Competition for urban land between formal and informal markets: the economics of slum evictions

Abstract

Fast urban growth in emerging countries calls for deeper understanding about increasing interaction between formal and informal housing and allocation of space to each of them. As cities expand towards its fringes and get denser at these areas, the frontiers between these two markets get closer and closer, resulting in greater dispute for the remaining land plots and increasing real estate value of both formal and informal properties. In the latter case, competition might escalate to conflicts and illegal solutions, often violent, because property rights are usually uncertain and weakly enforced. Such conflicts, although well studied for rural areas, are still largely unexplored by the economic literature in the case of urban environments. Departing from the above, this project intends to further discuss how the lack of legal protection to informal residents can intensify disputes for land motivated by rising real estate value and, thus, contribute to more frequent conflicts between economic agents, which can escalate to confrontation between the police and informal settlers or even fires aimed at speeding up uncertainty resolution. Specifically, the goal is to empirically test the existence of a relationship between increasing formal real estate value and contentious evictions of neighboring slums, as well as explore how the uncertainty generated by courts and urban planners can affect that interaction. Such uncertainty may arise in principle from slow trials on repossession and adverse possession suits, inconsistent court decisions about comparable cases, and zoning laws that are not aligned with the present occupation of land. Essentially, the more uncertain agents are about who will get the rights on a given land plot -- whether it is the land owner, the government, or squatters -, the higher the probability of a conflict. In this context, the empirical strategy entails first testing the existence of a relationship between prices of formal real estate and conflicts in informal lands nearby. Then, verify how the speed or ideology of judicial decisions can influence such interaction. Finally, verify whether changes in zoning law cause changes in the effect of prices on conflicts. From a theoretical perspective, one proposes to ellaborate an economic model to simulate public policy alternatives with two main goals: first, understand how more efficient and assertive courts can affect urban land conflicts; second, clarify a potential trade-off between encouraging greater formal populational density at the fringes of cities, where land is cheaper and profit potential from construction is greater, and avoiding conflicts with informal residents, whose costs include destruction of housing assets, community bonds, and expenditures with government aid to evicted families. (AU)