Housing Policy in Developing Countries: Conjectures and Refutations

Abstract

This article discusses housing policy in developing economies. It examines recent research findings in light of earlier arguments as to the benefits of more market-oriented approaches. It also looks at whether the recommendations of earlier work have been refuted or developed in subsequent analyses and policy measures. In particular, it reviews the empirical analysis of the effects of policy on housing supply, the richer understanding of the effects that land market regulations have on housing affordability and the functioning of urban areas, and the alleged mysterious effects that researchers claim effective property rights have on housing policy and on development more generally. It also examines the effects of the increased emphasis on community participation, showing how it helps to more fully reconcile the incentives faced by beneficiaries of housing policy and donors. Finally, it examines recent literature on the welfare effects of rent control. The article shows that some of the conjectures as to the likely benefits of more market-based policy have been refuted, but large welfare gains for poor people can still be realized by adapting this approach. Furthermore, this approach appears to be gaining ground as the consensus approach to effective housing policy.In a 1986 article Mayo and others summarized research on housing economics in developing countries. At that time empirical work on housing was a relatively new field, with the first cross-country econometric study by Burns and Grebler (1977) less than a decade old. 1 Since then, research has grown rapidly, and the policy framework that governs the approach to providing shelter has evolved considerably. This article is an attempt to give shape to the changing consensus on housing policy in light of the research findings and broader changes in perspectives on public policy. The first section captures the broad changes in the world over the past 20 years that have significantly affected public policy and traces the implications of these changes for housing policy. The second section provides a brief overview of the research consensus on developing country housing problems in the 1980s. The

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