Alain Bertaud on Parallel Housing Markets

Thanks to UP Senior Scholar Alain Bertaud for leading this week’s brown bag discussion on parallel housing markets in rapidly growing cities. Alain described how well-intentioned government intervention in land and housing markets can end up pricing a city’s poorest residents out of the formal housing sector. Illegal informal housing settlements routinely pop up to meet the demand of the poorest households who find themselves excluded from the formal sector. One drawback of such settlements is their lack of connectivity to urban infrastructure and public services, another is the ease with which states can expel people from their homes.

Alain presented several cases in which state tolerance of  parallel housing markets led to improved outcomes for low-income households. For example, in the Kampongs of Surabaya, the structures and streets are not subject to the same standards and regulations in the formal middle-income settlements nearby, but the state nevertheless sanctions the development. This gives the communities in these areas a much stronger sense of tenure, allowing them to make upgrades and legally connect internal services to the formal infrastructure networks that surround them. By allowing households to make non-regulation constrained decisions about the trade-off between land consumption and location within a city, the Kampongs help with affordability and accessibility.