Housing Markets in Slums

Abstract: What makes housing markets in slums interesting is that people build, buy and sell homes, even though they do not own the land underneath their homes. There is even a vibrant rental market because residents save money by building additional homes and renting them out. Even more surprising is that, although courts will not enforce sales and rental contracts by squatters, slum dwellers use formal legal documents to document their housing transactions. Predictably, prices reflect not just home quality but also local amenities, such as access to roads and distance from toilets. More surprisingly, despite frictions from lack of formal enforceability, housing markets in slums may work as well or better than those outside slums because slums' informality means that inefficient housing regulations (e.g., excessive rent control and zoning) are not enforceable in slums. Our paper documents and tries to explain these facts – and how housing transactions are enforced.