Formalizing the informal slum

1. Formalizing the informal slum When the law and the facts clash, how can this be resolved? Presented at the South Asia Housing Forum: Delhi, India, January, 2010 David A. Smith ♦ Founder ♦ Affordable Housing Institute dsmith@affordablehousinginstitute.org

2. Affordable Housing Institute:What we do • Non-profit (US §501c3) pro-poor consulting and research firm • Boston, MA, USA: work worldwide, mainly global south • “Developing successful affordable housing financial ecosystems worldwide” • India, Colombia, South Africa, Kenya, Brazil • Consulting • “Pro-bono/ low-bono investment banker” • Financial product design/ program design • Program development: • Market principles + government aid = affordability • Research • Develop, explore, test, refute what we believe • Two-day working symposium in Mexico City, October 2009 • Major grant from Bill & Melinda Gates Foundation

3. Affordable Housing Institute:What we believe • Housing is the key to improving cities • Improve housing and cities improve • Fail to improve housing and cities worsen • Mission Entrepreneurial Entities (MEEs) are key to improving housing • Scalable finance is key to MEE growth • Municipalities are the right level of government to ‘own’ slum upgrading

4. Is a slum good or bad? • Spontaneous community • Private investment outruns public infrastructure • People do for themselves • Business incubator • Busy, lively • Hive of innovation • Self-built, self-improved • Ever-changing • Neighborhoods • Voice of the poor • Vote bank? • Density, overcrowding • Private investment outruns public notice • No infrastructure • Wealth extraction machine • Unhealthy for children • Haven of crime • Physical and legal reality diverge • Alternate power structures

5. Informal settlements and slums: Some economic/ political definitions • Spontaneous community • “Economically rational” solution to the challenge of rapid urbanization • Private investment has outrun public infrastructure • Wealth-extraction machine • Investing in property does not yield increased property value • Physical reality and legal documentation are wildly at odds • In the formal city, physical and legal are the same

6. When physical and legal diverge, whole community suffers • If investing in property yields no increase in property value, why do it? • Slums do not physically improve • Cannot go above single-story (ergo, they must spread out) • If formal government does not recognize and protect real estate property rights, who will? • People transact informally, invisibly, without touching the electronic or credit world • People live in an “economic parallel universe” • If formal government does not provide order, who does? • Alternate power structures (e.g. organized crime) replace formal ones • Government loses legitimacy with slum dwellers

7. Financing formalizing communities:Two flows of forces: money and voice National government Hard capital (foreign providers) Program related investments Domestic private capital Public capital/ subsidy Local government Intermediate FI’s Cash flows Political expression Equity in entities Micro FI’s Municipals Sanitation Water Businesses Co-ops Private goods Public goods

8. Enumeration of informal settlements:Once it’s mapped, it has formal existence

9. Slum formalization in São Paolo: Financing slum upgrading as health and sanitation • Collaboration between water company SABESP, World Bank & city • Water and sanitation retrofit • Little demolition – streetscape transformed • Cleaning up the water by cleaning up the slums • Slum upgrading purely incidental • Link to formal registration systems • Named streets, numbered addresses • Upgrading package comprehensive • Pavement and landscape • Collection of sewerage • Channeling storm drains • Retaining walls • De-densification • Going up!

10. Formalization in Nagpur:Propositions and working conclusions • Four propositions define slum upgrading • Existing housing backlog already • Customers are very poor … cannot pay more • Local government needs capacity support • Will government put subsidy on the table? • Money. Land. TDR’s. Infrastructure. Financing • Three working conclusions • The state should stop trying to ‘solve’ it • The private sector will not rush in to solve the problem • Already most solutions come from the poor themselves

11. Slum resettlement and slum upgrading:Going up means formalizing Mankhurd: co-op housing built after slum dwellers resettled from rail right-of-way Oshiwira II: SPARC/ NSDF new co-operative high-rise

12. “Prevailing winds” of slum formation and formalization • Unstoppable and continuing inflow of very poor people into cities • Self-organizing groups of poor people are emerging at unprecedented rates • People become urban without moving • All great cities grew by formalizing their slums • Informal markets have huge economic might • A home is a process, not a product (“Housing is a verb”)

13. Slum dwellers’ formalization of identity is a step toward citizenship Family identity card (Mumbai, India) Back Front • Enumeration of slum dwellers • List household, domicile • Basis for making people visible to the government

14. A theory of slum formalization:“Just do it … but pay for it” • “Just do it”: transfer land rights to the poor • Recognize they’re never moving out • Once transferred, state must be guardian of poor’s ownership • Poor become economic citizens • Theory of Change: to break the stalemate, durable rights transfer¹ of built² land³ to its very poor existing dwellers • Use eminent domain to transfer land ownership • Poor pay what they can afford • Land owner receives the land’s fair market value • Lack of infrastructure, adverse occupancy, political risk/ cost of relocation • Government pays difference • 1. Rights transfer is grant, cheap sale, or sale with debt • 2. Built and occupied with informal housing • 3. Extant or equivalent (if extant is unsafe or uninhabitable)

15. Formalizing informal slums:Obstacles to government action • Local government hesitant to use compulsory purchase/ eminent domain • “Amnesty” creates moral-hazard risk • “I don’t know how to do it” – lack of precedent • “Not on my shift” – cannot finish during time in power

16. Formalizing informal slums:Imperatives to compel change • Facts on the ground are strategically irreversible • “They vote … or they will vote” • It’s the only way property has ever regularized • Roman soldiers  sovereign land grants  homesteading  London’s East End  New York’s Lower East Side • By regularizing, you can “make more land” • Improves health and safety for the middle class • Global competitiveness rests on efficiency of cities • Cities without slums are more attractive to global business

17. Questions? Sao Paolo: “We’re building a house.”

18. Formalizing the informal slum When the law and the facts clash, how can this be resolved? Presented at the South Asia Housing Forum: Delhi, India, January, 2010 David A. Smith ♦ Founder ♦ Affordable Housing Institute dsmith@affordablehousinginstitute.org