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Housing Affordability: Top-Down Design and Spontaneous Order

Housing Affordability

DRI POLICY BRIEFING

Housing Affordability: Top-Down Design and Spontaneous Order 
By Alain Bertaud

 

Executive Summary

Urban planners are suspicious of spontaneous order, associating it with chaos and anarchy. As much as top-down design is indispensable for the construction of city infrastructure, it too often imposes excessive regulatory standards that make housing unaffordable to the poor. In rapidly urbanizing countries, poor migrants from the countryside are especially hard hit: forced to allocate a greater share of their already meager budgets to pay for government prescribed housing standards or otherwise to find alternatives in informal housing markets that are often characterized by the absence of legal status, financial access and municipal services.

Whereas governments try to subsidize low-income households with affordable housing stock designed from the top down, these solutions rarely work, either because of the political liability they create or because of the limited scope they reach. However, cases in Indonesia, Vietnam and China illustrate a different possibility. Where governments recognize the needs of low-income households and subsequently plan only for infrastructure services instead of housing consumption, spontaneous settlements successfully resolve the problem. Each household is then free to make their own housing consumption tradeoffs, while still guaranteed equal and unobstructed access to the municipal services like the rest of the population.

From these cases it can be demonstrated that a mix of top-down designed infrastructure and spontaneously neighborhood development is best for keeping cities accessible to the poor. The right mix requires the government to acknowledge the contribution of spontaneous order to the supply of structures, largely leaving it to households to decide on specific land uses, and concentrating instead on public services that households cannot adequately provide themselves, such as water supply, sewage, refuse disposal, fire dispatch, and rules that facilitate real estate and capital markets.

 

Minimum Regulatory Standards Contribute to Unaffordable Housing Prices and Directly Result in Slums

City planners have a legitimate task to project future population densities for infrastructure building. However, too often they transform these density projections into zoning plans, which become ill-designed regulations in the form of minimum land and floor consumption requirements that are justified to match the designed capacity of infrastructure. However, in most large cities the price of urban land is usually much higher than the cost of infrastructure per unit of land. For a given population, it is therefore much cheaper to adjust the capacity of existing infrastructure to a higher density than to acquire more land and build additional infrastructure to accommodate the same number of people.

Regulatory standards that dictate minimum housing consumption have a high negative impact on the poorest households, especially the new urban migrants who must rely on their own resources to find a shelter that will allow them to participate in the urban economy. Regulating minimum housing consumption does not raise the living standards for the poor, but simply pushes them from the formal housing market to informal alternatives that suffer from a lack of property rights, financial access and municipal services, which in turn keep them in hardship. Requiring people to consume a certain amount of floor space is therefore equivalent to outlawing poverty, and the higher these minimum standards are, the greater the share of the population that will be excluded from the formal sector.

 

Affordable Housing Provided by Government Rarely Solves the Problem        

One direct and effective way to help the poor achieve the government’s preferred minimum housing standards is to provide cash subsidies to the lowest-income. However, such demand-side subsidies are seldom used, mostly because they have one important political liability: the numbers are too transparent to be easily handled. As a result, politicians resort to various supply-side subsidies that are much more opaque and much less effective, either by “public housing”, where governments design and build houses that are sold and rented to beneficiaries at large discounts, or by “inclusionary zoning”, where the government relaxes certain zoning restrictions for private developers in exchange for the construction of some share of housing that is sold or rented below market. While the public housing option is notoriously associated with inadequate design and upkeep, the latter strategy of inclusionary zoning never reaches a scope large enough to accommodate all low-income households.

 

Spontaneous Settlements Unconstrained by Regulations Provides an Alternative Solution

However, in a few countries that face rapid urbanization, a variety of spontaneous developments emerged as solutions to the problem. The abandonment of top-down design allows low-income households to adjust their housing consumption to what they can afford, based on their preferences for housing traits such as floor space, lot area, adjacent street width or location.

For example, the Indonesian government has consistently accepted that kampongs, the formally rural villages that end up absorbed by expanding cities, are exempted from city zoning codes. The residents of kampongs abide by their own “good neighbor norms” in building structures, but the government limits its activity to regular investment in infrastructure upgrades with no intention of displacing the inhabitants or redeveloping the land for other purposes. As a result, the housing stock in Kampongs has constantly improved over the years, evolving while being entirely demand driven, well equipped with safe water supply, sanitation, storm drainage and social services accessible to every household no matter how small or simple their dwelling.

Vietnamese cities have adopted similar policies. As cities expand, planners carefully avoid encroaching on existing villages while connecting them to the citywide infrastructure network. Urban villagers are free to expand their houses vertically, eventually renting rooms or apartments to new households to cater to the local demand. The elastic housing supply makes possible that the great majority of Hanoi’s low-income households settle in formal housing with public services provided by the government.

Surabaya, Indonesia. Kampongs have density more than twice that of middle class housing, but every household has access to clean water, sanitation, storm drainage, and refuse collection.

Surabaya, Indonesia. Kampongs have density more than twice that of middle class housing, but every household has access to clean water, sanitation, storm drainage, and refuse collection. Photo by Eudardo M.C. via Flickr.

Hanoi, Vietnam. While urban villagers are free to expand housing vertically, eventually renting space to newcomers at affordable rates, government provides all major infrastructure connections. Photo by Nam-ho Park via Flickr.

Hanoi, Vietnam. While urban villagers are free to expand housing vertically, eventually renting space to newcomers at affordable rates, government provides all major infrastructure connections. Photo by Nam-ho Park via Flickr.

As in Indonesia and Vietnam, people in the “urban villages” of Shenzhen have the opportunity to make use of urban land based on supply and demand, free of municipal urban regulations. These new city dwellers have an incentive to develop their land intensively in response to the strong demand for urban housing: designing square plots on a grid pattern of about 12 meters with access streets around 2.6 meters wide and apartment buildings between 5 to 7 floors. Came to be known as “handshake buildings” because of their close proximity, these neighborhoods produce 2 ½ times more floor space per unit of land than conventional housing and become home to the city’s many new migrants from rural China. Together with the basic urban infrastructure services provided by the city, urban villages in Shenzhen solve the housing needs of a great number of low-income households while allowing them to stay close to the city center.

Shenzhen, China. Known by the name because of their close proximity, these neighborhoods produce 2 ½ times more floor space per unit of land than conventional housing. The high density allows the residents to stay very close to the city center. Photo by shumei_there via Flickr.

Shenzhen, China. Known by the name because of their close proximity, these neighborhoods produce 2 ½ times more floor space per unit of land than conventional housing. The high density allows the residents to stay very close to the city center. Photo by shumei_there via Flickr.

Photo by Antoine Belaieff via Flickr

Shenzhen, China. Photo by Antoine Belaieff via Flickr

Spontaneous settlements do not always succeed. When they arise without the approval and cooperation of the government, the settlements may end up isolating residents from infrastructure services and the urban labor market even as they provide a nominally affordable option. The El Mounira settlement in Cairo is an example of land use not recognized by the government. Located just 5km from the city center, the neighborhood of El Mounira has a high demand for residential houses yet the government prohibits it from being developed in the name of protecting the underlying land for agriculture. As a result, farmers sell their fields illegally to informal developers who build apartments for the low-income population of Cairo. As the settlement grows, more households move to the area without link to metropolitan infrastructure and it becomes impossible to reestablish the services without a major surgical civil work program. The settlement in El Mounira turns into a problem not because the homebuilders legitimately responded to the needs of the local households, but because the city planners arbitrarily ignored the land use changes demanded by the market. If properly supported, El Mounira could be just as successful as neighborhoods in Indonesia, Vienam, and China.

Cairo, Egypt. Photo by cliff hellis via Flickr.

Cairo, Egypt. Photo by cliff hellis via Flickr.

 

Rules and Lessons

From the above cases, a number of simple rules can be derived and applied in other cities with growing housing needs from low-income residents:

  1.    Introduce the concept of selected residential enclaves free from minimum regulatory standards for plot size, floor area, floor area ratio and street width.
  2.    Increase housing mobility by decreasing transaction costs when buying, selling, or renting housing units.
  3.    Connect all existing settlements, legal or illegal, to the metropolitan infrastructure network; from the standpoint of governance, the settlements may be treated as condominiums.
  4.    Instead of citywide minimum standards, use stars as a system of rating locations—with more stars representing higher neighborhood standards.

Households have different needs for land-use determined by market forces. Acknowledging such needs and providing essential public services should be the role of the government. While top-down design remains indispensable to infrastructure planning, most of the commercial and residential real estate development that takes place upon the infrastructure grid should be the product of spontaneous order that emerges in response to the forces of supply and demand. Examples from Indonesia, Vietnam and China show that such equilibrium can be achieved.

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