Harnessing the potential of urbanisation in Africa: Land and housing policy

Through pre-emptive urban planning the government can signal public investment and encourage coordinated private investment in land.

How can land and housing policy improve real-estate markets in African cities? Slums are characterised by both low public and private capital investment and are pervasive in urban Africa. Various policy responses are proposed to create urban neighbourhoods with higher-quality public and private infrastructure. Determining policies that are both efficient and effective can be difficult, but the evidence on which policies work is growing.

Public housing being built on the edge of Kibera slum in Nairobi, Kenya.

Pre-emptive urban planning

One promising policy to mitigate the proliferation of slums in African cities is to plan land use pre-emptively, so that roads and plots are laid out on a grid encouraging orderly future development. This is a relatively simple and cheap policy, but evidence shows it can be effective.

A key issue in urban development is persistence – once built, it may be decades before a building is redeveloped. On top of this, coordination costs and local complementarities in investment can leave neighbourhoods stuck in a bad equilibrium, because individual property owners are reluctant to upgrade while their surrounding neighbourhood is dilapidated. For example, a large urban fire in the US city of Boston in 1872 spurred investment in reconstruction across many properties simultaneously. This caused land value to increase substantially, reflecting the economic gains to coordinated development.[1] Further, haphazard building development can lead to fragmented land that is hard for developers to aggregate and use more efficiently as the city grows.

Through pre-emptive urban planning the government can signal public investment and encourage coordinated private investment in land. The gridded delineation of plots also discourages encroachment and ensures ease of access for public services. This approach is advocated by Economics Nobel Laureate Paul Romer, who gives the example of the structured spatial layout of the Burning Man festival.[2] It seems even those devoted to radical self-expression can see the benefits of boundaries. This type of planning is also beginning to be adopted at much larger scale. The NYU Marron Institute’s ‘Making Room’ programme focuses on building municipal capacity to plan for urban growth.[3] The programme has worked with multiple cities in Ethiopia to plan and secure the rights of way for arterial grids on urban peripheries of cities.

In a recent study we provide evidence on the effectiveness of pre-emptive urban planning for long-run neighbourhood development.[4] We study ‘Sites and Services’ projects where infrastructure investments were made to greenfield land in Tanzania during the 1970s and 1980s. This was one of many such programmes around the world which together accounted for the majority of the World Bank’s Shelter Lending in the period 1970-80. Our study compares land that was planned in these projects to immediately adjacent land that is otherwise similar. We find that, by the 2010s, de novo areas developed into neighbourhoods with larger and more regularly laid-out buildings. The buildings in these areas were also more likely to be connected to electricity, sewerage and water mains, and have better road access.

The image below shows a neighbourhood in the city of Mbeya, Tanzania that was part of the ‘Sites and Services’ programme. The neighbourhood was entirely greenfield in the 1970s; the left-hand side was pre-emptively planned, while the right-hand side was left to develop laissez faire. The image shows the striking difference between the two, which has persisted to today. In particular, buildings are larger and more regularly laid out where the sites and services planning took place.

There is, of course, the worry of over-planning. If regulations are too strict, there can be severe negative consequences. For example, there is a tendency to impose high minimum lot sizes and plan plots that are seemingly larger than most residents have demand for. Through funding from the Wheeler Institute, we are studying a new iteration of pre-emptive urban planning in Tanzania.[5] This study aims to shed light on the minimum lot size question.

This figure shows planned (left) and unplanned (right) neighbourhoods in Mbeya, Tanzania.

Slum upgrading and public housing

Other options to address the growing housing need in African cities are gaining currency. One such approach is slum upgrading. The idea is to improve roads, drainage and public services in slum developments. While not the focus of the paper, our study of sites and services in Tanzania shows that upgrading slums has little effect in the long run – neighbourhoods that were upgraded in the 1970s look no better, and are maybe even worse, than adjacent areas that were not upgraded. This finding is corroborated by a rigorous analysis of slum upgrading programmes in Indonesia.[6] The authors find that Jakarta neighbourhoods which were upgraded in the 1970s have lower land values today compared to adjacent land.

So, if upgrading doesn’t work, and pre-emptive planning can’t fix existing slums, what can we do? Another option is to relocate slum dwellers to public housing and redevelop the slums left behind in a coordinated way. This is a costly solution, however, and can also be controversial if displacement is forced, so there is a significant need with these types of programmes to deploy an equitable approach with reasonable compensation to the movers. In terms of effectiveness, a recent study in Addis Ababa, Ethiopia demonstrates that government-provided housing can fulfil demand unmet by an imperfect property market. [7] In this setting, slum dwellers are randomly given eligibility to purchase government-provided housing and have the choice to occupy or rent out the housing. Many choose to move to the public housing, and so reveal a willingness to trade their slum housing in the city centre. This suggests that there is demand that is unmet by the private sector, which in this case can be provided by a big government policy push.

[1] Creative Destruction: Barriers to Urban Growth and the Great Boston Fire of 1872. Richard Hornbeck and Daniel Keniston. American Economic Review, 2017.

[2] A Nobel Economist Goes to Burning Man. Emily Badger. The New York Times, 2019.

[3] Making Room, NYU Marron Institute.

[4] Planning Ahead for Better Neighborhoods: Long-Run Evidence from Tanzania. Michaels, Nigmatulina, Rauch, Regan, Baruah, and Dahlstrand, Journal of Political Economy, 2021.

[5] Improving the Effectiveness of Formal Housing Delivery in Tanzania. Research in progress by Vernon Henderson, Francisco Líbano-Monteiro, Martina Manara, Guy Michaels, and Tanner Regan.

[6] Slum Upgrading and Long-run Urban Development: Evidence from Indonesia. Mariaflavia Harari and Maisy Wong. Working paper, 2021.

[7] The demand for government housing: Evidence from lotteries for 200,000 homes in Ethiopia. Simon Franklin. Working paper, 2019.

Harnessing the potential of urbanisation in Africa is a short series exploring the exponential growth of African cities and the challenges and opportunities this presents for the housing market and its impact on productivity and quality of life. Over the past few months, we have released several articles covering (1) the existing issues facing the efficient development of African cities, (2) policy options to mitigate these issues, and (3) how we can improve state capacity to allow African governments to implement new policies. This series aims to inspire further research and interest from practitioners in this increasingly important area of real estate and urban economics.

Tanner Regan is a Research Fellow in Economics at London Business School, focusing on the economics of housing, land tenure, urban planning and property tax in developing-country cities. He holds a PhD from the London School of Economics and MA and BSc degrees from the University of Toronto. He is affiliated with the Centre for Economic Performance and the International Growth Centre at the LSE. 

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