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Learning from Latin America’s Informal Settlements and Urban Policies

La directora de la Maestría de Economía Urbana de la Escuela de Gobierno e investigadora asociada del Cepe escribió sobre el fenómeno de las viviendas informales en América Latina.

Por Cynthia Goytia

Informal housing is a common phenomenon in Latin America, and governmental regulations are designed to counteract it. However, some of them have had the opposite effect. Cynthia Goytia on its underlying dynamics and a necessary shift in urban policies.

Informal Land Markets in Latin America

Informality is persistent in Latin America. Almost one-fourth of the urban population lives in informality. In the main cities of some countries, such as Bolivia, informal housing rises to more than 40 per cent of the population. Adding to that, according to a sample of 124 jurisdictions, informality has been increasing between 2010 and 2020 in 80 per cent of cities, while only 20 per cent have shown a slight decrease or no changes.

These patterns of informal development demonstrate the dysfunctional way in which land markets are working in the region, highlighting an insufficient supply of serviced land at affordable prices. In addition, it has been very common in the region to credit poverty as the main determinant driving informal land and housing development. Although there is still a significant correlation between both, there is much more than that. Indeed, countries that have reduced income poverty during the last decade have not reduced, but increased, informal housing development.

What Is Driving Informality in the Region?

The current urban planning system in Latin America is shaped by unreasonable urban norms and land-use regulations and has not responded adequately to the strong demand for affordable land for housing. A large part of the population cannot comply with the stringent urban norms and exclusionary land-use regulations that governments have imposed to protect certain areas from further development. These restrictions directly increase land prices in the formal market, forcing low-income households into the informal sector. For example, households are required to buy quite large plots of land forcing them to minimum levels of land consumption that are unaffordable for a large group of households.

In addition, urban land-use plans do not provide enough area to meet the needs of lower-income groups, including mixed-use development at adequate densities, trunk infrastructure services, and good accessibility to labour-market opportunities. Also, lack of investment in certain public infrastructure services, such as sewer connections and water and road systems, sometimes leads to increased prices on the formal market.

Risks of Informal Land Markets

The informal land market offers a lower-priced alternative that is well-tailored to the specific affordability requirements of the low-income population. However, the residential plots it supplies lack both services, such as water, sewerage, drainage, electricity, and paved roads, and legal tenure rights. More often than not, informal developments are irregular occupations of public land located on sites posing severe environmental hazards. Because the informal market is based on deliberate evasions, developers reap very high margins, which they require to “compensate” for the risks associated with operating in informality. Consequently, informal development is an extremely profitable enterprise that increases the incentives for informal developers to expand and intensify this irregular market.

Making matters worse, the failure to provide land for public space, such as streets, sidewalks, and green space, critically affects health conditions in informal settlements, imposing an excessive burden on public systems, such as public health and security. And the situation has been exacerbated by the current COVID-19 pandemic. Improving sanitation and/or reducing density and overcrowding will have the power to improve the quality of life in these neighbourhoods. But to be powerful and meaningful as a vector of change, such efforts need to take the form of more structural reforms on land markets.

A Paradigm Shift from Curative to Preventive Urban Policies Is Needed

The COVID-19 pandemic is raising many challenging questions for planners and policymakers, and it is expected to drive meaningful engagement around urban policies related to informality.

In that regard, the feasibility of widening land-use and regulatory tools was explored in our survey to 400 policy experts in Latin America. Experts were asked to grade several policy-tool options based on their relative importance to mitigating informality. The most important in a post-COVID-19 scenario was found to be infrastructure financing and serviced land production. Another imperative surfaced by the survey is the calibration of more realistic land-use standards. These types of preventive strategies have been followed in many Brazilian cities, as well as some cities in Colombia, Brazil, Argentina, Ecuador, and Uruguay, among others.

However, there is still a strong emphasis in these cities on a curative approach based on a set of diverse informal settlement upgrading strategies. Studies provide compelling evidence that the magnitude of informality is not reduced by upgrading interventions when there is an insufficient absorptive capacity of the formal sector determined by the land use regulatory environment. Most of these programs alone are considered to be of questionable effectiveness in the mitigation of informality. Even those informal settlements that were recently upgraded have new informal growth in the years after the implementation of most of these expensive upgrading programs.

How to Advance Research and Policy on this Subject?

Unfortunately, there is still no credible source of comprehensive and systematic information in Latin America with which to analyse, empirically, the link between the main features of land-use regulation and its potential effects on informality. Given the variability of regulatory environments and the magnitude of informal development in the region, this is an extremely important gap to bridge to provide evidence of the effects of different instruments that are applied in the region. A valuable precedent for this project was developed in Argentina, which collected information related to the implementation and enforcement of land-use regulation and land-value capture tools in all metropolitan cities.

The next step in this research project, underway now and financed by the Lincoln Institute of Land Policy, aims to provide an empirical basis for the analysis of the cross-city effects of land-use regulation on informality conditions in Latin American countries. To accomplish that goal, we are reaching out to, and involving in an exchange of ideas, the more than 400 Latin American land-policy experts in our new network of public sector and academic professionals with a strong interest in the subject. This invaluable interaction constitutes the basis of this action-oriented research project, which should provide valuable evidence to guide policymaking in the region.