latest World Bank (1993) policy paper on housing and the Habitat II
agenda which was adopted by UNCHS in June 1996. The details of these enabling policies
will be discussed later in the paper.
CHAPTER 6
Private markets and low income housing provision in developing countries
As already stated a major theme of the proposed enabling and sustainable housing
policies is the expansion of the role of the formal and informal private markets in low
income housing provision in developing countries. The previous discussion of housing
provision by the formal private sector has provided a good starting point for this discus-
sion. However, prior to the expansion of the debate on the role of the private markets in
low income housing provision it is useful to consider the nature of housing in economic
terms and ascertain the degree to which it is compatible with private market provision
from a theoretical point of view.
6.1. An economic interlude
The classical argument in justi®cation of the free market system in the general economy
is that it is the most ef®cient mechanism for the allocation of resources and the organisa-
tion of production. It does this, it is generally argued, by its reliance on the interaction of
demand and supply and the resultant price and pro®t mechanisms (Lipsey, 1983;
Samuelson, 1973).
The stated ef®ciency of the private market rests on one basic economic premise. This, as
de®ned in any standard economic textbook, e.g.: Lipsey (1983); Stonier and Douglas
(1972); Samuelson (1973); McCormick et al. (1977), to mention but a few, is that consu-
mers will always want to maximise their utilisation or satisfaction in a market transaction
and suppliers will always want to maximise their pro®ts. This means that consumers will
always want to obtain a product as cheaply as possible and suppliers will always want to
obtain the highest price that is possible. As a result, demand for a commodity always
increases as price falls and reduces as the price rises. On the other hand, supply always
increases as price rises and reduces as price falls. In the long run, however, supply and
demand reach an equilibrium point where the price is such that quantity demanded equals
quantity supplied. It should be noted that the equilibrium price is itself affected by changes
in demand and supply. This is such that if demand rises price will also rise and if demand
falls price will also fall. An increase in supply however will reduce prices and a decrease in
supply will increase it.
Therefore, the neo-classical argument goes, when shortages of a commodity occur in an
economy the demand and prices for that commodity will rise and as a result pro®t seeking
entrepreneurs will want to produce more and it is a signal for more resources and ®rms to
be channelled into that production. All competing against each other, each trying to
minimise production costs and optimise sales in order maximise their pro®ts. Conversely,
when there are falling demand and/or surpluses of a commodity and as a result prices and
pro®ts fall the reverse will happen.
Moreover, prices are not only related to the level of demand but also to the cost of
production. As a result, an increase in the cost of production will increase prices which will
reduce demand. A reduction in demand will lead to a surplus and thus a reduction in the
price to the detriment of pro®t. This will in turn signal a reduction in the supply and even
exit of ®rms and resources from this particular production. On the other hand, a decrease in
the cost of production will start the opposite chain reaction to this. Such shifts in demand
and supply and changes in the price will continue until a new equilibrium position is
reached and price and production are stabilised once more.
Furthermore, neo-classical economists explain that this control mechanism is an auto-
matic self-functioning system which is highly sensitive and ¯exible to changes in the
market behaviour of consumers and suppliers. It is the ªhidden handº that controls the
market and is brought about by the ªseparate decisions of a large number of individuals, all
seeking their own best interests, but all responding to the same changes in demand and
supplyº (Lipsey, 1983, p. 148).
The ef®ciency criteria also requires that prices fully re¯ect their costs of production.
This can also be referred to as opportunity costs. For example the cost of producing shops
or cars is the forgone opportunity of producing other commodities such as houses or
hospitals. By the same token, the price paid to procure a carpenter's services in the
production of shops measures not only his services to that task but also in it's alternative
use in the house-building industry. Neo-classical economists go on to state that in terms of
economic ef®ciency using the concept of opportunity cost is the only way that optimum
choices between various production and consumption alternatives can be made. It should
be noted, however, that if a society's resources are not fully utilised then a decision to
employ particular resources does not necessarily imply a choice between alternatives since
their opportunity costs may be zero.
The most ideal situation where Adam Smith's hidden hand would have the maximum
ef®ciency effect, however, is in a perfectly competitive market which as McCormick et al.
(1977) state èpitomises the idea of a free market' (p. 319). In other words, for the price
mechanism to work its prophesied effect to the full it is necessary to have certain conditions
pertaining to a situation of perfect competition in the market. In this respect Samuelson states:
The virtues claimed for free enterprise are fully realized only when the complete
checks and balance of `perfect competition' are present (Samuelson, 1973, p. 43).
These conditions for a perfect competition, or checks and balances as Samuelson puts it,
have been set out by the aforementioned authors as follows:
1. Producers and consumers behave rationally, i.e.: producers aim to maximise their
pro®ts and consumers are interested in maximising their utility.
2. There are a large number of actual and potential buyers and sellers, none of whom
dominate the market, i.e.: the market sets the price and ®rms are only price takers and
can not in¯uence the market price by their output.
3. All products are viewed as homogeneous by consumers so that no one is treated
preferentially, i.e.: if one supplier raises his price against the market price consumers
will switch to another supplier.
4. There is perfect knowledge or information in the market, i.e.: all potential and actual
sellers and buyers have perfect information regarding all available opportunities to buy
and sell.
5. There are no barriers to entry or exit in the market, i.e.: all potential producers who wish
to enter or exit the market can do so without any extra hindrance. An example of such
hindrance can be a required minimum level of output for obtaining economic returns,
which would exclude many ®rms from entering production in the market.
6. Productive processes are perfectly divisible, i.e.: they are not limited by an optimum
size or rate of output and constant returns to scale prevail.
7. Factors of production are perfectly mobile, i.e.: there are no restrictions on the mobility
of any productive agent so that they could easily enter or exit a market.
8. Only pure private goods are transacted in the market, i.e.: only those goods the utility of
which can be personalised are bought and sold in the market so that no one receives
extra bene®ts or suffers nuisances unless he buys them. In other words there are no
externalities or spill over effects. This is as opposed to public goods which must be
supplied communally since they can not be withheld from one consumer without with-
holding it from them all. An example of this is street lighting or national defence.
It should be noted that neo-classical economists accept that perfectly competitive markets
are a highly idealised version of actual markets and do not exist in reality. However, as they
have pointed out, the model still serves as a useful yardstick against the imperfections and
hence inef®ciencies of actual markets and as an ideal towards which markets can strive.
The opposite pole of perfect competition is pure monopoly. In this case there is only one
producer who has the overwhelming control over the market. This supplier can force up
the market price by reducing output and reduce price by increasing it. In monopoly there is
no special relationship between market price and quantity supplied. Furthermore, there
is no difference between the ®rm and the industry since the one ®rm is the only producer.
For a successful long run monopoly there must be barriers to entry in the market such as a
very large size or rate of optimum production or capital outlay (Samuelson, 1973).
However, these economists also state that pure monopoly is very rare and most markets
fall within the imperfect competition category. These can be divided into either imperfect
competition among many ®rms or imperfect competition amongst few ®rms. In the former
case there are many sellers in the market but each has a slightly differentiated commodity.
Therefore, while in the short term they have autonomy in their localised market and can
make monopoly pro®ts; in the long run they have excess capacity and zero excess pro®ts
since there are many close substitutes that buyers can turn to. This is also known as a
monopolistically competitive market. In the latter case there is oligopoly where a few
®rms compete against each other. In this case while each ®rm has enough market power to
avoid being a price taker they are also subjected to enough inter-®rm competition to stop
them monopolising the market either. There is a high tendency for oligopolistic ®rms to
co-operate with each other for joint pro®t maximisation while at the same time competing
with the rivals for a greater share of these pro®ts. As with monopoly, a high minimum
ef®cient scale of production can act as a barrier to entry of other ®rms into the market. It
should also be noted that while in these conditions ®rms set the market price they are still
affected by market conditions through the quantities that each ®rm can sell at the set price.
6.1.1. Housing market inef®ciencies

Housing may be classi®ed as a primarily private good which can be provided through
the private market since non payers can be excluded from using the product. Nevertheless,
both housing and its major component, land, have certain characteristics which create
major inef®ciencies in the operations of formal private markets and limit their capacity. As
outlined by Le Grand and Robinson (1984) general housing market imperfections may be
summarised as:
² Capital market failures. In this respect it is argued that housing is a very expensive
commodity, on average 3±4 times individual annual earnings. As a result very few
people can afford to buy a house without recourse to ®nancial assistance from some
®nancial institution which can extend the loan and recapture it in instalments over a
very long period of time. The problem is, according to Le Grand and Robinson, that
even in an industrially and ®nancially developed country such as UK which has very
sophisticated and speci®c ®nancial institutions for housing purchase many banks and
building societies are reluctant to advance loans without proper security for the loaned
capital due to the risk of defaults. As a result many people without steady and adequate
incomes ®nd it dif®cult to obtain mortgage ®nance from these institutions. At the same
time it can be argued that the magnitude of this market failure in developing countries is
much worse since the people in general have much lower effective demands, housing
is still very expensive, and the ®nancial institutions are far less developed than an
industrially developed country such as the UK (Renaud, 1984).
² Imperfect information. As already stated a prerequisite for the correct functioning of the
private market is that supply and demand adjust freely and quickly in response to
changes in the price or the quality of products. For this to happen it is essential to
have well informed suppliers and consumers with respect to the attributes and prices of,
and alternatives to, the product in the market. The problem is that in many cases
adequate information, let alone perfect information, is dif®cult to obtain in the housing
market due to the complexities of housing as a product and the process of housing
purchase which involves many different agencies including state agents, banks,
lawyers, and surveyors (Le Grand and Robinson, 1984).
Again lack of adequate information for ef®cient market operation is much more severe
in developing countries without the widespread network of state agents that exist in many
industrially developed countries. Duran and Sergio Soza (1987), for example, argue that
during the period of their study, i.e. 1974±1983, lack of information was a major problem
for the automatic market self regulation of developers in Chile.
² Externalities. The housing market is probably among one of most easily in¯uenced
markets in terms of externalities. This is because the value of a housing unit is generally
affected by its location, ease of access and the state of the surrounding houses and
neighbourhood. Therefore, supply and demand responses in the market are not deter-
mined by the housing commodity in isolation. This may lead to segregation and under
investment of some areas due to these external costs. For example people may be
reluctant to improve their own houses in a run down neighbourhood due to the general
dilapidated state of the neighbourhood. Additionally new investors may refuse to
build or buy houses there for the same reason. The neighbourhood, therefore, will
progressively become much worse due to underinvestment which reinforce this
external cost and market reaction (Le Grand and Robinson 1984; Harrison, 1977).
² Inelasticity of Supply. Again as already stated another major pre-requisite of an ef®-

cient market system is that increasing demand will immediately increase prices. This
will in turn lead to increased supply which in its own turn will reduce prices from its
immediate post change price until a new equilibrium market price, albeit higher than
the original price, is established. However, if, for any reason, supply does not increase
in response to rising prices then demand remains unsatis®ed and prices will keep rising,
or remain at their immediate post change level. In any case the market will be in a state
of permanent disequilibrium and inef®ciencies will be incurred. Indeed, in such a
situation of inelastic supply market adjustment to changes in demand will primarily
occur through changes in price rather than supply and the owners of the existing stocks
of the product will have monopoly power in the market and receive monopoly pro®ts
(Le Grand and Robinson, 1984; Harvey, 1981).
The housing market, is again among the few markets which deal with a commodity whose
supply is in fact inelastic in economic terms (Le Grand and Robinson, 1984). This does not
mean that housing supply is ®xed without any increase in supply at all. Rather the produc-
tion process and the commodity itself are such that make rapid increases in supply in
response to increased demand in particular locations very dif®cult indeed. Three main
reasons can be given for this inelasticity (Le Grand and Robinson, 1984). These are ®rstly
the ®xed nature of housing location so that shortages of housing in one area can not be
reduced by transporting houses from other areas. Secondly, land shortages in particular
areas of severe housing shortage such as the inner cities can not be eased by transferring
land from other areas although vacant land may exist in these other areas. And the third
reason, is the low productivity of the housing production process. This, is due to the
reluctance of the industry to rely more heavily on capital investment and industrial tech-
niques and the nature of the construction process itself which makes the application of
industrial factory production techniques dif®cult (Le Grand and Robinson, 1984).
Baken and Van der Linden (1993) sum up the inef®ciencies of the housing markets as
follows:
While the World Bank emphasises the enhancement of ef®ciency in land and
housing markets, it should be acknowledged that even in the so called developed
countries the property market is one of the least ef®cient markets of all. The imper-
fect knowledge of buyers and sellers, the ªuniquenessº of each site and building, the
strong preference of establishments for existing sites, the unwillingness of some
owners to sell despite the certainty of monetary gain, the absence of easily recover-
able investment in costly and speci®c developments, the immobility of resources
once they are committed, the possible loss on initial investment, the time-absorbing
and costly process of transferring property, the length and legal rights of property
interests, the in¯uence of conservationists, the slowness of the construction industry
to respond to changing demand, the monopoly power of planning authorities, prop-
erty companies, mortgage institutions, sellers of property and design professionsÐ
these are some factors which prevent land from transferring smoothly to its most
pro®table use. Indeed, there is a perpetual state of disequilibrium between demand
and supply. And although ultimately a change in demand will somehow have an
effect on prices and rents and subsequently will produce a change in supply, the self-
correcting mechanism of the market functions far from perfectly and very slowly
(Baken and Van der Linden, 1993, p. 5).
As stated already, however, the impossibility of obtaining perfect competition has long
been recognised by neo-classical economic writers. In this respect Samuelson (1973)
states that ªwe can approach closer and closer to perfection, but can never quite reach
itº (Samuelson, 1973, p. 69). He goes on to argue, however, that the fact of not reaching
perfect competition does not negate the validity of the theory itself as a tool of analysis or
the ef®ciency of the market system as a whole. Indeed, what is necessary, it seems, are the
main requirements of the theory such as many consumers and producers on each side and
adequate information about the quality and price of the goods on offer. This, he argues,
would ensure that variations in the bids and offers of the well informed parties has an
adequate effect on the prevailing market price so that the behaviour of price and quantity
can be expected to ¯uctuate as expected by demand and supply conditions. In this way, it
seems, market ef®ciency is guaranteed to a large degree.
Despite these exhortations, however, both Samuelson and other authors agree that the
market cannot overcome all of its potential failures in such an adequate manner which
would negate public intervention completely. Indeed, while they are, by and large, very
apprehensive about government intervention they accept that in some cases it is necessary
for governments to intervene to make the markets more ef®cient or to provide goods which
the markets can not provide (Lipsey, 1983; Harrison, 1977; Samuelson, 1973).
These economists warn, however, that government intervention itself can bring many
problems which can worsen market failures rather than improving them. This, they argue,
is because government intervention can lead to diluting market signals and hindering the
price mechanism. This they say can happen by governments creating arti®cial demand
through consumer subsidies, or by preventing the market to respond to changes due to
regulations. It is also argued that government administrators and producers are notorious
for underpricing or not pricing their goods at all. With respect to subsidised and free public
goods, for example, it is argued that there are no such things as free goods since they
always have opportunity costs which are not realised in their present production. Therefore
the society as a whole has to pay for those goods, the factors of production of which may
be more ef®ciently used if put to other uses. They conclude that the net result of all this
may be even more inef®cient allocation and production of resources. Consequently, the
question asked by many authors is not whether or not there should be government inter-
vention but what kind or mix of government and private co-operation provides the most
ef®cient and optimum result.
As a result it is concluded, that, as far as possible, government intervention should be in
such a way which would assist the market to make the most ef®cient decision. This is done
by providing it with appropriate taxes, subsidies, levies, etc., which would internalise
external costs to enable the market to bear the full costs and bene®ts of their activities
rather than using regulation to limit market activity. In other words, the system would
provide the right incentives and disincentives for the market for given activities and then
let the market decide for itself what it wants to do (Lipsey, 1983; Harrison, 1977;
Samuelson, 1973).
The existence of imperfections, therefore, does not negate the value of housing markets.
Rather, they can act as a guide for government intervention in order to overcome market
failures and create a more ef®cient market. At the same time, however, these imperfections
caution against over-reliance on private markets in situations where imperfections are
unlikely to be overcome in the short to the medium terms. This is clearly illustrated in
the debate on the expansion of the role of private markets in low income housing provision
in developing countries which is discussed next.
6.2. Expanding private housing markets in developing countries
As already stated, the formal and informal private markets are responsible for housing
the vast majority of the population in developing countries. However, there are major
shortcomings in their activities, particularly the concentration of the formal private sector
on the middle and high income groups, the relatively poor housing quality and lack of
security of tenure of informal production and the inability of both groups to reach the
lowest income groups who have to seek rental shelter which are usually in extremely
inadequate conditions.
It has been argued, however, that much of the inadequacies of private markets' response
to the housing requirements of developing countries has been exacerbated through inap-
propriate government policies and regulations which have not only exacerbated inherent
market imperfections but also created other major inef®ciencies and disincentives in their
operation and hindered their development (World Bank, 1993, 1988; UNCHS, 1988, 1987;
LaNier et al., 1987; Kimm, 1987; Linn, 1983; Mayo et al., 1986). Government interven-
tions in the housing markets, it is argued, has led to imperfections in the market process
and imposed ®nancial, administrative, and technical restrictions on both the formal and
informal private activity rather than assisting them.
Government channelling of resources to building large scale house building
programmes, for example, have not only failed to address housing requirements but
also diverted valuable scarce resources which could have been used to support both formal
and informal private market activity. This could have been achieved through investments
in the expansion of services and infrastructures, the cadastral system or supporting private
and public ®nancial institutions to expand their activities. In other words governments
should have used their scarce resources to strengthen and develop institutions and services
necessary for the development of ef®cient private housing markets rather than vainly
trying to replace them through direct housing provision. Moreover, it is pointed out that
many government regulations, such as those limiting land use and private ownership
distort the price mechanism of the private market and exacerbate market problems such
as land shortages and high prices by restricting private market activity and reducing
private sector access to land (World Bank, 1993, 1988; UNCHS, 1988, 1987; LaNier
et al., 1987; Kimm, 1987; Linn, 1983; Mayo et al., 1986). Another example of disincen-
tives created by state intervention is given as the imposition of high building and town
planning regulations which are often seen to be unsuited to the climatic and cultural needs
of the majority of the population in developing countries and reduce the scope of cost
reduction opportunities of the formal private sector (World Bank, 1993, 1988; UNCHS,
1988; LaNier et al., 1987; Kimm, 1987; Linn, 1983).
Furthermore, in line with the general discussions on privatisation, it is added that the
pressures of open competition and the search for pro®t will combine with individual
initiative to improve the ef®ciency of production and to stimulate individual effort in
the private sector. These attributes, it is argued, do not normally accompany public agency
activities due to government protection and subsidy. Therefore it is concluded that the
private sector can triumph where public agencies have failed in the past (World Bank,
1993, 1988; UNCHS, 1988, 1987; LaNier et al., 1987; Kimm, 1987; Linn, 1983; Mayo et
al., 1986).
It is, therefore, argued that in order to achieve signi®cant improvements in shelter
conditions in developing countries a new division of responsibility and spirit of co-opera-
tion between the public and private sectors is required as neither can be expected to
succeed in isolation. Under this new ènabling strategy' the public sector is assigned
the role of supporting and complementing private sector activities whereby the former
will withdraw from all activities which can be successfully and economically carried out
by the latter. Instead the government will concentrate its efforts in other related areas
where private ®rms are unwilling to invest due to economic or technical dif®culties but
which are still necessary for encouraging private sector investment in housing.
As the most in¯uential body affecting housing and development in developing
countries, policies advocated by the World Bank and its allied writers form the basis of
enabling strategies and sustainable policies adopted by both national governments and
United Nations (Baken and Van der Linden, 1993). In this regard the World Bank (1993)
has formulated certain policy recommendations which aim at the reorientation of govern-
ment activity away from direct housing provision and regulation of the private housing
markets to one of enabling housing markets to function more ef®ciently. At the same time
World Bank advocates the management of housing and urban development as part of the
overall economic development strategy of the countries concerned. In this way, it is
argued, the existing formal private market will be able to expand its housing operations
to include much wider sections of the population including many of the lower income
households (World Bank, 1993). The perceived impact of these policies on the informal
private market is some what unclear. However, the implication is that the informal sector
will be able to rationalise its activities and provide better quality housing (World Bank,
1993). The speci®c recommendations affect both the demand and supply sides of housing
provision and are listed below:
1. Developing property rights. This includes: developing systems of private tradable, and
enforceable property rights, including the development of ef®cient land cadastral and
registration systems. Undertaking land registration and regularisation of insecure tenure
and the privatisation of public housing stock where possible.
2. Developing mortgage ®nance. This includes: institutions borrowing and lending at
positive real interest rates. Encouraging competition between institutions and innova-
tive institutional arrangements for promoting greater access to housing ®nance by the
poor such as mutual guarantees and ¯exible payment schedules. Avoiding subsidised
and directed credit toward housing.
3. Rationalising subsidies. This includes: using subsidies only if the other options fail and
they should be well targeted, measurable, and transparent, and should avoid distorting
the housing market.

4. Providing infrastructure for residential development. This includes: keeping the
attention on improving residential infrastructure in slum and squatter settlements and
extending to new areas. The responsible agencies should focus less on narrow physical
objectives and more on opening up urban land for residential development.
5. Regulating land and housing development. This includes: reforming regulations in such
a way that bene®ts market activity particularly in the provision of housing for the low
income groups, for example alternative standards which do not compromise environ-
mental, health and safety concerns but allow more ¯exibility for private market activity
and housing provision.
6. Organising the building industry. This includes: creating greater competition in the
industry by eliminating regulatory barriers to entry, breaking up monopolies, facilitat-
ing equal access of small ®rms to markets, removing constraints on the development
and use of local building materials and construction methods and reducing trade
barriers that apply to housing inputs.
7. Developing an institutional framework for Managing the housing sector. This includes:
the creation of an institutional mechanism for overseeing the performance of the sector
as a whole and co-ordinating the major public agencies that in¯uence housing sector
performance.
The priorities of reform for low income countries include all of the above recommenda-
tions (World Bank, 1993). In the highly indebted middle income countries, on the other
hand, the most important areas of reform are identi®ed as involving ®scal and ®nancial
policy particularly improving the ®nancial soundness of institutions providing housing
®nance and reducing ®scal housing sector transfers which includes replacing tax based
funds for housing ®nance with commercially viable mortgage lending (World Bank,
1993). The priorities of reform for centrally planned economies are outlined as those
pertaining to property rights, subsidy systems and development of ®nancial institutions
on the demand side and increased privatisation of government housing stock, elimination
of government involvement in building material and housing production and streamlining
land use and building standard regulations on the supply side. In addition institutional
reforms are advocated to enable the government entities managing the transition to cover
all aspects of the reform programme (ibid). Finally, for other middle income countries, the
priorities of reform are identi®ed in the areas of land use and subdivision regulations and
building and infrastructure standards with the aim of reducing standards and creating a
more responsive system of land and housing supply (ibid). Other areas of priority of
reform for these countries include the planning of trunk infrastructure according to
demand and provision of adequate amounts of accessible land for private development
and encouraging the development of formal systems of mortgage ®nance (World Bank,
1993).
In addition to the World Bank and its allied writers many other authors also accept that
low income housing provision can be greatly enhanced through supporting policies for the
private sector. There is, however, a great deal of debate as to which section of the private
sector, formal or informal, is most suited to the task and the degree of support which
should be provided in this regard to attain the best possible result. This is particularly
important since while World Bank recommendations pay lip service to supporting the
informal and community sectors its main thrust is towards the creation of a viable func-
tioning formal private housing market (Baken and Van der Linden, 1993). This is also
acknowledged by the aforementioned 1996 UNCHS (Habitat) report on human settle-
ments when it states:
As the title of the most recent World Bank policy statement makes clear, the focus is
on ènabling markets to work rather than on enabling poor people to gain access to
housing and land markets (UNCHS, 1996c, p. 338).
As a result of these concerns the Habitat II agenda tries to take on board concerns with
regard to market inef®ciencies and reaching the lowest income groups by explicitly
including the low income communities themselves, community groups, NGOs and
women as main actors who should be supported through the enabling strategy in their
own right as well as the private market (UNCHS, 1996a). Indeed, even a special section is
devoted to the housing needs of vulnerable groups and people with special needs
(UNCHS, 1996a). Thus we read:
In many countries, markets serve as the primary housing delivery mechanism, hence
their effectiveness and ef®ciency are important to the goal of sustainable develop-
ment. It is the responsibility of governments to create an enabling framework for a
well-functioning housing market. The housing sector should be viewed as an inte-
grating market in which trends in one segment affect performance in other segments.
Government interventions are required to address the needs of disadvantaged and
vulnerable groups that are insuf®ciently served by the markets (UNCHS, 1996a,
Clause 71).
Private markets, however, are still identi®ed as the `primary housing delivery mechanism'
which form the backbone of the `shelter for all' policy of the UNCHS (UNCHS, 1996a,
Clause 63). Moreover, the recommendations for action for enabling private markets to
work are in the main the same as those outlined by the World Bank (UNCHS, 1996a,
Clauses 70 and 72). Nonetheless, the explicit recognition of the need for government
action to protect the rights and housing requirements of the disadvantaged and vulnerable
groups, facilitating community based production of housing and supporting the role of
NGOs creates a distinctive difference between present UNCHS policy and World Bank's
sole emphasis on enabling of private markets (UNCHS, 1996a, Clauses 73, 79, 82, 86,
etc.). 3,4 On a more critical note, however, while the Habitat II agenda tries to be all things
to all people by including the need for participation of, and support for, a wide variety of
agents in the formulations of housing policies it pays scant attention to the role and
3
In addition to the above, the Habitat II agenda also deals at length with issues of environmental and economic
sustainability of shelter and urban policies, health, rural settlements, improving urban economies, urban govern-
ance and the role of local governments and partnerships at national and international levels between all the main
actors involved in shelter provision and urban issues, etc. (UNCHS, 1996a).
4
Both the World Bank and UNCHS advocate the inclusion of housing and shelter policies as part of the overall
macroeconomic and, in the case of UNCHS also environmental, social and cultural development policies, as
fundamental to formulation of realistic shelter policies in developing countries (World Bank, 1993, and UNCHS,
1996a).
requirements of the informal private markets in their own right. As will be shown in the
remainder of this section this may lead to the neglect of arguably the most important
source of commercial low income housing provision in developing countries. This is to
some extent surprising since the earlier global report on human settlements clearly recog-
nises the role of informal housing and land markets as the prime mechanism for new low
income housing provision in developing countries (UNCHS, 1996c).
Drakakis-Smith (1981) on the other hand, also sees a positive role for the formal private
market in this area. He points out that it is the established private ®rms which actually
build most government low income housing projects. Therefore, he concludes that the
formal private sector already has a sizeable presence in the low income ®eld although it is
not readily acknowledged (Drakakis-Smith, 1981). Nevertheless, in addition to this
indirect contribution by the established large scale developers, he also sees a clear role
for them in the provision of low income shelter directly on the open market. Indeed, he
goes on to point to situations when due to suf®cient large demand and favourable legis-
lative circumstances large scale developers have overcome their traditional reluctance for
working in the low income market and have in fact made signi®cant contributions to low
income housing. An example of this, he says, occurred after a large number of refugees
came to Cairo due to the Arab±Israeli con¯ict. This induced a large scale response from
the formal private developers who were at the time building ªtwice as many low cost
houses as municipal government, signi®cantly at much lower costsº (Drakakis-Smith,
1981, p. 169).
Drakakis-Smith, however, goes on to argue that even under more normal circumstances
and particularly in cooperation with public housing agencies formal private developers can
contribute to provide housing for a particular section of the urban poor which he terms the
rising poor or the grey zone. This group of population, he says, are caught between the
present production capacity of the private sector and public housing and are therefore
either ineligible for, or do not want, public housing (Drakakis-Smith, 1981, 1987).
The identi®cation of this target group, however, is essential to the successful integration
of the formal private sector in low income housing provision in developing countries since
they are structurally limited from expanding their operations beyond a particular point due
to the existence of an effective demand that is too low for their pro®t requirements
(Drakakis-Smith, 1981, 1987).
In this respect increased access by the urban poor to privately produced housing is
dependent on two main factors. These are improved credit facilities and lower house
prices through reduced costs. Drakakis-Smith, therefore, sets out certain recommendations
to increase private sector activity in this area and places his main emphasis on reducing the
supply costs through physical supportive actions for the private sector in the construction
phase. Similar to the World Bank his recommendations are based around more ¯exible
land use regulations and building standards, more use of indigenous building materials and
more appropriate housing design, in addition to the improvement of the credit system
(Drakakis-Smith, 1981, 1987). Moreover, he emphasises the importance of public-private
co-operation in the form of joint venture schemes with commercial developers for the
successful production of cheaper low income housing, over and above government action
in the aforementioned areas (Drakakis-Smith,1977, 1981, 1987).
At the same time, however, unlike the World Bank and its allied writers, he strongly
advocates the imposition of state regulations to control the pro®teering speculative

activities of the private sector particularly in the urban land markets (Drakakis-Smith,
1981).
In the current climate of accepted wisdom of privatisation and market deregulations in
all spheres of economy, the issue of exaggeration of formal private sector capacity,
excessive market deregulation and over reliance on the formal market for solving low
income housing provision in developing countries can seriously undermine efforts for the
stated objectives of the enabling housing strategy (i.e. to enhance better quality low
income housing provision and to make housing markets more ef®cient in developing
countries). This is because given the opportunity the private sector will tend to choose
the easiest route towards pro®t maximisation which is speculative pro®teering (Ball, 1983;
Duncan, 1986). The concentration of UK developers on maximising their land develop-
ment gains and speculative supernormal pro®ts at the expense of increased productivity
and ef®ciency and the higher of productivity and better quality of Swedish house builders
in the face of strong government regulations against land development gains and spec-
ulation is a case in point (Ball, 1983; Duncan, 1986). Moreover, the experience of Sweden
and UK also shows that this scenario applies even in Western European countries which
have much more developed housing markets let alone in developing where such markets
are severely underdeveloped.
Similarly, the performance of the formal private sector in a deregulated housing market
in Chile between 1974 and 1982 provides further doubts on the ability of the market to
impose self regulation in favour of greater ef®ciency (Duran and Soza, 1987; Baken and
Van der Linden, 1993). During the stated period, the average number of housing built was
signi®cantly reduced in comparison to the average number built in the period of the most
intensive construction (i.e. 1971±1973 which was also the period of most intensive
government housing effort for the low to middle income families) (Duran and Soza,
1987). Indeed, they argue that the number of housing built between 1974 and 1982 was
even less than the average for the period 1960±1973 (Duran and Soza, 1987). This,
occurred at a time when the government was emphasising the role of supply to cover
the whole quantitative and qualitative range of demand and left price regulations, credit
and interest rate control to the market (Duran and Soza, 1987). Therefore, the private
sector was recognised as the only agent for supplying the housing demand of the middle±
high income population, while the urban poor were basically excluded from even public
housing since the cheapest housing on offer from public programs was beyond the income
capacity of almost 60 per cent of Chilean families (Duran and Soza, 1987). However, even
many of the higher income social groups could not afford the price of houses on offer, this
they say is evident from the fact that many houses remained unsold. An example of this is
the inability to sell 15,000 new units in Greater Santiago alone in April 1983 (Duran and
Soza, 1987).
This situation, it is argued, was a direct result of government deregulation policies,
`fanatical respect for private property' (Duran and Soza, 1987, p. 104), and total reliance
on the capacity of the private sector to satisfy demand. Such freedom of action for the
sector led to a situation where merely in the construction phase the ®nancial costs of an
average privately constructed house was about 31.4 per cent of the sale price (Duran and
Soza, 1987). At the same time, as a result of credit deregulation, a purchaser would pay a
real interest rate of about 269.68 per cent over twelve years. Moreover to these must be
added the unchecked speculative purchase of urban land and, of potentially urban, rural
land, and the concentration of supply to the upper reaches of the middle to high income
groups due to the private sectors search for increased pro®ts (Duran and Soza, 1987).
During the stated period these factors led to very high costs of both building and purchas-
ing housing which, in turn, along with the uncoordinated and deliberate supply policy of
the market restricted effective demand to the upper sections of the various social groups;
with the result that when their demand was satis®ed supply was paralysed and large
numbers of housing units remained unsold (Duran and Soza, 1987). Thus another implica-
tion of this situation was, Duran and Soza argue, severe negative effects for the building
industry since in the long run it was faced by a collapse in demand and therefore decline in
revenue. Therefore, as part of their solution to the housing problem they advocate strong
government intervention and regulation in the housing market in order to control excessive
rates of pro®t which they say àre not compatible with the social problem in question'
(Duran and Soza, 1987, p. 71).
These arguments are supported by the case of Manila, Philippines, where there is
minimal government regulations on land and housing markets, relaxed standards and
regulations for low cost housing, an ef®cient building industry in technological and insti-
tutional terms and an active real estate market (Strassmann, 1994). Yet, large amounts of
residential land are kept empty within the city for speculative purposes by private land
owners due to almost negligible taxation on vacant land which account for only 0.2 per
cent of the reasonable market value of land and half of the households could not afford
even the cheapest units built by the unsubsidised formal private sector due to high land and
housing prices (ibid). Strassmann, therefore, states:
What is needed in the Philippines, therefore, are measures to bring key indicators to
reasonable levels, not an èmpowered market' in real estate which more than exists
already. Government intervention is needed to keep investors from capturing and
then retarding the social process of orderly growth of urban land productivity and the
associated rise of capitalized values (Strassmann, 1994, p. 382).
Strassmann then goes on to make a more general conclusion with regard to the necessity of
having government intervention to counter social, equity and environmental market fail-
ures which are likely to gain importance with higher urban development. He thus
concludes:
The Philippines case, among others, suggests that government intervention may also
be needed early in the course of development to ensure that the right kind of market
develops. Forward looking, creative buying, selling, investing, and contracting are
not a bottled-up resource that just has to be uncorked. Markets have to be nurtured
and guided with courage in a proper context (Strassmann, 1994, p. 382).
Concerns regarding underdevelopment of formal private markets, on the one hand, and the
mismatch between large pro®t requirements of formal private ®rms and the low effective
demand of the low income households in developing countries, on the other, has led some
writers to put their emphasis on supporting the informal private market as the mainstay of
the new enabling strategy.
Moavenzadeh (1987), for example, argues that in the context of developing countries
formal private ®rms are in the main subject to the same shortcomings as public agencies.
These weaknesses are outlined by him as `being prone to monopolistic behaviour, with the
concomitant waste of resources, high prices, and other market distortions' (Moavenzadeh,
1987, p. 96). Moreover, he argues that large scale ®rms would not be able to use their main
supposed advantage, i.e. economies of scale, in underdeveloped regions. This, he argues,
is due to dif®culties such as `the high cost of transportation, the added requirements of
complex machinery and skilled personnel, and the need for large sources of energy'
(Moavenzadeh, 1987, p. 99). In addition, he continues, large scale formal private ®rms
need to operate their machinery and bureaucracy at full capacity to achieve the economy
required for economies of scale. This, he says, is rarely possible in underdeveloped regions
due to the severe scarcity of the aforementioned factors (Moavenzadeh, 1987). These
restrictions, he argues, do not apply to small scale ®rms since they are less dependent
on a large deposit of raw material and a concentrated market and therefore do not require
extensive transportation. In addition, they are more labour intensive and thus do not
require imported machinery and for the same reason require less energy (Moavenzadeh,
1987). Furthermore, he states that small scale ®rms in the formal and informal sectors are
at present actually providing the vast majority of urban housing in developing countries
which is proof of their operational capacity.
Other writers have put even more emphasis on the informal market system for low
income housing provision in developing countries. Among these Durand-Lasserve (1987)
explains that the worsening economic situation in developing countries since the 1970s
has forced the established private developers to seek a more active role in the low income
housing market of developing countries for reasons of pro®t. In addition to traditional low
income groups from the informal economic sector, there is also a large quantitative
demand for low income housing in informal/formal settlements from the mid income
groups whose social position has deteriorated due to economic readjustment programmes
and who have lost access to direct public housing due to the withdrawal of governments
from such activities (Durand-Lasserve, 1987; Amis, 1996).
Given the low effective demand of this market, formal private developers require
government assistance in order to enable them to meet both their pro®t requirements
and the housing needs of the low income population (Durand-Lasserve, 1987). However,
the degree to which formal private ®rms would be able to meet low income housing
requirements even with the implementation of enabling strategies remains unclear given
the relatively large scale of operation of formal private developers, their corresponding
pro®t requirements, very low level of effective demand of the low income population and
the severe under development of housing markets (Durand-Lasserve, 1987). Moreover, on
the basis of the experience of the high prices of formal private sector housing in Ahma-
dAbad, India, Baken and Van der Linden (1993) argue that in addition to regulatory and
procedural constraints, and therefore production costs, prices in real estate are to a large
degree determined by scarcity factors. Consequently, a reduction in production costs due
to deregulation policies may not necessarily lead to cheaper housing due to ìmplicit
scarcity of urban land (and housing) and the pro®t maximising behaviour of real estate
developers/dealers' (Baken and Van der Linden, 1993, p. 13).
At the same time the formal private sector is being challenged in this market by informal
developers who are already active in housing provision for the middle±upper low income
groups and are structurally much less constrained in meeting the demands of this group of
the population due to their lower scales of operation and lower pro®t requirements (Baken
and Van der Linden, 1993; Amis, 1996).
Therefore, Durand-Lasserve (1987) argues that instead of public policies for low income
housing being based on market signals and the eradication of subsidies, `which have uncer-
tain economic results but disastrous social ones' (Durand-Lasserve, 1987, p. 337), they
should be oriented towards facilitating informal private sector activity. He states, however,
that despite its vast potential and present capabilities the informal sector is limited by ®nan-
cial and technical obstacles. As a result, he suggests collaboration between the public and
formal private sectors on the one hand and the informal private sector on the other. In this way
the former would act as a supporting mechanism in areas where the latter is weak such as
technical training in overall production and management, and direct technical assistance at
the project level. Therefore he concludes by stating:
It would be unfortunate if, in its attempts to obtain a larger share of public resources
or other economic advantages, the formal private sector were to hinder the devel-
opment of a popular informal sector of land and housing development and take on
too many commitments to produce housing for the low income groups, commit-
ments which later become impossible to honour because of market constraints. It
would also be unfortunate if public authorities reduced their economic vision to that
of the formal private agents and thus, for lack of production were forced to plan from
day to day, postponing solutions and hence worsening the problem' (Durand-
Lasserve, 1987, pp 337±338).
Baken and Van der Linden, moreover, argue that imperfections are inherent to urban land
and housing markets. `Hence, an attempt to tackle part of these imperfections (i.e. those
related to government interventions and housing ®nance) can hardly produce a smoothly
functioning market. This is particularly true of Third World cities which witness unpre-
cedented growth processes producing a considerable degree of chaos and a prolonged
scarcity of land and housing, the end of which is not in sight' (Baken and Van der Linden,
1993, p. 5). They then add:
It seems as though the World Bank's expectations of the effects of deregulation are
unduly high. At the same time, while overlooking to a great extent informal land and
housing delivery systems, the World Bank ignores the sector which has in the past
shown itself capable of ®nding relatively successful solutions to the low income
housing problem. Rather than getting the incentives right to make the formal private
sector move down market, providing better opportunities to the informal private
sector should be considered a viable option. No doubt, such a policy too would entail
a good deal of deregulation (for instance regarding standards), but would also
require some new regulation (e.g. for legal titling and against speculation) and an
active policy of infrastructure provision (Baken and Van der Linden, 1993, p 12).
In a direct response to Baken and Van der Linden, Malpezzi (1994) rightly argues,
however, that imperfections and chaotic operations of the market do not negate their
value nor the effort to make them more ef®cient relative to their existing conditions. The
aim of enabling strategies advocated by the World Bank, he states, is not to create
textbook ef®ciency in markets but to increase their practical ef®ciency towards producing
housing for the majority of the population than their present situation. In addition, he
points out that while increasing market ef®ciency does not necessarily mean deregulation
there is tremendous over-regulations in many housing markets of developing countries
which impede market operation and drive up costs.
Ef®cient markets will separate incremental consumption from incremental payment, `so
that households can consume the ®nal desired bundle, or closer to it, sooner' (Malpezzi,
1994, p. 459) and pay for it incrementally through mortgage repayments over many years.
Intermediary ®nancial systems and well developed rental housing markets, he continues,
aid the process of housing capital formation by separating consumption decisions from
current income and `more dependent on long-run (permanent) income, and log run desired
consumption' (ibid). Consequently, the development of such intermediaries are seen as
essential parts of the enabling strategies.
Moreover, he states that land speculation is not the cause of higher prices but a rational
response to scarcity of serviced land. Finally, he argues that there are also costs to
informality in the sense that it has less access to infrastructure and ®nance, is prone to
protection costs from well connected individuals and that the ®nal price of many units in
informal settlements are also relatively expensive (Malpezzi, 1994). He does not,
however, provide a comparison with the formal private market prices. In any case, it
seems, the objective of enabling strategies is to make the informal sector part of an overall
formal market.
While formal private markets can and should be more ef®cient to expand their housing
production to include larger numbers of the lower and middle income populations the
degree to which the scenario of an ef®cient housing market depicted by Malpezzi is
actually viable in most developing countries in at least the short to medium terms remains
highly debatable and one might even say unlikely. This is evident in the failure of IMF and
World Bank sponsored short term macro-economic stabilisation or structural adjustment
programmes of 375 years to lead to expanded private sector investment and sustainable
economic growth in most developing countries, which have undertaken such programmes,
in the medium terms (Pugh, 1995, 1994). This has been mainly due to the longer time
required for the implementation of the reforms and the underdevelopment of institutional,
infrastructural and human resources in most developing countries which has prevented the
creation of the necessary enabling framework for expanded private market activity and
economic development (Pugh, 1995, 1994). Instead there is increasing recognition, even
by the World Bank advocates that such programmes have, at least in the short±medium
term, had unacceptable social consequences in terms of increased poverty and inequality
and even retardation of growth and housing sector development. Hence, the addition of
speci®c social programme contents in adjustment programmes after 1992 (Pugh, 1995,
1994).
Moreover, none of Malpezzi's points negate the main point of the debate put forward by
the proponents of the informal sector. Indeed, the existence of over-regulation is also
accepted by the critics of the World Bank enabling strategy for expanded formal private
sector low income housing production (Jones, 1996; Baken and Van der Linden, 1993).
The point of argument arises from the extent to which costs created by regulations in¯u-
ence formal private market ef®ciency and prices and the extent to which formal private
markets would be able to go down market as a result of deregulation. Jones (1996), for
example, ®rstly questions the validity of attributing costs increases of 10±30 per cent to
compliance with regulations in the formal sector and secondly points to other market costs
which even put costs due to regulations into insigni®cance. He writes:
For Mexico, a ®gure of 25 per cent additional costs due to regulations has been
quoted, but I have rarely heard developers mention an over-regulation problem.
Indeed, some have identi®ed advantages of compliance, and regulations were not
regarded as a burden when compared with 150 per cent interest rates during the
1980s (Jones, 1996, p. 248).
In addition it is noted that in Jakarta costs created by corruption are as important as the
costs of the regulations themselves (Jones, 1996). Moreover, it is argued that even in
Bangkok, which often serves as an example of a successful deregulated housing market
for the proponents of the enabling strategy, generally high economic growth is a main
factor for increased effective demand of the low and middle income groups and increased
output by the formal private sector (Baken and Van der Linden, 1993). In such conditions,
it is concluded, housing improvements would occur even in a more regulated market.
Moreover, the production of cheaper housing units have only been achieved by building
much smaller units in distant locations from the city centre which are in the main unsuited
to large sections of the consolidated and also larger low income households (Baken and
Van der Linden, 1993; Jones, 1996). The basic point of these arguments with regard to
lack of correlation between higher formal private market ef®ciency and deregulation is
also supported by the experiences of Chile between 1974 and 1982 and Manila which were
outlined earlier in this section.
The informal sector, on the other hand, is seen to meet the housing requirements of the
low income population in a way that is much more suited to their needs at much lower
prices and ¯exible terms of repayment despite being subject to some of the regulations of
the formal sector and other customary regulations of its own (Baken and Van der Linden,
1993; Jones, 1996). On the reasons for the lower prices of the informal sector Jones quotes
Durand-Lasserve (1994) to write:
One possibility is that prices re¯ect an assessment of risk (even though security is
rarely threatened). A second is that prices are constructed differently in the informal
market: sellers judge àbility to pay' by making objective assessments of buyers
according to the `personality of the applicant, his relationship with members of the
state apparatus, the degree of seriousness of irregularity... and the length of time he
is prepared to wait (Jones, 1996, p. 251).
It is, therefore, concluded that even a deregulated formal sector is unlikely to match the
capacity of the informal sector in its ¯exibility to meet the housing need of the low income
groups.
CHAPTER 7
Conclusion
The discussion so far clearly indicates a consensus on the need for the adoption of
enabling strategies in support of both the formal and informal private markets. The degree
to which either parts of the private market takes centre stage in the expansion of low
income housing provision in developing countries will depend on the particular situation
of each city and country and the characteristics of the structures and agents of housing
provision.
As it was shown in the discussion on modes of provision, the formal private sector
undoubtedly has a potential role in reaching some of the higher income groups of the low
and middle income population, particularly in the more developed and higher income
countries. Nevertheless, among the attributes of the formal private sector activity one area
of common acceptance by all groups of authors is that the underlying motivation for
formal private activity is pro®tability. Therefore, the suggestion that the sector can expand
production in an area which by its nature involves a low effective demand can only be
credible if it can be shown that the suggested policy changes can satisfy pro®t making
aspirations of the formal private sector on the one hand and the very low purchasing
power of the low income population on the other. For this reason it is essential to deter-
mine, carefully and clearly, the target group that expanded formal sector provision is
intended to reach. This is because it is highly unlikely that in many developing countries
the formal private sector can reach the lowest levels of the low income population.
Moreover, as it has already been stated, low income housing provision in developing
countries involves an intricate and complex network of relationships between various
agents and the state. In designing policies for the expanded provision of low income
housing provision in developing countries, therefore, it is important to take account of
the social and political context and dimensions of land and housing supply in developing
countries (Jones, 1996; Baken and Van der Linden, 1993). For this reason it is important to
identify and take in to consideration the entire structures of provision and the interactions
of the relevant interest groups and agents involved in the various submarkets and forms of
housing provision. This is as opposed to solely relying on adjustments to supply and
demand which is the basis of the recommendations outlined by the World Bank and its
allied writers. Undoubtedly, such adjustments are positive in supporting and expanding the
role of the private sector in low income housing provision. However, they are unable to
take account of the complex relationships between the different actors and interest groups
which, as already pointed out, are played out in cultural, social and political frameworks
which are country and even city speci®c and which directly in¯uence the outcome of such
policies.
The relaxation of land use regulations and increased government provision of basic
infrastructural services, for example, are undoubtedly positive actions which increase
formal private sector access to suitable residential land and help in reducing the price
of urban land in developing countries. However, due to the existence of landed interest
groups and their close interaction with public of®cials in many developing countries the
effects of deregulation of the land market in terms of private ownership and exchange
remains far more unclear. Indeed, as many authors have already pointed out, the problem
of excessive land speculation by landowners, including building ®rms and developers, in
unregulated land markets poses a serious challenge to the ef®ciency of the private market
mechanism. Baken and Van der Linden (1993) have argued, for example, that there is a
need to distinguish between the demands generated by the use value and investment value
of land since increased deregulation and more freedom for the market can not prevent
excessive land price increases caused by investment demand. This is particularly the case
in developing countries where it is more likely that conditions conducive to increased
investment demand in land such as the lack of alternative investment avenues and high
in¯ation rates exist (Baken and Van der Linden, 1993). Moreover, despite protestations by
advocates of the formal private markets (Malpezzi, 1994) that speculation is a rational
response to scarcity of serviced land which would be eradicated in its absence other writers
have noted the tendency of formal private ®rms to take the easiest route for pro®t maxi-
misation through land speculation and land development gains even in the UK which has
undoubtedly negligible scarcity of serviced land and a much more developed housing and
real estate market (Duncan, 1986; Ball, 1983).
Inef®ciencies in the land and housing markets would be particularly damaging for
increased low income housing provision by the formal private sector since it would require
lowering the cost of supply. A major factor in this regard would be increased access to
cheaper factors of production, such as land and ®nance, by the formal private ®rms.
Consequently, if deregulation of land and ®nance leads to increased speculation and
monopoly behaviour on land or very high interest rates as in the case of Chile between
1974 and 1982 it can not be conducive to increased provision of low income housing by
formal private ®rms. Indeed, with the direct example of the Swedish housing market the
1996 UNCHS (Habitat) global report on human settlements has acknowledged that
enabling policies for increased and cheaper housing provision through the formal private
market does not necessarily mean increased deregulation. Rather, it may even mean
increased regulation and intervention by the state even to the extent of laying down
what is produced by the private market if it leads to the provision of cheaper and plentiful
factors of production (UNCHS, 1996c). A similar conclusion is reached by Strassmann
(1994) on the basis of the situation in Manila where in spite, or rather because, of a highly
unregulated housing and land market a highly inef®cient housing market is in existence
with a high degree of land speculation and idle vacant private land, and high housing and
land prices despite having an ef®cient building industry and an active real estate market.
Therefore, the degree to which land and housing markets are deregulated and supervised is
entirely dependent on identifying and examining the structures of provision and relation-
ship of agents in any particular context. Moreover, the deep rooted involvement of poli-
ticians, political parties and local of®cials in the illegal activities of informal settlements in
developing countries such as sanctioning land invasions and protecting informal subdivi-
sions indicates that the implementation of policies and application of regulations in the
®eld of land and housing are intrinsically tied to, and a result of, interplay between
different political and economic interest groups which is often manifested in the form
of clientelism and political mediation (Baken and Van der Linden, 1993). A similar
relationship can also be identi®ed between inef®cient and excessive speculative activities
of formal private landowners and politicians. This is exempli®ed by the case of Manila,
Philippines where efforts for raising idle land taxes and related land reforms were thwarted
by powerful formal private sector land owners who were supported by some congressional
leaders who were themselves large property and land owners (Strassmann, 1994). Conse-
quently, the local political and socio-economic situation is just as important in determining
the organisation and behaviour of land markets as purely economic and technical consid-
erations which is not paid adequate attention in World Bank and its allied literature
(Strassmann, 1994; UNCHS, 1996c).
As a result, of the above considerations adopting private market enabling policy in
housing should not become a policy of total reliance on the formal private sector where
the private market mechanism and formal private ®rms would be seen as the panacea for
solving the low income housing problem in developing countries. Such an outcome will
lead to the sti¯ing of initiative in the development of new policies and the lack of more
appropriate application and further development of the other existing policies. While this
issue has been acknowledged by main advocates of private led development, particularly
UNCHS, the danger does exist that as in previous policy changes the pendulum will swing
too far to the other side of the policy spectrum with the ®nal result of yet another failure in
low income housing policy and, on a wider scale, in economic development policy as a
whole in developing countries.
Moreover, as the discussion of modes of provision has already shown, informal housing
provision, including a large degree of speculative land and housing development by
informal developers, is the main channel for meeting the housing requirements of the
low and middle income groups of the urban populations in most developing countries.
Consequently, given the extent of their domination of the low income housing market and
their unique ¯exibility with regard to the particular requirements and conditions of low
income households it is only logical to embrace this sector as the mainstay of expanded
housing provision under enabling strategies.
It should be noted, however, that while the informal and formal private markets may be
able to meet the demand of the majority of the urban populations in most developing
countries it is unlikely that they can satisfy the demand of the poorest sections of the low
income groups. These groups still rely on renting, squatting and self help provision of the
most rudimentary types of shelter. Consequently, as emphasised by UNCHS (1996a) and
acknowledged by the World Bank (1993), it is important that the new enabling strategies
also enable such groups to improve their housing conditions. In this regard it is imperative
to support the self build activities of the lowest income groups by increasing their access to
factors of production such as materials and ®nance. An essential part of achieving this goal
is supporting and strengthening the role of community based and non governmental
organisations to empower low income households to achieve a higher standard of housing
by overcoming or circumventing market failures in reaching these sections of the low
income population. As already discussed this can be achieved through various means
including providing legal and organisational assistance to resist eviction pressures from
developers and government bodies as in the case of Sao Paulo, raise the effective demand
of low income households through, for example, formation of credit associations and
direct provision of loans and the provision of technical and organisational assistance in
the actual building of housing units as in the case of Santiago, Chile, and Costa Rica (De
Sampaio, 1994; Mitlin and Satterthwaite, 1992). In addition NGOs can give technical and
organisational training and assistance both in contractor and builder development

programmes in the poorer countries and to empower low income households to deal
more effectively with the private contracting and speculative house building market by
training them to distinguish between different qualities of building works and to have a
better understanding of their rights and responsibilities (Tipple, 1994; Kamara, 1995).
Moreover, it is reasonable to assume that as the general supply of housing through the
implementation of enabling strategies improves the situation of rental housing for all
sections of the population will also improve. Nevertheless, enabling policies should
also speci®cally include this mode of housing provision. This may include speci®c actions
such as tax and credit incentives to increase the supply of such housing through both the
formal and informal private markets and a shift away from direct public rental provision
and private market regulation. However, as Rakodi (1995) has noted deregulation of the
private rented market and the withdrawal of public rented housing must be carried out with
caution and gradually, on the basis of realistic appraisals of each situation and with safe-
guards for tenant interests since sudden removal of rent control regulations and public
rental housing can lead to problems for the tenants without concomitant increases in
supply (Rakodi, 1995). Moreover, governments may still have to provide some rental
housing to ®ll the gaps left by the private market (Rakodi, 1995).
In addition, a central facet of housing enabling strategies is increased co-operation and
co-ordination between the housing activities of the public and non-public sectors
(UNCHS, 1996a; World Bank, 1993). In many cases, however, most public agencies,
NGOs and even private agents have run settlement development projects, community
credit and ®nance programmes, etc., independently of each other and without any co-
ordination which has caused overlap and waste of resources (Igel and Srinivas, 1996).
A comprehensive approach to enabling housing strategies, therefore, combines adjust-
ments to overall supply and demand conditions of the market with the identi®cation and
inclusion of all the related modes and agents of provision in appropriate policies aimed at
expanded housing provision by the identi®ed modes and agents to carefully selected target
groups which form the most suitable submarkets for each mode. Such an approach would
consider the social, cultural and political factors which govern and determine the activities
of agents in each mode in order to co-ordinate and enhance the positive roles of each agent
and counteract their negative tendencies and actions. Moreover, as each mode of provision
has its own advantages which suit the speci®c requirements of certain sections of urban
population it is important to identify the target group of the expanded provision of each
mode based on realistic analysis of the output capacities of the modes and requirements
and effective demand of the groups concerned. Such a comprehensive approach would be
much more effective in eradicating market failures and expanding low income housing
provision in developing countries.
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Modes of Housing Provision in Developing Countries

Article in Progress in Planning · February 2001

Ramin Keivani Edmundo Werna

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Modes of housing provision in developing countries

* Corresponding author. Fax: 144-171-815-7030.

Fig. 1. A conceptual model of housing provision in developing countries.

2.1. A hierarchy of structures

Unconventional or informal modes of housing provision in developing countries

3.1. Squatter settlements

3.2. Informal land subdivisions

3.3. Informal low income rental housing

3.4. Self built housing on rented land

4.1. Government housing provision

4.1.1. Direct government housing provision

4.1.2. Indirect government housing provision

4.1.2.3. Co-operative housing Housing co-operatives can be formed through different

4.2. Private sector housing provision

4.2.1. Formal private housing development by individual owner occupiers

4.2.2. Commercial formal private housing development

4.2.4. Developer±community co-operation

4.3. Public±private joint venture schemes

6.1. An economic interlude

6.1.1. Housing market inef®ciencies

² Inelasticity of Supply. Again as already stated another major pre-requisite of an ef®-

6.2. Expanding private housing markets in developing countries

the housing market.

advocates the imposition of state regulations to control the pro®teering speculative

organisational training and assistance both in contractor and builder development

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