Housing Informality: An Economist's Perspective on Urban Planning

Martim O. Smolka and Ciro Biderman

in The Oxford Handbook of Urban Economics and Planning

Published in print December 2011 | ISBN: 9780195380620
Published online September 2012 | | DOI:

Series: Oxford Handbooks

Housing Informality: An Economist's Perspective on Urban Planning

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  • Economics
  • Urban, Rural, and Regional Economics



Informal settlements exist with formal settlements and are structurally interdependent with them. Housing informality also emerges as a consequence of certain institutional and other constraints on the urban land market. This article elaborates on these complex interdependencies and sheds light on potential policy options to mitigate informality itself to provide a new framework for dialogue between urban planners and economists in Third World cities. It begins with a review of the multiple forms that informality takes and the problems it poses to individuals and society. It then describes how urban economic theory has dealt with the issue, highlighting the failure of conventional models. Following this, it describes the rational housing choices of low income households and how current policies intended to remedy the results of these decisions instead aggravate informality. Finally, the article offers some new ways to apply conventional land policy instruments to achieve this goal.

Keywords: housing informality; urban land market; Third World cities; urban economic theory; low income households; conventional land policy

Article.  9116 words. 

Subjects: Economics ; Urban, Rural, and Regional Economics

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