Support Measures to Promote Rental Housing for Low−Income Groups

Table of ContentsSupport Measures to Promote Rental Housing for Low−Income Groups...................................................1

FOREWORD..........................................................................................................................................1INTRODUCTION....................................................................................................................................2

A. Rental housing in a global perspective........................................................................................2B. History of legislative intervention and government policies on rental housing.............................5C. Basic changes in housing policies in developing countries.........................................................7D. Why rental housing should receive more official attention..........................................................9

I. CHARACTERISTICS OF TENANTS AND OTHER NON−OWNERS AND LANDLORDS................11A. The nature of owners, tenants and sharers...............................................................................11B. Preferences for owning, renting or sharing................................................................................13C. The choice between different kinds of non−ownership..............................................................16D. Who invests in rental housing?..................................................................................................17

II. THE EFFECTS OF LEGISLATIVE AND POLICY INTERVENTION.................................................18A. Rent−control legislation.............................................................................................................18B. Effectiveness of rental laws in controlling rent levels and evictions...........................................19C. Legislation and the needs of low−income groups......................................................................21D. Planning and zoning regulations affecting production of rental housing...................................22E. Different forms of legislation affecting provision of rental housing in different cities..................24

III. THE CLIMATE FOR INVESTMENT................................................................................................25A. Profitability of rental investment.................................................................................................25B. Rent levels relative to prices, income and cost of owner−occupation.......................................26C. Taxes on rental property............................................................................................................29D. Government efforts to encourage owner−occupation through incentives to builders................29E. The rationale of small−scale landlords......................................................................................30

IV. SUPPORT FOR FORMAL−SECTOR RENTAL HOUSING............................................................32A. The public sector.......................................................................................................................32B. Subsidies, targeting and non−economic rents...........................................................................33C. Sub−letting of public housing.....................................................................................................34D. Encouraging formal sector private investment in rental housing...............................................34E. The roles of employers, community organizations, NGOs and cooperatives............................35

V. SUPPORT FOR INFORMAL−SECTOR HOUSING CONSTRUCTION...........................................37A. Impact of upgrading and legalization programmes....................................................................37B. Impact of legalization programmes............................................................................................39C. Incentives for encouraging informal sector rental housing........................................................39

VI. LANDLORD−TENANT RELATIONS...............................................................................................40A. Informal controls on landlord−tenant relationships, joint agenda and the symbiosis of

owning and renting.................................................................................................................40B. The role of the courts, local tribunals, community arbitrators and local controllers...................41

VII. FUTURE ACTION..........................................................................................................................42A. The key tasks.............................................................................................................................42B. Rent controls..............................................................................................................................43C. Planning and zoning regulations...............................................................................................44D. Public−sector housing...............................................................................................................45E. Encouraging formal−sector private investment in rental housing..............................................45F. Subsidies, targeting and non−economic rents...........................................................................46G. The role of employers, community organizations, NGOs and cooperatives..............................47H. Incentives for public and private sector collaboration................................................................47I. Rental housing in the central city................................................................................................47J. Incentives for encouraging informal−sector rental housing........................................................48K. Changing the role of the courts, local tribunals, community arbitrators and local controllers....49L. Options for landlord−tenant collaboration..................................................................................50

VIII. CONCLUSION..............................................................................................................................50BIBLIOGRAPHY...................................................................................................................................50BACK COVER......................................................................................................................................60

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Support Measures to Promote Rental Housing for Low−Income Groups

United Nations Centre for Human Settlements (Habitat)Nairobi, 1993

The designations employed and the presentation of the material in this publication do not imply the expressionof any opinion whatsoever on the part of the secretariat of the United Nations concerning the legal status ofany country, territory, city or area or of its authorities, or concerning the delimitation of its frontiers orboundaries.

HS/294/93EISBN 92−1−131216−7

FOREWORD

Although about half of the urban population in developing countries are non−owner occupants and renters,only limited attention has so far been paid to the role of rental housing policies. Policies designed to promotehome−ownership have dominated the agenda of the housing sector in most countries.

In recent years, however, the rental housing option has started to receive more attention from researchers,policy−makers and international organizations. In view of the growing international interest in rental housing,an Expert Group Meeting, jointly organized by UNCHS (Habitat) and IHS (Institute for Housing), was held atRotterdam in 1989. As an outcome of the meeting, UNCHS (Habitat) published a report entitled Review ofRental Systems and Rental Stability: Recommendations for Public Policy (HS/171/89E). Subsequently,UNCHS published a report entitled Rental Housing (HS/217/90E), bringing the papers presented at the ExpertGroup Meeting to the attention of a wider audience. On the topic of policies for rental housing in developingcountries, the Centre has also published a report entitled Strategies for Low−income Shelter and ServicesDevelopment: the Rental Housing Option (HS/172/89E).

Despite a recent upsurge in research on rental housing, we still know remarkably little about the mechanics ofrental−housing supply in developing countries, the rationale behind housing choice, landlord−tenant relations,the effects of government policy, and the operation of the law. While we do now know something about a fewcities in developed countries, we are still profoundly ignorant of how rental−housing markets operate in mostless−developed countries.

This publication attempts to fill some of the information gaps identified above. The report is based on a reviewof the literature on rental housing in the third−world cities and on three specially commissioned reports onrental housing in the cities of Benin, Cairo and Delhi. In each of the three cities, special surveys of landlordswere conducted. In Benin, the survey consisted of 50 landlords, in Cairo, 100 landlords and, in Delhi, 50

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landlords. In addition, meetings were held with the housing authorities, the local authorities, with real−estateinterests, construction companies, banks and investment corporations. Surveys of tenants were alsoconducted in Benin (80 tenants) and Delhi (200 tenants). In both cases, the tenants were selected from allincome groups in the city.

I gratefully acknowledge the contributions of Dr. A.O. Ozo, Mr. Hany Serageldin and Dr. Kiran Wadhva, whocompiled the city reports on Benin, Cairo and Delhi, respectively, and Dr. Alan Gilbert who consolidated thematerial into a synthesis report.

Elizabeth DowdeswellUnder−Secretary−General

INTRODUCTION

A. Rental housing in a global perspective

Rental housing is a vital component in accommodating large numbers of families in less−developed countriesand particularly in the major cities. In many major cities of Africa and Asia, more than half of the populationare tenants. In Latin America, owner−occupiers tend to dominate the housing stock but, as table 1 shows, atleast one third of the population of most large cities rent homes.

It is clear from the data in table 1 that there are major variations in the relative importance of rental housingbetween regions. Broadly, rental housing dominates urban housing tenure in most African cities, in theRepublic of Korea, and in the South Asian subcontinent. Elsewhere owner−occupation is more dominant withrental housing absorbing between around one third of urban households. The importance of renting in thethree case study countries, Egypt, India and Nigeria, is considerable. In all three countries renting is thedominant form of urban tenure. In Indian cities, it contributed 37 per cent of all urban homes in 1988 (Wadhva,1992: table 4.1) and in Egyptian cities 59 per cent at the time of the last census in 1986 (Serageldin, 1993:58). In Nigeria, there are no overall figures available but most cities contain even higher proportions of tenanthouseholds (Okoye, 1990; Oruwari, 1990; Ozo, 1990; Peil, 1976); in Port Harcourt, 88 per cent of householdsare renting accommodation (Oruwari, 1990: 8).

Table 1 certainly reveals a very weak relationship between tenure and city income. Some very poor cities,such as Kumasi and Calcutta, contain a majority of home−tenants; others, such as La Paz, a majority of homeowners. More−prosperous third−world cities also differ in their tenure mix. Whereas housing in Seoul isdominated by rental tenure, Santiago de Chile and São Paulo have a predominance of owner−occupation.

Table 1. Residential tenure in selected third−world cities (percentage).

City Owners Tenants Others YearAfricaCairo na 59 na 1986Kumasi 10 62 25 1986Port Harcourt 12 88 − 1984Benin City 20 65 13 1986Rabat 33 52 15 1981Lusaka 43 56 7 1980AsiaBangkok 55 31 8 1980Jakarta 55 30 11 1988Karachi 64 27 9 1980Colombo 56 29 15 1981

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Bombay 43 48 8 1987/8Calcutta 33 56 11 1987/8Delhi 53 37 10 1987/8Madras 39 57 5 1987/8Seoul 41 59 0 1987Singapore 55 39 6 1980Latin AmericaLa Paz 49 20 28 1986Lima 61 30 22 1985/6Mexico City 64 36 10 1980Guadalajara 52 39 8 1980Puebla 48 46 7 1980Caracas 63 31 6 1981Santafé de Bogotá 57 40 3 1985Medellín 65 30 5 1985Cali 68 27 4 1985Santiago de Chile 64 20 16 1982São Paulo 56 35 9 1982

Notes: Tenants include subtenants. Owners include those still buying their homes on amortgage and those without formal title deed.

Sources: Bolivia, La Paz: Beijaard (1992: 44); Brazil, São Paulo: Sachs (1990; 74−75); Chile,Santiago de Chile: Gilbert (1993; 64); Egypt, Cairo: Serageldin (1992: 58); Ghana, Kumasi;Malpezzi, Tipple and Willis (1989: 44); India, Bombay, Calcutta, Delhi and Madras: Wadhva(1992: table 4.3B) from National Sample Survey 43rd round; Indonesia, Jakarta: Hoffman etal. (1990: 2.2); Morocco, Rabat: UNCHS (1987: 2); Mexico, Coulomb and Sánchez (1991);Nigeria, Port Harcourt: Oruwari (1989: 8); Benin City: Ozo (1990: 264); Pakistan, Karachi:Kalim (1990: 193); Peru, Lima: INE (1986: 76) and Webb and Fernandez (1990: 249);Republic of Korea, Seoul: UNCHS (1989: 2); Singapore: IYSH (1989: 57); Thailand, Bangkok:Angel and Amtapunth (1989); Venezuela, Caracas: Gilbert (1993: 108); Zambia, Lusaka:Edwards, 1990: 260).

One other feature of table 1 should be noted; the importance of shared and other forms of non−ownershipsuch as borrowed housing. In many cities, large numbers of households live with kin or borrow homes fromthem. Among the cities for which data are available these forms of sharing and borrowing appear to beparticularly important in Benin City, Kumasi, La Paz, Lima, Rabat and Santiago de Chile.

Renting is much more important in most urban areas than in rural areas where de jure and de facto ownershiptends to dominate. For example, in Colombia 31 per cent of urban households are tenants compared with lessthan 7 per cent of households in the countryside. In India, whereas 46 per cent of urban households rentedhomes in 1981, the proportion among rural households was only 7 per cent. It is for this reason that most verypoor countries have high levels of home−ownership. Since most of their population lives in the countryside,residential tenure is dominated by ownership.

The clear implication of this tendency is that as countries urbanize, the proportion of tenants and sharersincreases. This is especially true when the major flows of migrants are towards large cities, for the latterfrequently contain higher proportions of non−owners than smaller cities. This is very clear in Indonesia, theRepublic of Korea and Turkey, although not in Colombia or Mexico (Hoffman et al., 1990: 2.1; Keles, 1990:142; IYSH, 1987). It is certainly the case in India, where cities with more than 1 million inhabitants in 1981contained an average of 61 per cent of tenant households compared with 48 per cent for those between100,000 and 1 million. It is also clear in Egypt where Cairo has a much higher incidence of renting than othergovernorates in the country (Serageldin, 1993: 58).

The combination of rapid cityward migration and high rates of natural increase in many third−world cities, hasled to rapid increases in the absolute numbers of tenants in most third−world cities. In places, the numbers oftenants have increased dramatically. In Mexico City, the number of tenant and sharer households increasedfrom 484,000 in 1950 to 1.2 million in 1980. In Delhi, the number of tenant households rose from 324,000 in

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1961 to 545,000 twenty years later. In Seoul, there was a simply incredible rise in the number of tenants, from883,000 in 1960 to 5.7 million in 1985 (IYSH, 1987: 48−49).

Despite these dramatic increases, most third−world cities have been experiencing a strong shift towardsowner−occupation in recent decades. This shift has been particularly marked in Latin America and in most ofSouth−East Asia, but it has also begun to affect the South Asian subcontinent. In parts of Latin America, thetrend began in the 1930s and has continued with few interruptions ever since. In São Paulo, home−ownershiprose from one quarter in 1940 to 56 per cent in 1982 (Sachs, 1990: 74−75). In the Federal District of Caracas,owner−occupiers increased from 47 per cent of all households in 1950 to 64 per cent in 1981 (Gilbert, 1993:108). In Mexico City, the proportion of home−owners increased from 18 per cent in 1930 to 64 per cent in1980 (Coulomb and Sánchez, 1992). In Santiago de Chile, the share of owner households rose from 26 percent in 1952 to 64 per cent in 1982 (Gilbert, 1993: 64).

In Asia, the trend towards owner−occupation is less clear−cut. It occurred in Bangkok during the 1970s andless rapidly in the 1980s (Angel and Amtapunth, 1989; IYSH, 1989) and very strongly in Singapore (IYSH,1989). By contrast, the share of owners has stayed fairly constant in urban Indonesia (Hoffman et al., 1990)and fallen quite dramatically in Turkish cities from almost three quarters of homes in 1955 to little more thanhalf in the 1980s (Keles, 1990: 142). Ownership has increased greatly, however, in the South Asiansubcontinent. In urban Pakistan, the proportion of owners increased from 48 per cent to 68 per cent between1961 and 1980 (Kalim, 1990: 192). Sundaram (1990: 126) notes that in India the percentage of urbanhouseholds living in their own home increased from 46 per cent in 1961 to 54 per cent twenty years later.During this period, owner−occupation increased in 112 out of the country’s 140 largest cities. In some cities,the shift was startling: in Bombay from 30 per cent in 1961 to 61 per cent in 1981, in Ahmedabad from 18 percent to 42 per cent and in Delhi from 34 per cent to 53 per cent.

In Africa, it is impossible to decipher any general trend because of the severe lack of figures. In Lusakaownership increased from 40 per cent in 1969 to 43 per cent in 1980 and in Rabat it increased from 29 percent in 1971 to 33 per cent in 1982 (Edwards, 1982: 260; Keles and Kano, 1987: 166) By contrast, PortHarcourt seems to have experienced very little change between 1973 and 1984 in the very low proportion ofowners (around 11 per cent) (Oruwari, 1990: 40).

The shift towards owner−occupation has been motivated by a variety of processes. First, changing technologyand tastes have brought about an increasing demand for suburban housing. The growth in car−ownership andmass−transit systems, the ability of governments to provide infrastructure over increasingly large areas, andchanging patterns of architectural design have led to the widespread development of suburban housing.Secondly, building interests have recognized that construction of housing for ownership is both a moreprofitable and a less difficult business than building for rent. Large real−estate companies have emergedwhose main activity is the development of suburban housing. Thirdly, housing−finance systems have beendeveloped which have permitted higher income groups to purchase their own homes on credit. The ability toborrow money over a longer period has given many more families the opportunity to buy their own home.Fourthly, low−income groups have participated in the shift towards owner−occupation through irregular formsof land alienation. In places, the poor have invaded public land, and sometimes even private land. Elsewhere,they have bought land cheaply because it lacked infrastructure and planning permission. Fifthly, governmentpolicy has favoured owner−occupation both by providing cheap loans to higher income groups and by doinglittle to discourage informal housing solutions among the poor. Sixthly, few governments have followed atenure−neutral housing policy. Most governments have shifted from building State housing for rent to a policyof constructing homes for sale.

These processes have been operating in most third−world cities. They have dominated urban development inLatin America and in South−East Asia and have increasingly spread to cities which had for long maintained astrong tradition of rental housing. In India, for example, “increased accessibility to ownership housing in Delhihas been made possible by three factors: (i) the Delhi Development Authority’s house ownership programme;(ii) the development of institutional finance; and (iii) the growth of unauthorised colonies and squattersettlements”.

Of course, there are important variations in the extent of the trend towards owner−occupation betweencountries. These differences appear to be the result of different kinds of government policy, the varied natureof the land market, and differences in the availability of transportation and infrastructure. Certainly, nationalaffluence does not seem to be a critical explanatory factor; for, while some affluent countries such asSwitzerland contain mainly tenants, others such as Norway and Sweden have mainly owner−occupiers.National prosperity does not seem to be a factor in the third−world either. In explaining the particularly highrate of owner−occupation in Indonesian cities, for example, Hoffman et al. (1989: 2.3) suggest that

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“access to land with a reasonable degree of tenure security is greater; development of awater supply and provision of sanitation is simpler and less costly; onerous land use andbuilding regulations either do not exist or are not rigorously enforce, and because of theabove, the cost of housing is not expensive in comparison with other developing countries”.

It is important also to recognize that there are also wide variations between cities in the same country (Gilbert,1981; Gilbert and Varley, 1991). In Colombia, for example, one in five households in the small north−westernCities of Quibdó and Montería rented their home in 1985 whereas, in Bogotá, two out of five households weretenants. In India, the proportion of households renting accommodation in 1 million−plus cities varied in 1981from 76 per cent in Calcutta to 30 per cent in Lucknow.

B. History of legislative intervention and government policies on rental housing

Governments in most third−world countries have followed the example of the United States of America andthe United Kingdom of Great Britain and Northern Ireland and have encouraged the development ofowner−occupation. At the same time, they have done little to stimulate the development of rental housing.Indeed, the manner of their intervention in rental−housing matters has actually discouraged investors fromincreasing the supply of housing for rent.

Rent−control legislation: Most governments first introduced rent controls at these times of national insecurityor rapid inflation. The most common date for introducing rent controls was during or immediately after the Firstand Second World Wars. The rationale behind introducing controls at these times was the fear of what rapidinflation might do to rents. Governments were concerned that the majority of their urban populations would bethreatened with excessive rent rises. Large rent rises would fuel demands for higher wages, accelerating thepace of inflation. Since most parts of Africa and Asia were still colonies, European practice tended to betransferred to them wholesale. Even the independent republics of Latin America introduced rent controlswidely during the Second World War (UNCHS, 1989). Later, governments in some newly−independentAfrican and Asian countries introduced rent controls as part of an ideological commitment to socialism. Rentcontrol was seen to be an effective way of protecting poorer groups from exploitation by the rich.

Normally, rent controls were introduced as a temporary expedient to cope with special difficulties, althoughfew governments managed to remove them when circumstances changed. Indeed, it has been argued thatmany governments have maintained controls as a facade to hide their lack of an effective housingprogramme. Whereas a major public housing−construction programme was beyond most governments’means, maintaining rent controls cost them nothing. Whatever the truth of this argument, it is clear that rentcontrols have been attractive to governments because of their potential for winning votes. Since there aremany more tenants than landlords, rent controls are bound to be popular. The corollary, of course, is thatonce introduced, controls are difficult to lift without political difficulty.

Rent controls have been an important feature of housing policy in all three case−study countries. They werefirst introduced in Bombay and Calcutta between 1918 and 1920 and in Delhi, Punjab, Karnataka and TamilNadu introduced controls during the Second World War. Typically, they were intended as temporarymeasures but were never repealed. Gradually, more and more Indian states introduced similar kinds ofcontrols.

In Egypt, rent control was first introduced in 1920 and controls over rents were gradually increased during thenext five years (Serageldin, 1993). The controls were strengthened in 1941 when a policy of automaticallyrenewing tenancies after termination of the contract was introduced. This approach was incorporated into theRental Housing Law of 1947 and strengthened still further after 1952. Unlike the other countries, many of thecontrols were reduced in 1981. The 1981 law allowed some raising of the rent, although not sufficiently tosatisfy most landlords (Abt Associates, 1982: 187−188). The Government is currently considering furtherchanges in the rent control legislation.

In Nigeria, rent controls were introduced in 1941 and further legislation on the rules governing eviction wereenacted in 1948 (Ozo, 1993). In 1954, rent−control legislation was adopted by state governments throughoutthe country; a result of the rapid inflation caused by civil war. However, although the controls remain on thestatute book, they have been virtually moribund since the early 1980s.

Encouraging the building of housing for rent: On occasion, many third−world governments have attempted toincrease the supply of rental housing. To do this, they have generally followed one or several of the following

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three methods: to build rental housing themselves; to encourage private construction companies to build morehomes for rent; and to encourage, or sometimes require, large employers to build housing for theiremployees.

Public housing has been built in most third−world countries and public construction programmes have beenparticularly important in many oil−rich states. Governments in Mexico, Saudia Arabia and Venezuela have allfinanced public housing programmes on a large scale (Schteingart, 1989; Quintana, 1987; Tuncalp, 1987;Ward, 1991). Little of this housing, however, was intended for rent. And, as a result of their experiences in the1950s and 1960s, most governments around the world resolved that public housing should be sold to thebeneficiaries (UNCHS, 1989: 30). Governments in Egypt, India and Nigeria certainly followed this path andthere is now little public rental accommodation in those countries. In India, public construction programmesproduced substantial numbers of houses in some cities but most of the rental units have now been sold(Wadhva, 1993). In Egypt, public housing construction was always very limited outside of the new towns. Inany case, since the early 1970s, most rental units have been sold to the tenants (Serageldin, 1993: 27). InNigeria, public rental housing still exists, but, since very few units were ever built, this has had little impact onthe rental housing supply (Ozo, 1993).

Governments in many countries have also attempted to encourage the private sector to build moreaccommodation for rent. In Mexico, the Government recently provided generous tax incentives to companiesbuilding rental accommodation, permitting the sale of the rental units after a period of five years (Gilbert andVarley, 1991). In practice, this produced little housing outside of the main tourist resorts. In the Republic ofKorea and Saudi Arabia, more successful attempts have been made to stimulate private rental construction.

In India, income−tax concessions were made available to companies willing to build rental housing althoughthey have recently been removed (Wadhva, 1993: 5). Perhaps, as a result, no large construction companiesare currently building for rent. In Nigeria, there is little formal−sector finance available for any kind of housingconstruction, and the rate of interest also discriminates against the building of housing for rent (Ozo, 1993). InEgypt, the 1981 housing law required two thirds of units in new buildings to be set aside for rent rather thansale. It has also offered concessions on property and income taxes (Abt Associates, 1982). However, theseprovisions do not seem to have stimulated much in the way of construction (Serageldin, 1993).

Finally, a number of governments have sought to encourage major employers to produce homes for theiremployees. This was very common in the former British Empire where accommodation was typically providedfor expatriate staff. In India, this practice was extended to include some local personnel. While governmentagencies continue to provide rental housing for certain employees, few private companies have beenenthusiastic about following this practice. No doubt they have been discouraged by the experience of workersrefusing to vacate the houses after retirement. As a result, few “have been keen to utilise the subsidies offeredby the government for workers’ housing” (NIUA, 1989b: 175).

Stimulus for owner−occupation: In recent years, few governments around the world have failed to encourageowner−occupation. Increasingly, they have followed the practice in most Anglo−Saxon countries wheregovernments have long stimulated the growth of owner−occupation. For example, “the United States adoptedhome ownership as a policy goal with the 1932 passage of the Federal Home Loan Bank Act” (Megbolugbeand Linneman, 1993: 676) and governments in Australia, New Zealand and the United Kingdom have longsince offered large tax breaks on mortgage interest payments (Daunton, 1987; Flood and Yates, 1989). Evenin countries like France, Germany and Switzerland, where private rental accommodation traditionallydominated the housing stock, governments have recently sought to stimulate private ownership (Harloe,1985).

In Latin America, housing policy for many years has favoured owner−occupation. Most governments haveviewed ownership as a stabilizing force in rather unstable political systems. Paraphrasing the then Presidentof Colombia’s words in 1948: people with their own homes have a bigger stake in supporting the status quo.In Chile, owner−occupation has been encouraged strongly since the 1950s, large subsidies being offered tofamilies purchasing their homes. The policy has been adopted whatever the political complexion of thegovernment; it has been true of Christian Democrats, Conservatives, Socialists and the military government ofAugusto Pinochet (Kusnetzoff, 1990; Gilbert, 1993; IEU, 1990). It is still government policy today (Greene etal. 22). In Colombia, current government policy is to offer subsidies to low−income families to buy their ownhomes (DNP, 1992).

In most parts of the East Asia, governments have also favoured home ownership. In Hong Kong andSingapore, government has been selling off large parts of the public housing stock to the tenants. Similarly, inthe Republic of Korea, “the housing authorities have concentrated on housing policies that encourage urban

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households’ home−ownership” (Kim, 1992: 1247).

In India, the Government has introduced schemes to promote owner−occupation among higher incomegroups. The system of property taxation also favours owner−occupiers as opposed to landlords.Encouragement to owner−occupation has also been prominent in the public housing sector, with theGovernment permitting tenants to buy their accommodation since 1978. Indeed, the only factors holding backthe expansion of owner−occupation in India are the cost of purchase and the lack of suitable mortgagefinancing (Wadhva, 1993).

In Nigeria, the Government has attempted to encourage owner−occupation by increasing the availability ofhousing finance. In 1956, it established the African Staff Housing Fund to encourage owner−occupationamong African civil servants. It also set up the Nigerian Building Society “to provide mortgage loans to allhousing developers whether on owner−occupier or real−estate basis.” In 1976, the Society was turned intothe Federal Mortgage Bank of Nigeria and individual states were encouraged to set up their own mortgagecorporations. Ever since, the cost of borrowing for home purchase has been less than the cost of borrowing tobuild housing for rent (Ozo, 1993: 26). Tax relief is available for interest payments on mortgages and noproperty taxes are levied. Less encouragement has been given to low−income households although, in 1979,the Government introduced the Urban Development Programme which established sites−and−servicesschemes in eight states (Ozo, 1993: 6).

In most third−world cities, the urban poor have been encouraged to become home−owners even if it has beenthrough the back door. Most governments have reduced the cost of plots by covertly permitting the irregularoccupation of land. Governments in many parts of Latin America, in Turkey, in parts of East Africa and inEgypt have adopted a compliant attitude towards land alienation (Gilbert and Ward, 1985; Keles, 1990;Payne, 1989). Either through turning a blind eye to the invasion of public land or by failing to take actionagainst the sale of land lacking services and planning permission, vast areas of so−called “self−help”settlement have developed in third−world countries. In recent years, governments have become increasinglywilling to provide these settlements with title deeds (Baken and van der Linden, 1992; Keles, 1990; Varley,1987; World Bank, 1993).

C. Basic changes in housing policies in developing countries

Until recently, most third−world cities contained a majority of tenants, and in large parts of Africa and Asia thisis still the case. Wherever renting dominated the housing stock, government policy was mainly concerned withissues such as the maintenance of good landlord−tenant relations, the control of rents and ensuring thatlandlords maintained their property. Local legislation supplemented this approach by encouraging residentialsegregation between the poor and the well−to−do and by prohibiting the growth of self−help areas. Before the1970s, few governments in less−developed countries adopted a formal housing policy; since then, theirprincipal concern has been to encourage the growth of owner−occupation.

Most developing countries have gone through similar phases of housing policy although the timing has beendifferent. Policy changes in Latin American countries have generally preceded those in Asia, and Africangovernments have normally followed on some years later. Early similarities in housing policy were a result ofcolonialism, with European governments establishing similar kinds of housing policy across vast swathes ofthe globe. In later years, the policies of the United Nations agencies and of the World Bank have beeninfluential in persuading governments to adopt similar kinds of approach (Pugh, 1991). The training ofarchitects and planners from developing countries in Europe and the United States has encouraged thattendency.

Insofar as it is possible to generalize across the whole of the so−called third world, Stren’s description ofhousing policy in Africa since the 1950s is broadly true also of Asia and Latin America.

“The role of housing in national development policy in Africa has undergone three mainphases, from an emphasis on state−built public housing, through an aided self−help phase, tothe present phase, during which the concern has shifted to the proper ‘management’ ofservices and infrastructure. Accordingly, the policy focus has moved from housing itself to theprovision of services related to housing; public−sector agencies have withdrawn even furtherfrom the direct provision of accommodation” (Stren, 1990: 49).

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Faced by apparently worsening housing situations, particularly in the urban areas, most third−worldgovernments first became committed to reducing the “housing deficit” by building public housing. In this theywere strongly influenced by the European example where countries such as France and the United Kingdombuilt massive numbers of public housing units. Unlike Europe, however, few African, Asian or Latin Americancountries had the resources to build on a massive scale. Only petrol−rich countries such as Saudi Arabia,socialist regimes such as China, and countries and areas facing massive influxes of refugees, such as HongKong and Singapore managed to build public housing in quantity (UNCHS, 1989). Some Latin Americangovernments managed to build the equivalent of 15 per cent of the housing stock in the major cities, such asSantafé de Bogotá, Caracas, Mexico City and Santiago de Chile, and even larger proportions in new citiessuch as Brasília and Ciudad Guayana. Elsewhere, however, government rhetoric greatly outweighed anyachievement on the ground; certainly, very few governments in Africa managed to produce much in the way ofpublic housing.

Even where public housing was built in quantity, the experiment was seldom an unmitigated success. Giventhe cost of provision, subsidies were required on a scale which few developing countries could afford. Whatwas equally disappointing was that so few governments managed to allocate housing to the poorest families.The poor could rarely afford the rents or purchase price and, even when subsidies seemingly removed theconstraint of affordability, allocation mechanisms ensured that their applications would be unsuccessful(UNCHS, 1989). As El Kadi (1988: 24) explains practice in Egypt: “nepotism, clientelism and the formalselection criteria used mean that these dwellings rarely go to those really in need.” When public housing waslet, there were particularly severe problems, principally the lack of maintenance and financially ailing publichousing agencies.

A general response to the failure of public housing programmes, and one strongly encouraged from theUnited Nations and the World Bank was to reduce the cost of shelter provision. Governments were advised tosell off their public housing and move into new areas of operation. The best way to reduce costs was throughthe widespread introduction of sites−and−services and slum−upgrading projects. Beginning with a project inSenegal in 1972, the World Bank pushed such schemes very hard, financing some 116 schemes in 55countries in the period to 1990 (Pugh, 1992; World Bank, 1993). Such schemes

“were conceived as experimental demonstration projects seeking to meet three primaryobjectives: the provision of affordable adequate housing for low−income families; costrecovery from beneficiaries resulting in the elimination of public subsidies; and replicability ofsuch projects by the private sector, demonstrating that it could move down−market to produceaffordable housing in large numbers” (World Bank, 1993: 54).

Unfortunately, while sites−and−services and slum upgrading did produce affordable forms of shelter, theyseldom removed the need for subsidies. Nor did the private sector move into this field with much enthusiasm;so governments were left with the responsibility of financing most new schemes. With the economic recessionof the 1980s badly affecting Africa and Latin America, few governments had the funds to support massiveshelter projects. Such approaches have not been rejected, indeed, slum−upgrading is seen to be a vitalcomponent in most third−world housing programmes, but the emphasis was forced to shift elsewhere.

The new approach embraces so−called “enablement” strategies. The public sector should move out of thehousing arena and should play only the secondary role of providing infrastructure and services and improvingthe regulatory environment. Instead of designing and financing housing projects, it should lead the drivetowards housing−sector reform. The private sector should play a larger role in housing provision. Theemphasis of the major lending institutions in recent years has been to improve the working of the housingmarket. Strengthening the housing finance system is seen to be a critical means of increasing domesticresource mobilization.

The reasoning behind the shift in strategy is valid. Previous policies were not wholly successful and“enablement” strategies are necessary. At the same time, there can be little doubt that the latter policybecame especially attractive to governments at a time when they had few resources to do much else. Mostwere facing severe resource constraints because of the debt crisis and the consequent economic recession.How could third−world governments pay back their loans if they were subsidizing the housing of the poor on amassive scale? How could governments cut back on spending, a necessary measure to reduce inflationarypressures, if they were investing heavily in housing programmes? Pragmatism as much as principle underlaythe shift.

With respect to rental housing, these shift changes in strategy made little difference. Public housingprogrammes, which had begun by letting accommodation, had gradually shifted towards providing homes for

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owner−occupation. Sites−and−service and slum−upgrading schemes, while illicitly providing opportunities fortenants through the back door, were also aimed mainly at owner−occupation. The “enablement” phase, withits reliance on private housing provision has also favoured owner−occupation. Perhaps the only real changebrought by housing−sector reform has been to the rent−control legislation. Many governments have recentlymodified or even eliminated their rent−control regulations.

The three case−study countries have broadly followed a similar pattern of shifts in housing strategy. Inpost−independence India, the first four five−year development plans gave house building a major boost, andparticularly housing for the poor. State governments and major employers were both required to build housingunits, and the second plan (1956−1960) also emphasised slum clearance and improvement (Bhattacharya,1990: 69−71). Sites−and−services made an appearance in the fifth five−year plan (1974−1979), although onlyin the rural areas, and it was not until the sixth plan that full support for self−help housing was adopted inurban areas. Between 1974 and 1984, public assistance was directed mainly at the poor, with help for higherincome groups consisting coming predominantly in the form of housing loans. In the seventh plan(1985−1990), housing construction was given much higher priority although most of the responsibility was leftwith the private sector. Strengthening the housing−finance system was seen to be a critical means of raisinghousing output, encouragement being given to middle− and higher−income groups to buy their own property.Perhaps the major omissions in Indian Government policy have been the neglect of rural housing (India isafter all a predominantly rural country) and the limited action taken with respect to rental housing (the form oftenure that accommodates most urban Indians).

In Egypt, housing policy after 1952 was influenced strongly by the ideology of Arab Socialism. Under theNasser regime, public housing was given high priority together with the imposition of strict controls on rents.Unfortunately, this approach strongly discouraged private investment in housing and led to a deterioration inhousing conditions. In response, the Sadat administration tried to attract more private funding into the housingsector and devoted most public efforts to reducing population densities in Cairo and Alexandria through theconstruction of massive new towns. During this infitah policy phase the rent control regulations were modifiedbut the aim remained one of keeping rents lower than market values. These policies did not succeed instimulating private construction; private initiative being depressed by the shortage of building sites, aconsequence of the Government owning nearly all of the land in the country. As a result, between 1960 and1976 the public sector was forced to contribute around one−third of total construction. It was only after 1977that controls overbuilding land became looser and private housing construction accelerated. The shifts ininternational thinking, had little effect in Egypt in terms of encouraging the widespread adoption ofsites−and−services schemes even in the new towns. The enabling phase, however, has been moreenthusiastically embraced.

In Nigeria, housing policy has been characterized more by rhetoric than by action. The public housing phasewas firmly embraced in official statements but very few housing units ever materialized even during the heightof the oil boom. The sites−and−services phase produced even fewer projects on the ground and, althoughslum−upgrading programmes were introduced with some success, they were less common in Nigeria thanelsewhere. Even the recent phase of housing−sector reform has been adopted only in part. Housing finance isstill poorly developed, property titles are still shrouded in a mixture of traditional and modern rights systemsand infrastructure and service provision is rudimentary. Government has proved little better at enabling than atdoing (Okoye, 1990; Onibokun, 1985; Ozo, 1993).

D. Why rental housing should receive more official attention

It is clear from the previous section that few governments in developing countries have felt a strong obligationto support rental housing. From constituting the primary focus of attention in the nineteenth and earlytwentieth centuries, rental housing has been sacrificed on the altar of owner−occupation. Most governmentshave been convinced that owner−occupation was electorally popular and have followed the example of thedeveloped world in encouraging it. Consequently, little has been done in recent years to develop therental−housing sector. The unsurprising result in most cities has been the rapid increase in owner−occupationdescribed earlier. Most governments seem to have welcomed the prospective disappearance of therental−housing sector.

The problem with this attitude is that universal owner−occupation seems to be an unattainable goal. Even inthe United States, 60 years of active encouragement have left almost half of the population renting theirhome. In the United States, it has always been difficult for poor families to buy their own home and, in recentyears, access to owner−occupation has become difficult even for many families who had assumed that they

9

would be able to afford their own home. As Megbolugbe and Linneman (1993: 676) point out: “the 1980sbrought concern over the attainability of this goal as the home ownership rate fell for nearly everydemographic group.” It is clear that unless there is a substantial shift in the distribution of income and wealthin that country, large numbers of young families and many older and poorer families will not be able to affordowner−occupation.

The prospect of widening access to owner−occupation in most developing countries has been even moreproblematic. In Africa and Latin America, the debt crisis and the subsequent recession have made thepurchase of a home in the formal sector difficult for the majority of households with falling real incomes. Manyhouseholds, whose employment situation would have led them to expect owner−occupation in the past, arenow forced to share with families or to rent accommodation. In Ecuador, Klak and Holtzclaw (1993: 260)report that renting has grown in importance: “according to government surveys of Quito, rented rooms werealready 28 percent of popular housing in 1985, but they grew to 36 percent of the total by 1989.” In La Paz,large numbers of households are now forced to borrow homes from their kin (Beijaard, 1992). In Kumasi,“family houses” are accommodating an increasingly impoverished population (Korboe, 1992).

In the case−study countries, owner−occupation has become increasingly difficult for many families in recentyears. In Egypt, Wikan (1990: 133) talks about owner−occupation having become more of a dream thanreality. In India, Wadhva (1993: 1) argues that as a result of the high cost of ownership and the withdrawal ofsubsidies by the State, “acquisition of a house on ownership basis is going to become more and moredifficult.” And, in Nigeria, Ozo (1993: 62) argues that “there are many, and the proportion is likely to increase,who cannot afford to own.”

One reaction to this problem in some recession−racked countries is for increasing numbers of families tomove into owner−occupation through illegal or informal means. In Brazil, Mexico and Venezuela, many of thepoorest households have invaded land. Unable to pay rent and without kin to accommodate them throughsharing, they have survived only by establishing flimsy accommodation on the fringe of the larger cities(Coulomb and Sánchez, 1991; Gilbert, 1989; Gilbert and Varley, 1985; Sachs, 1990). As a result, manytenants are better housed than these marginal owners. In most Latin American cities, while tenants generallyoccupy less space than new owners, the quality of that accommodation is superior. Tenants gather inaccommodation that is well−established and the proportion of tenants rises with the age of a self−helpsettlement (Gilbert and Ward, 1985; van Lindert, 1991). A further reason for encouraging the development ofrental accommodation, therefore, is to improve access to services.

A further reason for increasing the supply of rental housing is linked to the problems that manyowner−occupiers face in trying to move house. Given the limited availability of mortgage finance in mostless−developed countries, it is difficult to buy a used home from a private individual as opposed to newproperty from a construction company. In Santiago de Chile,

“once a low−income family acquires a home, it does not seem to move. In the consolidatedperiphery of the city the median length of residence in the current home is 23 years, most ofthe families having lived there since they first became home owners” (Gilbert, 1993: 91).

In India, as NIUA (1989a: 9) puts it: “once one has built a house, one is stuck with it.” The problem that thisimmobility poses for urban development is that as ownership spreads, more and more of the housing marketis paralysed. The inability to sell a house conspires against existing owner−occupiers who change their job.The overall result is that “in large, spread out cities with inefficient transport systems, the cost of suchfixedness of residential location can be quite high” (NIUA, 1989a: 9).

As a result of these kinds of concern more and more writers are beginning to argue that more attention shouldbe paid to the rental housing sector. A recent meeting of housing experts concluded that “governments shouldreview their housing policies and devise appropriate strategies for rental housing which remove biases againstnon−owners” (UNCHS, 1990: 6). Similarly, in a review of housing policy in less−developed countries, Rakodi(1992: 50) argues that “a neglected segment of the market is rental housing, policies toward which need to beassessed and reconsidered.”

Perhaps the strongest argument in favour of doing something actively to support rental housing, is that thehousing choice facing families in many cities has become unbalanced. As Saunders (1990: 4), in reporting onthe favourable attitude of families in the United Kingdom to owner−occupation, puts it:

“... the perspective which informs this book is not so much one of support for home ownershipas one of support for the freedom of households to choose for themselves the housing

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arrangements which best suit them...”.

Daunton (1987: 115) makes a similar point:

“what is accepted, by all except the most ideologically committed to a ‘property−owningdemocracy’, is that this tenure is not suitable for everyone, and that it should becomplemented by other methods of providing housing.”

Gradually, governments around the globe are beginning to hint at a change of attitude. In the United Kingdom,where owner−occupation was given a major push by Conservative governments after 1979, the Governmenthas recently announced policies to encourage private−sector investment in rental housing. Even the Labourparty seems to have moved in that direction (Merrett, 1992). Similar tendencies have been apparent in somedeveloping countries. In the Republic of Korea, “recently, rental housing construction programmes have beendeveloped in an attempt to provide housing services” (Kim, 1992: 1247). In Mexico, the Governmentintroduced financial incentives in the late 1980s to encourage investment in the rental housing sector (Gilbertand Varley, 1991: 51).

Numerous governments have also reduced controls over rental housing. Rent controls were substantiallymodified in Chile in 1982 and were removed from the statute book in Brazil in 1992 and Mexico in 1993.

Similar trends are apparent in two of the three case study countries. In India, NIUA (1989a: 23) reports that

“the National Housing Policy Document presented to Parliament in May 1988 explicitlyrecognises the role of rental housing and proposes to encourage investment in rental housingthrough facilitating access to land, institutional finance and building materials; fiscalincentives; and modifications in the rent control laws.”

Various state governments have modified their legislation since 1988 and the Federal Government hasproduced a Model Rent Bill for consideration by the different States. In Egypt, a substantial change in therent−control legislation was introduced in 1981 which offered incentives for landlords building newaccommodation for rent and slightly reduced the controls on existing rental property (Serageldin, 1993: 12).Only the Nigerian Government seems to have taken no action in this direction.

I. CHARACTERISTICS OF TENANTS AND OTHER NON−OWNERS AND LANDLORDS

A. The nature of owners, tenants and sharers

Work during the last 10 years in a number of third−world cities has discovered some basic similarities in thekinds of households that own, rent or share accommodation. The descriptions cannot be totally precise,however, because there are important differences between cities. In addition, there is usually considerableoverlap between the characteristics of families in different kinds of tenure. As Gilbert (1993: 141) found in acomparative study of tenure in Caracas, Mexico City and Santiago de Chile:

“the basic finding must be that in none of the three cities can owners, tenants and sharers beseparated into clear socio−economic groupings. There were too many similarities betweenowners and tenants, and even between tenants and landlords. Owners, tenants and sharersdo not constitute homogenous groups and no single factor seems to determine whetherhouseholds are tenants, sharers or owners.”

Nevertheless, the following patterns are common in third−world cities.

Tenant and sharer families tend to be younger than those of owners. Certainly, in Santafé de Bogotá,Caracas, Guadalajara, La Paz, Mexico City, Puebla and Santiago de Chile, tenants and sharers tend to bedrawn from a younger age group than owners (Beijaard, 1992: 71; Gilbert and Ward, 1985; Gilbert and Varley,1991; Camacho and Terán, 1991). In Africa, a similar pattern has been found. In Blantyre and Lilongwe,whereas more than 90 per cent of owner−occupier heads of household are aged 30 or over, nearly 50 percent of tenants are under 30 (Pennant, 1990: 194). In Kumasi, owners are older than renters and roomers(Tipple and Willis, 1989: 17) and tenants are younger than owners in Tanzania (Peil and Sada, 1984: 296). If

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the average age of tenants is generally younger than that of owners, it should also be remembered that manyolder households also live as tenants (Beijaard, 1986, Edwards, 1982; Rivas, 1977).

In Delhi, while tenants are generally younger than owners, less than 1 per cent of tenants are less than 25years old (Wadhva, 1993: 52). The reason is that young people in India do not set up their own home butshare accommodation with parents until they are older. Indeed, sharing is very common in Indian cities. InDelhi, 37 per cent of landlords provide free accommodation for kin (ibid.). In Benin, the age of tenantsdepends greatly upon the kind of accommodation. In the housing supplied by employers, the mainbeneficiaries are more senior employees so that virtually all tenants are over 35 years of age (Ozo, 1993: 36).Sharers tend to be the youngest age group with the majority in the 20−40−year age group, they are generallyunmarried people or are households at an early stage of their life cycle (ibid., 36).

Tenant families tend to be smaller than owner households. In Santafé de Bogotá, Caracas, Guadalajara,Mexico City and Santiago de Chile, owners have larger households than non−owners (Gilbert and Ward,1985; Gilbert and Varley, 1991; Gilbert, 1993). In Delhi, the average size of tenant households is also muchsmaller than that of owners: three compared with five (Wadhva, 1992: 98). In Malawi’s two main cities, ownerhouseholds contain an average of 6.6 people whereas tenant households contain only 3.7 (Pennant, 1990:194). Owner−occupier households are larger because owners tend to be older and consequently tend to havemore children. In addition, in Latin America, Turkey, and in parts of East Africa self−help ownership isparticularly attractive to households with large families. In West Africa, owner households are also muchlarger than those of tenants but for a different reason; the tendency for kin to arrive from the countryside andmove in with their home−owning urban relations (Peil and Sada, 1984; Tipple and Willis, 1989).

Tenant families tend to be poorer than owner families. In Indonesia, Hoffman et al. (1989: 2.6) find that “over75 per cent of renter households have incomes... less than the average household income.” In Santiago deChile and Mexico City, the incomes of owner households are higher than those of non−owners (Gilbert, 1993)and in Quito “...occupant income increases from rented rooms, to shanties, to houses” (Klak and Hotzclaw,1993: 270). Similarly, in Ahmedabad, NIUA (1989a: 21) find that

“86.4 per cent of households with incomes about Rs. 2500 had their own houses whereasonly 54−56 per cent of households with incomes lower than Rs. 700 owned any house in thecity” (NIUA, 1989a: 21).

In the case of Kumasi, Tipple and Willis (1989: 28) report that although some tenants are as affluent as mostowners, “roomers − who are just a majority of households include many of the poorest and least advantaged.”In Delhi, Wadhva’s (1992: 98) survey of 200 households found that while 44 per cent of tenants had monthlyincomes lower than Rs. 2500, only 7 per cent of landlords had incomes as low as this. In Cairo, sharers areconcentrated among the lowest income groups (Serageldin, 1993: 27).

It is important to distinguish, however, between household incomes and per capita incomes. Because tenantfamilies are much smaller, they often have higher per capita incomes. This is certainly the case in Caracas,Mexico City and Santiago de Chile (Gilbert, 1993). Sharers in Mexico City have lower household incomesthan other tenure groups but are more affluent than many of the owners in per capita terms. A similar patternis also true in Kumasi insofar as the extended family system gives owners large households and consequentlyreduces their per capita incomes (Tipple and Willis, 1989). Linked to this point is the fact that there aresubstantial groups of very poor families in most third−world cities who move into owner−occupation becausethey cannot afford to rent. This is particularly likely where the invasion of land is permitted as in Caracas,Mexico City and Jakarta (Hoffman et al. 1989; Coulomb and Sánchez, 1991; Camacho and Terán, 1991). InCaracas and Mexico City, both household and per capita incomes of poor owner families living in invasionsettlements are far below those of most tenants (Gilbert, 1993).

There are also some third−world cities where rich households rent in preference to owning. In Cairo, AbtAssociates (1982: 125) report that “ownership status, despite being preferred by households, is not positivelyrelated to income.” In India and Nigeria, where employers provide housing, the tenants are usuallyhigh−income professionals. In addition, certain more affluent Indians rent accommodation, preferring to investtheir capital in expanding their business (Wadhva, 1992: 98).

Home owners tend to have lived longer in the city. This finding confirms early thinking on residential behaviourin Latin American cities which emphasised the relationship between tenure and migrant status (Turner, 1967;1968). The bridgeheader/consolidator model, devised more than two decades ago, still has a certain validity.Migrants still follow the transition from renting to ownership. There is a pattern of movement from more centralareas outwards towards the periphery. Poor households are able to build and consolidate homes, at least

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when they can create an investment surplus. But, now that cityward migration has been underway for somany years, more and more people have been born in the city. As the cities have become larger the housingalternatives become more varied and complex to describe (Brown and Conway, 1980; Gilbert and Varley,1991; Gilbert and Ward, 1982; van Lindert, 1991).

As a result, interesting variations in this pattern appear. In several Mexican cities, for example, self−helpsettlements contain a much higher incidence of migrant owner−occupiers (Coulomb and Sánchez, 1992;Gilbert and Varley, 1991). By contrast, tenants, especially in the central city, are much more likely to benatives. It seems that native Mexicans use their family networks to improve their housing situation. Sharerfamilies, for example, tend to be natives of the city or to have family in the city; non−sharers have no−one withwhom they can share. Other natives use their contact systems and sometimes higher incomes to buy betterquality plots or homes in the periphery. Given fewer alternatives migrants are often obliged to move intolower−quality owner−occupation.

In West Africa, further variations occur as a result of the tendency for many migrants living in the city to buyproperty “at home” in the countryside (O’Connor, 1983; Peil and Sada, 1984). In Nigeria, migrants are morelikely to rent than urban natives, and partly for this reason, but also because migrants are poorer than natives,they are more represented in the rooming houses (Ozo, 1993).

Female−headed households are more likely to be tenants or sharers than owners. Research in Guadalajara,Mexico City, Querétaro, and Puebla has discovered that there is a higher incidence of female−headedhouseholds among tenants (Chant and Ward, 1987; Gilbert, 1993). A similar finding is true in West Africa(Barnes, 1982; Ozo, 1993; Peil and Sada, 1984).

There are several reasons for this tendency. First, women are often excluded from official housingprogrammes offering owner−occupation (Klak and Hey, 1992; Moser and Peake, 1987). Secondly,female−headed households tend to be poorer and, since poorer households frequently rent, women tend tobe tenants. Thirdly, women tend to lack the kinds of skills required in self−help construction. As Moser (1987:28) points out: “frequently they lack both skills and time to self−build but are often required to do so in theabsence of funds for professional labour”. Unless they have grown−up sons they are less likely to opt forowner−occupation, although of course many wives are deserted by their husbands once the family havemoved into a self−help settlement. As Falú and Curutchet (1991: 37) describe experience in a Braziliansites−and−services project: “women−headed households share similar aspirations to other beneficiaries of theprogramme but, due to their particular situation, they are among the least able to develop their homes.”

B. Preferences for owning, renting or sharing

In the United Kingdom, Saunders (1990: 2 and 311) argues that:

“mass ownership is associated with a strong popular desire to own personal property and isunderpinned by deeply cherished and widespread values which emphasize independence,security and the importance of home as a base from which to venture out into the world...“Ownership not only guarantees certain rights which may be denied to tenants, but it alsoensures permanency, even across generations. In a world where change is rapid andexpectations are forever being turned upside down, the privately owned home seems torepresent a secure anchor point where the nerves can be rested and the senses allowed torelax”.

Saunders is certainly correct in underlining people’s attachment to ownership but it should not be thought thatthis attitude is uninfluenced by any notion of monetary gain. For, over the years, British Governments of everypolitical persuasion have offered people generous financial incentives when purchasing their home. Similartactics have been employed in Australia where “the owner occupied sector has been heavily protected andtaxed at a lower rate than other sectors in the economy” (Flood and Yates, 1989: 208). Fiscal incentives havealso been used in the United States where, not surprisingly, a recent survey found that four out of fiveAmericans thought that owning a home was a good investment (Megbolugbe and Linneman, 1993: 660).

Financial rewards have increasingly been offered by governments to formal sector owners in many LatinAmerican countries. In Chile, for example, Governments since 1958 have offered families generous subsidiesto buy their own homes (Kusnetzoff, 1990). As IEU (1990) point out “the treatment accorded by the state toowners and tenants is very different and highly regressive with respect to tenants”.

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Ownership has also been attractive to low−income households, even if few have ever been offered any kindof financial incentive. Recent surveys conducted in several major Latin American cities, for example, havefound a widespread preference for owner−occupation among both owners and tenants. In La Paz, Beijaard(1992: 67) finds ownership to be “by far the most preferred tenure situation for households of all tenuregroups.” In Caracas, Mexico City and Santiago de Chile, the vast majority of existing home−owners expressclear contentment with their current tenure, practically all of whom had had previous experience as tenants orsharers (Gilbert, 1993). Similarly, most tenants wish to be owners: 86 per cent of tenants interviewed inSantiago de Chile say that they would prefer to be owners and 94 per cent of those in Caracas. Only inMexico City, is the preference less marked, a mere 58 per cent saying that they would prefer to own. Patternsof residential movement in each city also reflect this general preference for ownership. While most ownershad once been tenants or sharers, few families now renting or sharing accommodation had previously beenowners. The move into ownership is one−way traffic.

Similar attitudes are found in the three case−study countries. In Delhi, 72 per cent of a sample of 200 tenantrespondents prefer owner−occupation, only 4 per cent preferring to rent (Wadhva, 1993: 52). In Egypt, AbtAssociates (1982: 124−125) found that

“most households, whether owners or renters, would prefer to own rather than to rent. Amongowners in Cairo and Beni Suef, 91 per cent and 100 per cent respectively expressed apreference for owning; among renters, Cairo and Beni Suef proportions who would prefer toown were 75 and 82 per cent respectively.”

In Nigeria, Ozo (1993: 38) reports that “the desire to own one’s house is widespread and cuts across allclasses.”

A range of perceived advantages attracts low−income households to ownership. When owners in LatinAmerica are asked about the advantages of owning a home, it is the sense of security and the feeling ofindependence that comes across (Green, 1988). Having something of one’s own gives an important boost toa family’s self−esteem. No doubt, such self−esteem is enhanced by the constant bombardment of televisioncommercials, aimed at the middle class, about the availability of luxury homes on brand new housing estates.The image conveyed is that all “decent” people own their own home. Ownership in Latin America has becomethe cultural norm.

In Guayaquil, the most important emotion expressed by tenants about ownership is the need “to feelthemselves masters of their own destiny, as symbolized by living in their own houses” (Salmen, 1989: 28). Inpart this means that they no longer have to share with kin or to put up with interfering landlords or fellowtenants. But, ownership also offers a major financial advantage, freedom from the need to pay rent everymonth. In Guayaquil,

“the future homeowners looked forward to having their monthly payments be an investment intheir own property rather than a contribution to what they regarded as an alien landlord’sill−deserved affluence” (Salmen, 1989: 28).

Home−ownership also provides something that can be left to the children.

Ownership also promises the chance of capital gain. Houses can be sold when the family move on. Rents arehanded over to the landlord but payments for the purchase of land and housing are an investment for thefuture. In places this is no doubt a real advantage but all too frequently the advantages of ownership in termsof capital gain are vastly exaggerated. Capital accumulation is only possible if it is actually possible to sell. Inpractice, few owners in third world cities manage to sell their property. As Lloyd (1990: 293) puts it:

“the possibility of purchasing a house from the previous owner... in Africa is very weaklydeveloped. Most of those who have already built a home intend that it shall pass throughinheritance to their children − or if they cannot occupy it, to be rented so their children enjoythe income. The inadequacy and complications of legal titles are a further deterrent totransfer.”

Similar problems seem to be faced by owners in the suburbs of Santiago de Chile, to judge from the almostcomplete residential immobility of the owners in the low−income areas (Gilbert, 1993).

In Egypt, the main advantage of ownership for some appears to be associated with the possibility of living adifferent style of life. As Wikan (1990: 133) describes it

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“the dream of a house of one’s own has been a woman’s dream... Confined to the backstreets with the noise, turmoil and neighbourly interference, the desire for peace is oneconstantly expressed by poor women and is embodied in such dreams.”

Other less qualitatively based assessments in Cairo come up with preferences for “not having to pay rent” and“security” (Abt Associates, 1982). Hardly any prospective owners mention housing as a good “investment”.

Not only are there good reasons for positively opting for owner−occupation but there is also a push factorbehind wishing to leave rental accommodation. Reporting on a survey in Oaxaca, in Mexico, Selby et al.(1990: 160) report that “renting is viewed as very unsatisfactory by urban Mexicans... Of all the bills that thepoorer people of urban Mexico dislike, it is the most detested.” In the light of other surveys in Mexico thisappears to be rather an exaggerated claim, but it is clearly true that in inflationary times ownership freeshouseholds from the worry that they will not be able to pay constantly rising rents. However, this is onlypossible where land is free or very cheap. Where land is expensive, monthly payments on land are a directsubstitute for rental payments.

Despite this general preference for ownership, some households remain in rental or shared accommodationeven though they have the resources to acquire their own self−help home. Some tenants, despite living incrowded conditions and who could have had much more space as home−owners on the periphery, cling totheir rental accommodation. In Delhi, Wadhva (1993: 52) reports that 17 per cent of her tenant sample preferto stay in the rented house for reasons of location, even though they own houses elsewhere in the city. InNigerian cities, migrants often rent even though they buy property at home in the countryside (Ozo, 1993: 38).Even those who have lived many years in the city retain a strong allegiance to their rural “home”, the place towhich they will retire and where eventually they will be buried. In certain parts of Latin America, substantialnumbers of tenants also dissent from the chorus of approval for ownership. In Mexico City, two fifths of centraltenants prefer to rent and, in Santiago de Chile, 30 per cent of those living in the conventillos say the same.Four fifths of these central tenants had never looked for their own home (Gilbert, 1993).

There are many reasons why some Latin Americans continue to rent. First, for tenants with secure tenureliving in the central areas, a move into ownership is likely to mean a move away from the city centre. If theywork in the centre, a move may lead to a journey of several hours per day, especially if they live in a megacitysuffering from acute traffic congestion. Poor families in Santiago de Chile who were moved forcibly to thesouth of the city strongly resent the move. They tell of the many inconveniences caused by the move.

“The central area is a desirable place of residence because of the greater availability ofservices, its better access to sources of work and the presence of a local authority with asuperior capacity to attend to their needs. They have a strong attachment to the centre, theyvalue the contact with their neighbours and the security that the area offers them... In spite ofcounting with a home of their own, they manifest a clear desire to move; many would prefer torent in the central area than to own a home in the south of the city” (Rodríguez and Icaza,1993: 5 and 72−73).

Secondly, a move to the self−help periphery may not be what tenants really want. While most families maywant their own home, some families are in a particularly weak position to engage in the construction process.This becomes clear when we look at the characteristics of families who do become owner−occupiers.Families capable of undertaking the task of self−help construction are found in much greater numbers amongthe owners than among the tenants. Thus the proportion of workers in the construction industry is usuallyhigher among the owner households and the number of female−headed households much lower (Gilbert andVarley, 1991). When tenants say that they want a home of their own, they may not mean that they areprepared to build their own house. As Coulomb and Sánchez (1991) put it: “the great majority aspire toowner−occupation but not under the conditions that are implicit in the ownership and self−help construction ofa house in the periphery.” They want to own, but they mean ownership of a custom−built house not living in ashack.

Thirdly, renting may not be as bad as many reports portray. As chapter VI shows, many tenants get on withtheir landlords and are not constantly being threatened with eviction. For tenants with guaranteed tenure livingnear the centre of Cairo, Delhi or Mexico City, renting may offer just as much security as ownership. In Delhiand Cairo, tenancy rights can even be passed on to one’s children. Elsewhere, tenure is less secure but incities like Caracas, Guadalajara and Santiago de Chile, few tenants change home frequently, indeed, in thecentral areas of Santiago and Mexico City, households stay in the same house for a very long time (Gilbert,1993). If security of tenure is supposedly one of the main advantages of ownership, many families in Mexicoand Santiago seem to achieve this goal perfectly satisfactorily through renting.

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Fourthly, while most tenants may aspire to owner−occupation, they may not want that tenure right now. Thereare several groups for whom renting offers clear benefits. As Sundaram (1990: 126) points out:

“rental housing has certain inherent advantages from the individual’s point of view, such aslow initial investment and greater flexibility for future tenure options. This makes it a morepreferred alternative for more mobile younger households, the floating population and newmigrants.”

In sum, the goal of home−ownership is much cherished. However, the form in which home−ownershipbecomes available is highly significant. Some families will accept home−ownership even when it meansbuilding a home on the unserviced periphery, while for others this is anathema. For some, ownership on theperiphery is highly desirable, but it is an unobtainable dream. The result is that we have a highly diverseresponse to seemingly the same aspiration.

So far, the question of relative costs has not been raised. In some cities, rents are high relative to incomes,elsewhere they are cheap. In some cities, purchasing a plot is expensive, elsewhere land can be invaded orbought cheaply. A critical ingredient in tenure choice is the relative cost of the options. Renting a home inMexico City is much cheaper than renting a home in Santiago de Chile or Caracas (Gilbert, 1993).Consequently, there are relatively few families in Santiago de Chile who can afford to rent accommodationwhereas rent−income ratios in Mexico City are much lower. Under these circumstances fewer families inMexico will be forced into peripheral ownership by their inability to pay rent. Families in Mexico City face amuch more balanced choice between renting and owning than in Caracas or Santiago de Chile. Clearly whenrents are very low, families will continue in rental accommodation even when the accommodation isinadequate. Should rents rise they may well reconsider their housing situation, either because they cannotafford the higher rent or because the balance of advantage between ownership and renting has shifted. It isthis balance of advantage, not just in costs but in convenience, servicing and location, that seems to be criticalin the process of residential choice. This balance, of course, is not determined by individual families but by thepolitical economy of land and housing in the city and country concerned. The basic ingredient inunderstanding the transition to ownership in third−world cities, therefore, is to consider carefully how readilypoor families can obtain land.

C. The choice between different kinds of non−ownership

The choice between owning and renting is not the only option facing households. As table 1 suggests, otherkinds of option are available in some cities. In Delhi, Kumasi, Lima, and Santiago de Chile, sharing houses isvery common, while in La Paz many households borrow homes from kin, and in Rabat many workers live inaccommodation provided by the employer (Beijaard, 1992; Keles and Kano, 1987). Of these various options,sharing is by far the most common. In Delhi, for example, a recent survey by Wadhva (1993: 49) reveals that37 per cent of households accommodate sharers.

Why do some households choose to rent and others to share? Unfortunately, rather little is known about themotivations of those who share. In some cities, of course, it is clear that many families are forced to sharebecause of a lack of alternatives. In Santiago de Chile, where as many as one fifth of households weresharing in the 1980s, sharing is important because few families can afford to pay the high rents and cheapland is unavailable (Necochea, 1987; Gilbert, 1993). This lack of choice is reflected in the fact that sharersand allegados in Santiago de Chile are typically much poorer than tenants and owners. The allegadopopulation seems to be the group most clearly forced into their current housing circumstances. In Delhi, too,the large numbers of sharers is explained in large part by the lack of alternatives. Households shareaccommodation because of the high level of rents and difficulties involved in building their own home(Wadhva, 1993: 49).

Yet not too much should be made of the issue of compulsion. For, if some sharers are forced into theirpresent form of tenure, this does not mean that all are unhappy with it. Surveys in Mexico City, for example,suggest that many households who share accommodation are generally content to do so. While sharing issometimes a tenure of last resort, chosen by those without the resources, 54 per cent of sharers say thatthere are no disadvantages to this form of tenure (Coulomb and Sánchez, 1991; Gilbert and Ward, 1985).They do not have to pay rent, they have access to the wide range of consumer durables belonging to theirparents, and they have as much or more space than most tenants. Sharing also gives the household a betterchance to save money. Their only real complaint is about their lack of independence. Perhaps as a result,sharing is not a short−term tenure, in Mexico City sharers average almost three years in the current home.

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Similarly, in Santiago de Chile, few who share wish to rent. Sharing is cheap whereas renting is expensive.Among the tenants there are some who would prefer to share were it possible.

If there are so many benefits why do more households not share accommodation? Clearly, in Mexico Citysome tenants do not wish to do so, 18 per cent saying that they value their independence and a similarproportion stating bluntly that they would not like to share. By far the most commonly cited reason for notsharing, however, is that it is simply not feasible; 28 per cent give this as their reason for not sharing and afurther 20 per cent say that they do not have parents in the city (Coulomb and Sánchez, 1991).

Clearly, kinship ties are crucial in the decision to share, a factor underlined by the finding in Mexico City thatevery sharer is accommodated by a member of the family. Most sharers are the children (63 per cent),siblings (16 per cent) or parents (8 per cent) of the owners. Mexicans do not share accommodation withfriends. The importance of kinship is even more clearly demonstrated in West Africa where sharing seems tohave become almost as well−established in the cities as it is in the countryside (Korboe, 1992; Tipple andWillis, 1991; Peil and Sada, 1984). If relations own a home then the rest of family is entitled to stay with them.In West African cities, it seems as if “the very fact of even remote kinship has proved able to invoke freeaccommodation for the poor” (Korboe, 1992: 1159). In India, too, sharing is confined mainly to extendedfamily groups (Wadhva, 1993). Grown−up children stay with their parents until they are quite old, particularlymarried sons who will inherit the house after their parents’ death. The next most common kind of sharer isnewly arrived kin from outside the city.

Of course, whether all of the accommodating households are happy with sharing is less certain. Someundoubtedly welcome having their children “at home” but others no doubt regret the additional pressure onspace. In West Africa, changing attitudes are beginning to increase tensions within extended families. Indeed,in Korboe’s (1992: 1162) survey of sharing families, 45 per cent of owners describe the extended family asparasitic. Much will depend no doubt on the circumstances of the hosts. If they have a large house or plot,they may be pleased to accommodate kin; if they have little room, their view may be more ambivalent. Clearlysize of plot has some influence here (Chant and Ward, 1987). In Santafé de Bogotá, where plots are relativelysmall, there certainly seems to be less sharing than in Mexico City where many plots are quite large (Gilbertand Ward, 1985). No doubt, too, the state of the house affects attitudes. In Kumasi, most sharers live inso−called “family homes” which “comprise some of the most neglected housing” (Korboe, 1992: 1168).

What is certain is that sharing can contribute substantially to easing, at least temporarily, a difficult housingsituation. As Korboe (1992: 1169) puts it: the housing problem in urban Ghana would be

“decidedly more acute without the contribution which family−housing continues to make.Given the harsh economic climate, this form of housing is too important to be ignored byresearchers and policy−makers.”

D. Who invests in rental housing?

The image of the large−scale landlord does not seem appropriate to the majority of landlords operating inmost third−world cities. Of course, many cities contain some large landlords but there are remarkably fewexamples of landlords controlling a high proportion of the rental housing stock. In Africa, Nairobi seems tohave many large landlords (Amis, 1984) but even there it is doubtful whether they dominate the market. AsLee−Smith (1990: 182) points out for two low−income areas of the city: “the majority of landlords were not partof the high−income group”. In the slums of Bangkok, Pornchokchai (1992: 152) notes the presence of some“houselords” who operate on a large−scale and in a business−like way. In Nigeria, too, “in city after city thereare a few... wealthy businessmen and retired top civil servants, who own dozens of rental units” (Ozo, 1993:33).

Generally, however, research is indicating that most third−world landlords operate on a small scale. In LatinAmerica, the situation has changed since the nineteenth and early twentieth centuries when there were manylarge operators; most commercial landlords have long since departed from the scene. In Santafé de Bogotá,Bucaramanga, Caracas, Guadalajara, Guatemala City, La Paz, Mexico City, Santa Cruz and Santiago deChile, the typical landlord is now a former self−help builder (Beijaard, 1992; Coulomb, 1985; Edwards, 1982;Gilbert, 1983, 1993; Gilbert and Varley, 1991; Green, 1988; Rodas and Sugranyes, 1988; van Lindert, 1991).Many reside on the same property as the tenants and few have more than a couple of properties. In theconsolidated periphery of Santiago de Chile, seven out of 10 landlords rent only to one tenant household, inMexico City three quarters, and in Caracas two thirds. Even in the central areas of these cities, most landlords

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operate on a small scale. In Mexico City, subdivision of property through inheritance has gradually reducedthe level of property concentration.

A similar pattern of small−scale ownership seems to hold for African cities such as Blantyre, Cairo, Lagos,Lilongwe and Lusaka (Barnes, 1987; Pennant, 1990; Rakodi, 1987; El Kadi, 1988). Indeed, generalizingacross Africa, Lloyd (1990: 294) concludes that

“the rental market has been dominated by the small landlord; rarely, except perhaps in NorthAfrica, have private investors built large block of tenements for the relatively poor.”

The same pattern also seems true for much of Asia, certainly in Bangalore the tenant: landlord ratio is onlyfour to one (Malpezzi and Tiwari). In the self−help areas of Pakistan, most landlords operate on a small scale(Wahab, 1984). In Indonesia and Turkey, most landlords are former self−help consolidators (Hoffman et al.,1990; Turan, 1987). In Delhi, the tenant−landlord ratio is 2.5:1 and few landlords are “professional” operators(Wadhva, 1993: 45−6).

In Benin City, Ozo (1990: 264) claims that “the private rented sector is characterised by small−scaleownership.” Just 62.5 per cent of landlords own just a single property, only 12.5 per cent own two propertiesand a further 5 per cent own more than two buildings. The majority of the landlords/landladies are residentswho occupy two or three rooms while letting the extra rooms to tenants. In a more recent survey, 86 per centof 50 landlords interviewed own only one property, only one having more than three properties (Ozo, 1993a:41). On average, these landlords provide accommodation for only 3.4 tenants. Few of these landlords appearto be operating in a professional way. Only two are building new rental premises, and only four are puttingtheir rents into another business; the vast majority are using the rents as income on which they can live. Mostof those with more than one property are pensioners. The typical landlord is self−employed and built theaccommodation originally for his and his family’s own use.

In Cairo, most landlords are operating on a small scale; 91 per cent of landlords in Serageldin’s (1993) surveylive in the building and 76 per cent of surveyed landlords have less than 10 tenants. Admittedly, some 9 percent of landlords have 15 or more tenants but even the few large landlords earn much from their investmentbecause of the rent controls. Certainly, there is little professional interest in rental housing and even lessinvestment in this static business; indeed only 5 per cent of the landlords had begun renting during the last 10years.

The characteristics of most landlords in third−world cities seem to be generally rather similar to those of otherowners and sometimes even to those of their tenants. In Caracas, Mexico City and Santiago de Chile, whilethey are generally more affluent than other owners they have similar per capita incomes to those of theirtenants. Clearly, landlords, owners and tenants in the consolidated settlements are drawn from the samesocial class. The main thing that tends to distinguish landlords from the rest of the population is their age.Landlords tend to be older than other owners and much older than most tenants. In Cairo, almost half of thelandlords interviewed by Serageldin (1993) have been renting for more than thirty years. Because of their age,landlords are much more likely to be retired, live in larger properties than other families and have lived longerin their current home.

II. THE EFFECTS OF LEGISLATIVE AND POLICY INTERVENTION

A. Rent−control legislation

The forms of rent control introduced around the globe are highly diverse. Some countries freeze rents at aparticular date and only allow cost increases to be passed on to tenants. Others completely index rents. Somehave multi−tiered systems in which some units are frozen, some increase at an express annual rate, andsome only increase on a change of tenants. In the three case−study countries, the main features of rentcontrol have been as described below.

In India, rent controls have been introduced by most state governments. The different rent−control laws arevery similar and apply to all residential and non−residential property, with the exception of governmentalpremises, high−income accommodation and newly constructed property. The laws are extremely rigid andcover rent levels, the responsibilities of tenants and landlords, and eviction. In some states, the landlord does

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not even have the right to choose the tenant; responsibility for this rests with a government agency, landlordshaving to notify the agency of any vacancy. Rents are usually fixed at a standard rate established at somedate in the past, and rises are permitted only under certain circumstances. The base for establishing thestandard rent is normally the cost of construction plus the value of the land. The rent is based on a percentageof this value, ranging from 6 to 15 per cent according to the state. Periodic rises in rents are permitted in somestates but usually only every three to five years. Sometimes, too, rents can be increased if majorimprovements have been made to the property or if there has been an increase in local taxes. Maintenance isthe responsibility of the landlord but if repairs are not made the tenant is permitted to pay for them out of therent. Eviction is possible on the grounds of non−payment of rent, misuse of the premises or the need of thelandlord to use the premises for his or her own family needs. The tenancy rights are extended in some statesto the tenant’s heirs.

In Nigeria, rent controls were first introduced in 1941 and control over eviction in 1948. The two laws wereincorporated into the Rent Control and Recovery of Premises Law in 1954. The precise regulations vary fromone state to another but all are based on federal guidelines. In most states rents are fixed according to thequality of the accommodation with the general approach being to limit rents to less than 20 per cent ofhousehold income. Tenants can be evicted only by a court order which is normally granted on one or other ofthe following grounds: rent arrears of more than one month, the need for substantial repairs, the premises arerequired by the landlord, the tenant is misusing the property or being a nuisance, the accommodation isrequired for some public purpose.

In Egypt, rent control and legislation began in 1920 and controls over rents gradually increased during thenext five years (Serageldin, 1993:3). In 1941, rent rises above certain levels were prohibited and tenancieswere automatically renewed after their termination. This was consolidated in the Rental Housing Law of 1947.More controls were introduced after the Socialist Revolution of 1952 and by 1962 rents on most kinds ofhousing were controlled. The law was substantially modified in 1981 when the annual rate of return on thecombined value of the land and the cost of house construction was established at 7 per cent. Only a limitednumber of luxury and furnished apartments were excluded from these regulations. The 1981 law alsochanged the system for raising rents and permitted the sale of housing to the tenants. The Government alsoestablished a central agency to provide subsidies to cover part of the rents of the poorest families. The lawalso allowed tenants and owners to share the costs of maintenance.

B. Effectiveness of rental laws in controlling rent levels and evictions

It is clear that few landlords or tenants fully understand the rent−control regulations even in developedcountries (Malpezzi and Ball, 1991). In most developing countries, whole swathes of rental housing tend to beexcluded from the regulations, notably those in the self−help housing areas. Since many of these areas existoutside the formal embrace of the law, insofar as they lack title deeds or planning permission, it is notsurprising that they should be ignorant of much of the rent−control legislation. Nonetheless, not knowing thefull details of the regulations is not the same thing as total ignorance. In many cities, rent controls workpartially. Some landlords know the regulations whereas others do not. Some tenants are aware of the rulesbut others not. Some landlords and tenants comply with the regulations, others evade them.

Generally, rent controls seem to be implemented effectively only in countries with socialist regimes. In Chinaand Cuba, controls cover every kind of property and seem to be applied fully. Elsewhere controls seem tohave worked in certain areas of Bangalore, Buenos Aires, Harare, Kumasi, Mexico City, Mombasa, Rabat andSão Paulo (Ghai and MacAuslan, 1970; Keles and Kano, 1987; Kowarick and Bonduki, 1977; Malpezzi andBall, 1991; Rakodi, 1989; Rivas, 1977; Tipple, 1988). In most third−world cities, including those justmentioned, rent controls do not seem to have worked in the informal housing areas. The lack of legal rentalcontracts in most self−help rental housing is a clear sign of this. Recent research has shown that few LatinAmerican tenants are issued with contracts (Jaramillo, 1985; Gilbert and Varley, 1991; Gilbert, 1993).

Even where the law is applied with some effectiveness, there are many ways in which landlords can escapethe rent−control legislation. One is through “key money” whereby landlords compensate for low monthly rentsby demanding a high initial payment from the tenant before occupation. “Key money” is a well−known featureof rental housing markets in Egypt and now increasingly in Kumasi (Abt Associates, 1982; Feiler, 1990;Serageldin, 1993; Tipple, 1988). Sophisticated advances on the system of “key money” have developed inBolivia and in the Republic of Korea where it effectively substitutes for the payment of rent. The Boliviananticrético and Korean chonsei contracts both consist of a lump−sum payment which the landlord returns atthe end of the contract period (Beijaard, 1992; Green, 1988; Kim, 1992; Renaud, 1989). The owner invests

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the deposit. The tenant pays no monthly rent and the deposit is fully refunded at the end of the contractperiod, usually a minimum of one year. The system became popular in both countries as a way to circumventrent−control measures and restrictions on the eviction of renters.

In the three case−study countries, there is plenty of evidence of landlords avoiding the effects of therent−control legislation although the degree of evasion varies considerably between the three.

In Nigeria, the rent−control legislation has been almost totally ignored since the early 1980s and did not workvery well even when it was supposedly being applied. In fact, Okpala (1985) claims that rents were higherthan decreed levels two years after the introduction of the rent controls. Ozo (1993: 50) goes even further andargues that landlords raised rents above what they would otherwise have been, “to impress on governmentthe futility of promulgating a decree which it is not capable of implementing.” Whether or not that claim isjustified it is clear that tenants were in no position to protest about non−compliance. As Ozo (1993: 12) puts it:

“most tenants under the condition of acute housing shortage, for fear of being evicted,colluded with landlords in black market transactions about controlled rents. As a result only atiny minority of cases were ever reported.”

Even when the law was working its “implementation was haphazard and very limited in coverage.” For the last10 years the act has been more or less moribund. Today, “most landlords act outside the provisions of thelaw.”

The record is little better in terms of implementation of the controls over eviction. Less than 5 per cent oflandlords and many fewer tenants have used the courts to evict tenants (Ozo, 1993: 11) and most tenantssimply leave when asked to. The essence of the problem for the landlord seems to be that there are too fewcourts and, therefore, cases take a long time to resolve. “As a result, landlords do not have the patience toseek possession under the Recovery of Premises Act” (Ozo, 1993: 12). In the case of the tenants, there isanother reason; their weak position vis−à−vis their landlords. They are afraid of losing their accommodationand of not getting other accommodation when other landlords hear that they have complained to theauthorities (Ozo, 1993: 55).

In India, the regulations work a little more effectively although most landlords still fail to comply with the RentControl Act. In fact, this has been a longstanding problem. NIUA (1989a: 15) reports on a study of 1968 whichfound that only 10−12 per cent of tenants in Delhi were affected by the Rent Control Act. Today, the situationis little better. As NIUA (1989a: 153) note: “a large part of Delhi’s rental housing market lies outside thepurview of the Rent Control Act. Another significant part of this market does not conform to all the provisionsof the Act.” This is demonstrated by Wadhva (1993: 31) who notes that “most of the landlords and tenants areunaware of the rent control act and even if they are aware are not fully conversant” with its provisions. InDelhi, for example, Wadhva’s (1993: 31) survey reveals that few landlords use the rent−fixing machinery laiddown by the Rent Control Act and 85 per cent of rents had been raised after a couple of years despite the Act.In the informal housing sector, the Act is even less effective: “the rent control act has minimal impact on rentsand new construction” (Wadhva, 1993: 73). “Of the 390 premises surveyed in Delhi, the rent was fixed by theController only in 38 cases” (p. 82). Landlords protect themselves from the risk of the tenant approaching theCourt to establish a standard rent, either by charging “key money” or by demanding a deposit on a returnableor non−returnable basis. The survey found that deposits are charged in 47 per cent of cases. Not surprisingly,few receipts are given for this payment. In the 25 per cent of cases where receipts are given for the monthlypayment of rent, the correct amount is written in only 45 per cent of the cases. In 5 per cent of cases it is for ahigher amount (so that the tenant can charge his or her employer) and in the remaining half, lower amounts.As a farther sign of non−compliance with the Act, 77 per cent of landlords raise the rent every year, 6 per centtwice a year (p. 83).

The Act does not seem to work much more effectively in terms of controlling evictions. Landlords do not usethe Act to evict because of the strictness with which the courts interpret the rules protecting the tenant. Thereis also the problem of time; the lengthy court procedures discourage most landlord from going to court. As aresult,

“forced evictions for non−payment of rent or for any other reason are the rule rather than theexception. In many cases tenants vacate on their own rather than protest or seek redressalunder law” (Wadhva, 1993: 34).

The expense of the legal system is too great for the poor to use it.

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Only in Egypt, among the three case−study countries, does the rent−control legislation seem to work at allwidely. Certainly, Serageldin’s (1993) survey of 100 Cairo landlords, found that 95 per cent issued contracts,70 per cent had never raised the rent and 99 per cent had not evicted a tenant in the last year. However, asMalpezzi and Ball (1991: 73) note

“key money is a well embedded feature of the market. Side payments account for almost asmuch imputed landlord revenue as rents there; and for recent tenants, they account for themajority of the revenue.”

Formal−sector landlords also protect themselves by renting to relatives or friends; 63 per cent of the landlordssurveyed by Serageldin do this. In the informal housing areas, however, rent−control does not seem to workat all. Landlords do not issue contracts, they levy “key money” and they charge the free−market rent. Thechief reason for the lack of implementation in the self−help areas is the Government’s reluctance to admit thatsuch areas exist.1 It has to recognize these areas before it can apply rent controls on the landlords.

1 It has tried for many years to protect agricultural land from the incursions of self−helphousing.

C. Legislation and the needs of low−income groups

In principle, rent controls are intended as a means of protecting weaker groups against the ravages of inflationand/or exploitation by landlords. Rent−control legislation is normally premised on the assumption thatlandlords are affluent and tenants are poor. For this reason many countries have excluded expensive propertyfrom the controls and limited it to lower−value property. In India, state rent−control laws always includelow−income property but sometimes exempt high−priced accommodation.

A basic problem with rent controls is that the benefits are never transparent and are rarely wholly predictable.It is certainly not always clear whether the poor benefit. Among the tenants, some poor families benefit butothers lose out; some affluent tenant families also gain. Among the landlords, some rich ones suffer but soalso do some poor ones. As a result, there is no clear link between those who benefit and those who mostneed help. In Bangalore, for example, Malpezzi and Tewari (1990) found that Bangalore, for example,Malpezzi and Tewari (1990) found that there was no simple relationship between income and the benefitsderived from rent controls.

Rent controls also tend to favour sitting tenants over new tenants. As Malpezzi and Ball (1991: 71) put it:“often, long term tenants tend to benefit from controls, and recent movers often pay large key money, advancerent, or other side payments.” In Mexico City, long−established controls in the central areas of the city used tomean that tenant families paid extremely low rents; by contrast, the majority of the population were notcovered by the rent controls (Aaron, 1966). Similarly, in Cairo, Malpezzi (1986) found that while new entrantspaid large sums in “key money”, existing tenants were paying very little of their income in rent. In India, wherethe Rent Control Act also favours sitting tenants, new entrants into the housing market lose out (Wadhva,1993).

Poor tenants may also suffer in the longer term if landlords respond to rent controls by failing to maintain theproperty. In Guadalajara and Puebla, many tenants have given up complaining about the lack of repairsbecause landlords simply do nothing. “Four−fifths of the tenants who had complained about the need forrepairs reported that the landlord had taken no action” (Gilbert and Varley, 1991: 172−173). In the centralareas of these cities, landlords protest that the cost of repairs is far too high to contemplate given the lowrents paid by the tenants. In Cairo, however, it appears that maintenance of formal−sector accommodationmay not have suffered unduly despite the oppressive rent controls. As Abt Associates (1982: 208) point out:“residents of rent controlled properties often assume the financial burden of maintenance themselves, at leastfor their own units, spending on average a sizeable fraction of income for this purpose.”

A further long−term effect of rent controls is that the rental supply is reduced. As Wadhva (1993: 71) puts theargument in the case of India:

“the impact of low rents on rental housing construction is evident from the rental housingmarket. This provision has driven away even the public agencies. Even though rents are notcontrolled in houses owned by the public agencies, the application of the Rent Control Act inthe market has created a psychology of fixedness of rent which has permeated the tenants of

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public agencies who resist any rent increases vociferously and violently.”

However, again Egypt provides some counter evidence. In Cairo, “rent control does not appear to have had amajor effect on rates of new construction... rental units are still being produced” (Abt Associates, 1982: 208).

Perhaps the greatest problem with rent−control legislation, however, is that it is often not applied in just thoseareas where most of the poor live. As Section II.B has shown, most legislation simply does not work, or worksonly partially, in the self−help areas of most Latin American cities where the majority of poor tenants are nowconcentrated. In these areas, neither landlords nor tenants really know much about the law.

Even if poor landlords and tenants were aware of the law, the high cost of using the courts would deter themfrom taking legal action. They simply could not afford legal advice and without such help they would be unableto cope with the complicated procedures. As Ozo (1993: 16) explains for the case of Nigeria,

“the technical/legalistic language and cumbersome procedure of the law, the monetary andtime cost of court procedures under the law, the burden placed on tenants to reportinfringement to courts before erring landlords can be identified, etc. make the law particularlyunsuitable to low−income groups who are also quite often illiterate.”

In his survey in Benin City, he found that the only tenants who have used the courts have been literate andfrom the middle class. As a result, “In spite of the intention of the law, the low−income groups have had little,or no, protection from it” (p. 17). Still worse is the fact that the law is sometimes improperly used against them;it has been known for wealthier landlords to coerce tenants into leaving the premises by getting lawyers tosend them letters.

If rent controls have had little effect on the living standards of the poor, so too have other kinds of governmentintervention. Generally, and perhaps fortunately, zoning laws are ignored in the self−help housing areas.Public housing construction has provided homes for very few poor families and in recent years, none in rentalaccommodation. Attempts at encouraging the development of a housing−finance system have broughtbenefits entirely to higher income groups.

D. Planning and zoning regulations affecting production of rental housing

Planning and zoning regulations, including rules covering building standards, infrastructure norms and landuse, are frequently criticized for the way in which they restrict the production of housing. The World Bank(1993) suggests that they often make housing unaffordable for low−income groups, restrict the residentialland supply, and create bureaucratic bottlenecks that cause delay. Such problems, of course, affect theproduction of every kind of housing, not just the production of housing for rent. Arguably, therefore, they affectrental−housing production no more forcibly than the production of housing for ownership.

Such regulations are often felt to be particularly inappropriate in less developed countries. They wereintroduced either under colonial regimes or by indigenous planners trained in the planning schools of theformer imperial country. The impact of green belts, zoning regulations, land−use controls and buildingstandards, have introduced a paraphernalia of unnecessary controls into third−world cities. Not only has thisincreased the bureaucratic hassle for anyone involved in trying to penetrate the maze of regulations, but it hasalso created opportunities for delay and corruption (de Soto, 1989). A typical view is presented by Baken et al.(1991: 29):

“building regulations and codes − being based on European models − have been observed toconstrain the development of low income settlements. Apart from the restriction of lot sizes foreconomic activities, two other factors hamper the economic development of plannedsettlements: the limited proportion of plots for commercial use, and the regulatory frameworkwhich often prohibits mixed residential−commercial land−use.”

Of course, the main effect of such regulations is on the so−called formal sector. For, as is well−known, largeareas of most third−world cities have developed with little regard for the planning regulations. If houses arebeing built without services, then it is difficult to believe that their builders are being any more scrupulous infollowing the regulations that might affect their accommodating tenants. Of course, illegal developers do notignore all of the rules. In Santafé de Bogotá, for example, illegal subdividers often adopt some of theregulations in an effort to appear as legal as possible (Carroll, 1980; Gilbert and Ward, 1985). The closer they

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can approximate to the rules, while maintaining their cost advantage, the less likely they are to be harassedby the authorities. But, in general, market forces in determining the price of land and the general attitude ofthe government with respect to upholding the law are more important influences on the informal housingsupply than the nature of the regulations per se. If the government does not apply any planning regulations inthe self−help areas, it matters little what the rules actually say.

Clearly, planning regulations affect formal−sector builders directly but, insofar as few build for rent, there willbe little impact on the rental−housing sector. By far the most effect will be felt in the field of owner−occupation.The rental−housing sector will only be influenced when specific planning regulations make the construction ofhousing more or less difficult. In the case of Mexico City, Connolly (1982: 149) argues that this was preciselythe impact of the introduction of more stringent building regulations in the 1940s. “The implementation ofbuilding regulations modelled on North American and European standards,... clearly made it more difficult tobuild substandard housing on a legal basis.” This reduced the profitability of such investment and thereforethe amount of rental housing construction.

The enforcement of safety regulations can also cut the amount of rental accommodation especially when it islinked to slum clearance. Since much decayed housing in central locations is occupied by tenants, slumdemolition can lead to vast areas of rental accommodation being destroyed. Unfortunately, although they areless common today, examples of slum demolition on a massive scale have been all too common inthird−world cities. In the 1960s and 1970s, inner−city renovation programmes led to the loss of large numbersof homes in Lagos, Rio de Janeiro and Tunis (Marris, 1979; Hardoy and Satterthwaite, 1981; Peil and Sada,1984; Valladares, 1978). In Delhi, some 700,000 squatters were moved in 1976 from the central areas to theoutskirts (Risbud, 1991; World Bank, 1993: 30). In the centre of Mexico City, attempts to resuscitatecommercial activity in the central area have destroyed vast numbers of rental homes in the central city.Coulomb and Sánchez (1991: 40) claim that slum demolition and new road programmes during the 1970s ledto the destruction of 50,000 rented rooms in three neighbourhoods alone.

Sometimes, however, attempts to beautify the city and to apply planning controls more rigorously have quitethe opposite effect on rental housing. In several Latin American cities, where local governments are trying toconserve the colonial architecture in the central areas, the demolition of old houses has been prohibited. Theresult is that owners cannot sell the homes and are forced to rent them. Admittedly, this sometimes leads togentrification and much higher rents but it also leads to the retention of some unimproved rental housing forthe poor. The contradictions involved are demonstrated by experience in Quito. As Godard (1988) points out:“historic preservation of the colonial city has encouraged landlords to renovate some buildings, the rents forwhich poor people can no longer afford.” However, the overall result of colonial preservation in Quito has beeninadvertently “to retain more central low−income rental housing than in most Latin American cities...” (Klakand Holtzclaw, 1993: 263). Similarly, in Mexico City, the introduction of more stringent planning controls in thecentral areas in the 1940s made it much more difficult to change land uses. As such, many tenants were notevicted because their landlords could not obtain permission to develop new office or residential blocks. Whilethese landlords may have ceased to maintain their property, something which eventually led to the decay ordemolition of many rental housing units, the short−term effect was to sustain rental housing in the centralarea.

Restrictive planning regulations can also stimulate rental housing production insofar as they limit urbanexpansion. In cities, such as Seoul, “where rural−to−urban land conversion is severely restricted because ofrigidly enforced greenbelt regulations and master plan provisions that limit residential development to only 25per cent of the total land area”, the effects can be serious (World Bank, 1993: 83). In Seoul, the restrictionshave led to “explosive increases in the price of land and housing, severely decreased housing affordability,and persistent housing shortages” (ibid., 83). Under such circumstances, it is perhaps not surprising thatSeoul has a high percentage of households that rent or share accommodation. Similarly, in Caracas, urbanexpansion has been limited by a decree to keep development below the 1000 metre contour line. Thisrigorously applied regulation has encouraged urban development to spread farther along the valley floor intomore distant locations. The effect has been to encourage the development of rental housing in the informalsector. The only alternative to renting a room is obtaining a shack in the distant periphery.

In Delhi, the planning regulations have severely discouraged all kinds of housing construction. They have alsodepressed rental−housing production in a number of ways. First, master plans up to 1990 limited plot sizes toa maximum that could accommodate only two families; even now only three families are permitted to live on asingle site (Wadhva, 1993: 29). This prohibition clearly limits the scope for rental housing. Secondly, althoughrental housing can be developed under the Group Housing Scheme, the densities specified under thatscheme are too low to make investment commercially viable (p. 27). Thirdly, planning regulations also make itdifficult for owners to adapt their homes to create space for tenants. Renting part of an owner’s flat is virtually

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impossible because legally only one kitchen can be built (p. 28). Although all of the above regulations areoften flouted they discourage renting because of the bribes that have to be paid to the inspectors. Fortunately,some modifications are being made to the regulations and, in 1990, the third−floor barsati terrace, which hadbeen built and illegally rented out for years, was finally legalized (Wadhva, 1993: 28).

In Benin City, the zoning regulations ostensibly limit the profitable development of rental accommodation bystipulating that houses can only have eight living rooms on a single storey, 12 on two floors and 15 on three,with a maximum occupancy rate of two people per room. However, since few of the planning regulations areactually applied in Benin, the restrictions are likely to have had little effect on rental housing production. Themost likely impact of planning rules on formal sector construction comes in the form of the prohibition on anysingle owner using more than 0.5 hectares of government land on leasehold title. Ozo (1993) claims that thisprohibition “militates against large−scale development of rental housing” (Ozo, 1993).

In Cairo, the urban zoning laws limit the number of houses per plot but Serageldin (1993) believes that thishas had little effect on the development of rental housing. Potentially more significant is the legislationintroduced in 1940 and 1975 to control urban expansion in agricultural areas; a policy linked to the strategy ofbuilding new towns in non−agricultural areas (Feiler, 1990). In practice, planning officials admit that the lawhas never been effective (Abt Associates, 1982: 36).

The main difficulty in commenting on the impact of planning regulations on rental housing lies in knowingprecisely to what extent the rules have been implemented. Since many regulations have been applied fully inone part of a city and not at all in another, it is difficult to be categorical about the overall effects of theirapplication. In general, however, it is probably true that quality standards have encouraged the idea of slumdemolition, leading to considerable losses in the low−income rental housing stock. It is also likely that smallplot sizes in sites−and−services schemes have discouraged rental housing development (Chant and Ward,1987:14). In the case of new rental property, complicated rules and regulations have probably helpeddiscourage potential landlords in the formal sector from building for rent. If profits from rental housing can onlybe generated by building cheaply, then planning regulations which push up physical standards can onlydiscourage investment. Whether this is a good or bad outcome is a moot point.

E. Different forms of legislation affecting provision of rental housing in different cities

Usually the rental legislation shows few differences between cities in the same country. In Mexico, while thestate authorities are responsible for most regulations covering rental housing, they tend to adopt similarguidelines and usually follow the example of the Federal District. Of course, the local authorities sometimestake an exceptional line, usually for political reasons. During the 1980s, for example, the states of Puebla andMichoacán both introduced regulations which limited rent rises (Gilbert and Varley, 1991: 57−58).

In Egypt, the rent−control legislation incorporated certain variations between areas, with controls not applyingto rural areas or to a number of tourist centres (Serageldin, 1993: 14). In Nigeria, state governments areresponsible for housing but all the legislation follows central government guidelines (Ozo, 1993: 6). Forexample, the rent−control ordinances that were introduced in every state after the Civil War, adopted thepattern laid down by the Federal Government. In India, however, the controls over rents in different states dovary a great deal (Wadhva, 1993: 17−19). The main variations relate to the flexibility given to the landlord tochoose tenants, the degree to which rents can be raised, the kinds of project that are exempt from control,maintenance standards, eviction procedures and the rules under which tenancies can be inherited. To whatextent these differences actually influence the amount of renting in each state is uncertain.

On the whole, local legislation has much less influence on the functioning and development of rental housingthan a number of other factors. The nature of the land market, particularly the cost of urban land, the way inwhich the authorities permit or prohibit land invasions, the nature of the transport system, and culturalattitudes to renting and ownership all influence the tenure structure of a city much more than local regulations.This is clear when rural tenure patterns are compared with urban tenure patterns in the same country. Thetypical ownership pattern of the countryside and the greater importance of renting in most cities cannot beexplained in terms of the planning regulations. Similarly the major variations between Indian cities in theamount of renting cannot be explained in terms of the legislation. The difference between Calcutta with 76 percent of its population renting or sharing and the 30 per cent in Lucknow is simply too large to be explained interms of planning regulations, regulations which in any case are only partially applied (NIUA, 1989).

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III. THE CLIMATE FOR INVESTMENT

A. Profitability of rental investment

In the past, rental housing was usually a good business to be involved in, indeed one of the only really safebusinesses available. In Latin America, rental housing was something in which anyone with true commercialflair would seek to invest in. Even the Church and the revolutionary leaders of Mexico put their money in rentalhousing (Armus and Hardoy, 1984; Perló−Cohen, 1979; Hahner, 1986; Kowarick and Ant, 1987; Scobie,1974; Violich, 1944).

Most accounts of rental housing emphasise that this is no longer the case; investment in rental housing is nowunprofitable. The combination of income and property taxes, rent controls, requirements to maintain theproperty and an inability to evict the tenant means that any law−abiding landlord is bound to lose money. Atthe very least, the rate of return on rental−housing investment is well below that found in other kinds ofactivity. This is certainly what most kinds of landlord say in surveys conducted in third−world cities (Camachoand Terán, 1991; Coulomb and Sánchez, 1991; Gilbert, 1993; Gilbert and Varley, 1991; NIUA, 1989a).

However, rental housing is certainly not unprofitable at the top end of the market. Many landlords inthird−world countries rent homes to foreign tenants or to other households prepared to pay in hard currency.Rent controls rarely apply in these income brackets and the quality of housing is well above that which offendsthe planning regulations.

In certain cities, commercial landlords may also expect to make a reasonable profit from building rentalhousing for lower−income groups. In Bangkok, for example, Angel and Amtaphunth (1989: 184−185) believethat

“several formal−sector projects are economically feasible and yield good returns, even thoughthey charge low rents. They are likely to be particularly successful in small plots within a shortwalking distance from major arterial roads.”

In Indonesian cities, rental investment may also be profitable under certain circumstances. As Hoffman et al.(1989: 4.7) put it:

“residential rental real estate appears to be an attractive investment vehicle, even under fairlyconservative assumptions... If property values are generally perceived to be rising rapidly, thewillingness to invest in rental property relative to alternatives will be correspondingly greater.”

The issue of property values is critical. If landlords can anticipate capital appreciation on the property thenmany may build for rent. They will only do this, however, on two conditions. The first condition is that they arepermitted to evict the tenants when they wish to sell the property. The second is that they are able to sell theproperty. The first condition is unproblematic except in countries such as Egypt and India which give manyrenters tenure for life. The second, however, is likely to be difficult in many third−world cities. Given the lack ofeffective mortgage−finance systems and given the preferences that most financial institutions have for lendingfor new property, it is often extremely difficult to obtain loans with which to buy a used property. Evidence fromseveral Latin American cities suggests that most lower−income owners never move house (Gilbert, 1993;World Bank, 1993). The lack of mobility may mean that the owners have never wished to move but an equallylikely explanation is that some would have liked to at some time in their occupancy but simply could not find abuyer. The implication of these comments is that for rental investment to be profitable, allowance has to bemade for capital accumulation. If selling the property is difficult, realising the capital accumulation isproblematic. Under such circumstances, few commercial developers will be interested in building for rent.

In the three case−study cities, the profits to be derived from rental housing are highly variable. In Delhi,Wadhva’s (1993: 38) calculations suggest that “investment in rental housing has been less profitable than inother areas like ownership housing, shares and metals.” This view is supported by NIUA (1989: 180) whichcomments that when owners pay all the taxes, the returns on rental housing “are not high and compare ratherpoorly with rates of return obtainable from other forms of investment.” The main problem, however, seems tobe less the taxes than the inability to capitalize on rising property values.

“The major source of rate of return from housing is capital gains on the value of the house. Bymaking evictions and increase in rents over time difficult, the Rent Control Act has affected

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the rate of return adversely” (NIUA, 1989: 190).

As a consequence, there has been little investment in rental housing by formal−sector businesses. Whereas

“many new private sector corporations have entered the field of ownership housing, not asingle corporation has invested in rental housing. The former scores over the latter in manyways, the quick turnover, the certainty of returns, freedom from maintenance andmanagement of rental housing stock” (Wadhva, 1993: 58).

In Nigeria, Ozo (1993: 26) claims that “the return on rental housing has always been low.” However, theproblem has become more severe in recent years because of spectacular rises in the cost of building. Nigeriahas been rather badly affected by rapid rises in the prices of the majority of construction materials which areimported. Devaluation, decreed necessary under recent structural adjustment programmes, has forced up thecost of those materials. Clearly rents could not keep up with rising building costs during a period of falling realincomes. As a result, “between 1980 and 1990 rents increased three times, the cost of building or buying ahouse by 14 times” (Ozo, 1993: 27).

Yet there is a further problem. With property prices rising fast, some investors ought to have been prepared tobuild rental housing for reasons of capital appreciation. The problem is that it is extremely difficult to sell ahouse in Nigeria. The mortgage market is very limited and few lenders are prepared to lend money on a usedhouse. As a result, “most bankers expressed an unwillingness to lend for investment in rental housing” (Ozo,1993: 28). They are no doubt further influenced by the fact that there are “many lucrative investment options,most of which are more profitable than investment in rental housing” (p. 27).

In Cairo, landlord opinion in a recent survey was almost unanimous: 98 per cent of landlords interviewed bySerageldin (1993: 19) said that the return on investment was insufficient. No one had bought or soldrental−housing units in recent years. No one wanted to buy any more property and none could get rid of whatthey had. In the formal sector, the principal problem is the landlord’s inability to evict the tenant. At the sametime, it is clear that there is a profitable rental−housing market in Cairo catering for high−income groups.

B. Rent levels relative to prices, income and cost of owner−occupation

Housing markets differ considerably in terms of the affordability of accommodation. According to datacompiled recently by the World Bank, the cost of ownership relative to average incomes ranges widely. Astable 2 shows, in Algiers, Beijing and Tokyo, the ratios of median free−market prices of property to medianannual household incomes are over 11 to 1; in Abidjan, Dar−es−Salaam, Lilongwe and Nairobi the ratios areless than 2 to 1. Similar variations are apparent in the rents that tenants have to pay as a proportion of theirincome. In Delhi, Istanbul, Kuala Lumpur, London, Monterrey, Santiago de Chile, Singapore and Washington,D.C. tenant households pay on average between 25 and 38 per cent of their income in rent whereas they payless than 8 per cent in Accra, Algiers, Cairo and Johannesburg.

House prices are low in some cities because of very low land values. They are expensive elsewhere becauseland is scarce and because of the high cost of construction and building materials. House prices, however,also reflect the average quality of urban dwellings; the quality of housing in high−cost Tokyo is no doubtsuperior to that in low−cost Dar−es−Salaam.

What is surprising about the figures in table 2 is the lack of any clear link between house prices and rents. If ahousing market is working efficiently, high house prices should be reflected in high rents. However, in manycities there is no relationship at all between the ownership and the renting cost ratios. In a number of citiesthis can be explained as a result of rent control. The effects of rent control presumably explain the lowrent−income ratios in Algiers, Accra and Dar−es−Salaam. Elsewhere, high rent/income ratios are surprisinglyassociated with low purchase−price/income ratios as in Santiago de Chile and Caracas. Here, the answer ispossibly that government policies of cheapening the cost of home−ownership are associated with little or nocontrol over rents.

Table 2. The affordability of housing by city

City House price/incomea Down−market penetrationb Rent/incomec

Dar−es−Salaam 1.9 13.5 3

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Lilongwe 0.7 7.7 10Dhaka 6.3 16.7 12Ibadan 3.6 0.9 7Delhi 7.7 n.a. 25Nairobi 1.0 6.9 10Beijing 14.8 n.a. 6Karachi 1.9 n.a. 19Accra 2.5 0.9 6Jakarta 3.5 1.1 15Cairo 6.7 n.a. 6Harare 2.8 3.7 14Dakar 3.0 7.0 19Manila 2.6 1.2 14Abidjan 1.4 3.5 13Quito 2.4 2.1 19Amman 3.4 2.7 16Santafé de Bogotá 6.5 7.9 20Bangkok 4.1 1.7 20Tunis 6.1 8.6 21Kingston 4.9 2.7 16Istanbul 5.0 5.0 15Santiago de Chile 2.1 5.1 28Algiers 11.7 n.a. 5Kuala Lumpur 5.0 3.4 26Monterrey 3.7 2.5 36Johannesburg 1.7 1.2 5Caracas 2.0 5.8 24Rio de Janeiro 2.3 n.a. 14Seoul 9.3 3.5 35Athens 3.8 1.6 15Tel Aviv 5.0 1.1 23Madrid 3.7 n.a. 10Singapore 2.8 13.8 38Hong Kong 7.4 8.6 8London 7.2 n.a. 25Melbourne 3.9 2.8 18Amsterdam 4.8 6.9 18Vienna 4.7 n.a. 13Paris 4.2 1.1 21Toronto 4.2 2.5 18Washington, D.C. 3.9 1.8 25Munich 9.6 2.6 18Oslo 5.5 n.a. 9Stockholm 4.6 2.0 11Tokyo 11.6 3.5 16

Source: UNCHS (Habitat) and World Bank (1993: table 2)

Notes:

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a. The house−price−to−income ratio is defined as the ratio of the medianfree−market price of a dwelling and the median annual household income.

b. The down−market penetration is defined as the ratio of the lowest−priced(unsubsidized) formal dwelling unit produced by the private sector insignificant quantities (not less than 2 per cent of annual housing production)and the median annual household income,

c. The rent−to−income ratio is defined as the ratio of the median annual rentof a dwelling unit and the median annual household income of renters.

Even if these figures are only approximations, and no doubt contain many errors, they underline forcibly thatvery few housing markets seem to be working efficiently. In some cities, prices are far too low, giving littleincentive for businesses to invest and suggesting that housing conditions are of a very low standard.Elsewhere, supply constraints make housing almost unaffordable either to buy or to rent.

In Delhi, the stresses of the housing market are reflected in the high prices of owner−occupation and the highrent−income ratios. In Wadhva’s (1992: table 3.6) survey of 201 tenants, the mean rent−income ratio was 28per cent. Fortunately, however, the highest ratios were found not among the poor but among the most affluenttenants. Those earning more than Rs. 10,000 rupees per month were paying an average of 37 per centcompared with an average of 18 per cent among those earning less than Rs. 2500.

The vast inter−city differences in the affordability of rents is manifest by recent research among low−incomegroups in Caracas, Mexico City and Santiago de Chile. For households earning less than two minimumsalaries in 1989, the percentage of households paying 20 per cent of more of their income in rent varied from20 per cent in Mexico City to 46 per cent in Santiago de Chile and 80 per cent in Caracas (Gilbert, 1993).Rents were rather cheap in Mexico City and rather expensive in Caracas.

Rent/income ratios differ in part because of differences in housing quality. However, differences are alsolinked to the way in which landlords determine rents. Sometimes, of course, official controls prevent any rentrises but elsewhere rents sometimes rise more slowly than prices generally because of more subtleprocesses. Since many tenants seem to believe that rents rise inexorably, and many landlords that they donot rise at all, it is worth examining two examples in some detail.

In Cairo, Serageldin’s survey found only seven out of 100 landlords who had increased the rent over theprevious two years and as many as 70 who had never raised the rent at all. When asked how often theyraised the rent 23 said that they only raised it when a new tenancy was signed. Clearly, this would favourlandlords who evicted tenants regularly, but, when asked about evictions, only one had evicted a tenant in theprevious year. Clearly rent controls play their part in Cairo, but it is clear that rents cannot rise rapidly underthese circumstances.

Even in Mexico City, where rents are not generally subject to control, rents between 1970 and 1988 rosemuch more slowly than prices generally. Indeed, rents had fallen to 60 per cent of their earlier value by 1988.Rents maintained much more of their value relative to the minimum wage, but they even declined a littleagainst that. Since rents on few properties were actually controlled, why did rents not rise more rapidly? Thebroad answer seems to be that in Mexico landlords do not automatically put up the rent every year andcertainly not by an amount equal to inflation (Gilbert and Varley, 1991: 143−147). Indeed, sitting tenants seemto be treated rather benevolently by most landlords; landlords only raise the rent to the real market valuewhen new tenants move in. But, since most tenants stay in the same property for some years, this means thatrents fall over time relative to prices. Indeed, it has only been since price controls were introduced on mostproducts in 1987 that the relative cost of the, uncontrolled, rents has risen more rapidly than prices generally.Between December 1987 and December 1992 rents rose almost four and a half times compared with slightlymore than a doubling for prices generally. By comparison, the minimum salary rose by little more than threeand a half times during the same period.

In Benin City, by contrast, landlords seem to work on a more commercial basis with the great majorityadmitting to raising rents when the minimum salary rises or when the cost of living goes up (Ozo, 1993).

The point of these comparisons is that the opportunities facing both landlords and tenants differ widelybetween cities. In some, perhaps most, cities there is insufficient choice available between tenure types. If thecost of rents are high and home prices are low, potential tenants become home−owners and many landlordscease to rent out property. In well−functioning markets, there should be a real choice between ownership and

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tenancy. Tenants, owners and landlords should all feel themselves to be treated fairly by the market. In fewcities is that actually the case.

C. Taxes on rental property

In most countries income from rents are taxed in the same way as most other kinds of income, althoughhigher tax rates have been applied to rental income in countries such as the United Kingdom. Where somelandlords lose out is in the allowances that they are permitted to charge against their rental income. Whereasowner−occupiers are usually permitted to charge the interest payments on the purchase of their home againsttax, many landlords building for rent are not. For that reason, owner−occupiers gain a major advantage overmost landlords.

At the same time, landlords have generally benefited in the same way as owner−occupiers from risingproperty prices. In most countries, such capital gains are largely free of tax. As Flood and Yates (1989: 203)point out:

“for financial assets such as interest bearing deposits or debentures, the whole nominalinterest income is taxed, whereas for investment assets such as housing or shares, thecapital gains are not completely taxed, only the rental income or dividends.”

Of course, many landlords do not pay income tax on rents because they do not declare them. In addition,more elaborate ways are sometimes found to escape income taxes. For example, the lump−sum depositsmade by many tenants in Bolivia and the Republic of Korea do not attract tax (see section III.B); aninterest−free loan is not taxable in the same way as rent.

In Delhi, rental housing is taxed in two ways: through income tax and property tax. Both are graduated taxes,the latter ranging from 13 to 36.4 per cent of the rateable vale of the house for rental property (NIUA, 1989:182). Home−owners pay lower rates of property tax and recent changes in fiscal policy have made thesituation still more unfavourable to renting. According to Wadhva (1993), if taxes were applied fully it wouldnot be profitable to rent. Fortunately, or unfortunately, small−scale landlords reduce their tax burden byunderstating the rents they receive.

In Benin City, income taxes are clearly of little concern for most landlords or indeed for anyone else. The taxauthorities admit that “no−one discloses his rental income for tax purposes” (Ozo, 1993: 30). The only rentalincome that is taxed is paid by companies because it is deductible at source. As a result, the tax relief that isavailable to landlords on their interest payments offers little incentive. Property taxes are little more effectiveand an attempt to charge rates on Benin tenements some years ago provoked massive protests by thelandlords before the authorities backed down. Not surprisingly, Ozo (1993: 31) claims that “taxes have had noimpact on investment in rental housing.”

D. Government efforts to encourage owner−occupation through incentives to builders

Most governments have stimulated the growth of owner−occupation by giving incentives to both builders andto individual home buyers. They have also vastly expanded the availability of mortgage finance. Without thelatter the vast expansion of suburban housing would have found few customers. Not only have governmentssought to expand the supply of housing finance but they have often reduced mortgage payments by allowingdeductions to be made against income tax.

Builders have long had the ear of most governments. As a cyclical industry, construction tends to bear thebrunt of unemployment and economic inactivity in times of recession. Governments have seldom been averseto helping the industry by stimulating production. In most parts of Latin America the construction industry hasbeen provided with huge contracts to build social−interest housing. In Chile and Mexico, Governments, whichhave followed essentially monetarist policies in other fields, have followed Keynesian economic rules withrespect to the construction industry. During a recession, they have financed the building of new homes(Gilbert, 1989).

A second major stimulus to owner−occupation has been the changing technology which first permittedsuburban low−rise development and in more recent years the development of high−rise accommodation.

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Finance has been sought from abroad to provide this housing with infrastructure and services. Between 1950and 1980, a vast expansion in infrastructure provision has been funded by the major internationaldevelopment banks. Some argue that this expansion, a substantial part of which financed infrastructure forhousing, contributed greatly to the debt crisis of the early 1980s.

The final stimulus to owner−occupation has been the lack of control over low−density urban development.Planning regulations have been modified frequently, and rarely applied fully. Without appropriate planning andzoning regulations, builders could not have produced the vast tracts of Americana that have appeared aroundso many major third−world cities.

In sum, most third−world governments have listened to the pleas of the building industry and encouraged thespread of the most profitable housing tenure, owner−occupation. When times have been hard, governmentshave maintained activity by stepping in to subsidize housing for lower income groups. While everything hasbeen done to help expand owner−occupation, nothing has been done to stimulate or even maintain rentalhousing.

E. The rationale of small−scale landlords

If the unprofitability of rental investment and the lack of incentives to builders is so general, then rentalhousing should have disappeared in most third−world cities. The figures tell us, however, that in mostthird−world cities the numbers of tenants have increased and in places rental tenure has even increased inrelative importance. Clearly, someone is building accommodation for rent. This someone is usually theinformal, self−help builder who is renting out accommodation in the vast sprawl of consolidatingshanty−towns. In India, the so−called “household sector” was responsible for 93.3 per cent of all constructionin 1988/89 and private builders for only 0.3 per cent. Clearly, it is the former that is also responsible for themajority of rental accommodation (Wadhva, 1993: 46).

If the commercial landlord is disenchanted with rental housing as an investment, why is the self−help builderextending the amount of rental accommodation? Clearly, the kind of logic that underpins commercialinvestment thinking does not apply to the typical self−help landlord. As section II.D demonstrated, most of thelatter operate on a small scale. Their economic reality and their operating rationale are clearly far from thoseof the high−flying financier. If some kind of stimulus is to be offered to this kind of landlord, it is necessary tounderstand why and how these people create rental housing.

There is no doubt that some small−scale landlords are operating on a business−like basis. In Caracas, somemerchants invest in rental housing diverting profits from trade and commerce into construction (Camacho andTerán, 1991). The companies that operate in the Mathare valley of Nairobi clearly make spectacular profits onthe rows of tenement houses (Amis, 1988). In Bangkok and Jakarta it is also possible to make reasonableprofits out of rental housing (Angel and Ampapunth, 1989; Hoffman et al. (1990). Other landlords are trying tomake profits even if they claim that they are failing to do so; in Mexico, the minority of landlords who had builtaccommodation specifically for rent, seem to be a somewhat disillusioned group (Coulomb and Sánchez,1991). These “commercial” landlords are not getting their money back in the way they that they had hoped.

While all landlords are interested in generating some kind of income, it seems that few are profit maximizers.Indeed, many have little idea how much profit, if any, they actually make. They do not keep books in which torecord their outgoings, they do not Calculate the return on their “investment”. This is perhaps as well for it maybe just this lack of commercial acumen that explains the expansion of the rental housing stock. Most landlordsin Caracas and Santiago de Chile continue to let accommodation even if they recognize that renting does notproduce a large income, especially given the hassle involved. In Mexico, some small−scale landlords dobelieve that renting is a satisfactory business although roost are merely supplementing their income, anincome severely reduced by the effects of inflation. Such landlords are desperately trying to providethemselves and their children with a slightly safer financial future. They do not know much about other formsof investment, their, spare money, therefore, goes into housing and land.

Is this pattern true elsewhere? In Delhi, Wadhva (1993: 40) observes that

“a large percentage of households may also lack information about returns from alternativeinvestments. They may also be wary of investing in other avenues and find rental housing theeasiest and safest investment to manage.”

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Similar attitudes are described by Pennant (1990: 195) in Lilongwe and Blantyre.

“Sub−letting provides a steady and diversified income for small businessmen, an incomesupplement and pension for wage and salary earners, and can be combined with theprovision of a retirement house for people provided with housing by an employer.”

In Cairo, the vast majority of landlords live in the same building as their tenants and 71 per cent say that theyrent in order to cover their daily living expenses (Serageldin, 1993). In Lagos, Barnes (1987: 68) commentsthat while

“real estate was an investment from which all or part of an income could be derived. It alsorepresented a form of savings, a security against unforeseen financial problems, and apension against retirement.”

The rationale behind renting, therefore, often has as much to do with saving for the future as anything else.Landlords are not greatly concerned about the rents they receive because their main reason for building is toown property. For most landlords, renting is merely a means of generating a small additional income. Apartfrom giving them a certain degree of social status, renting offers a form of saving that they trust. Comparedwith banks or other forms of financial investment, saving through bricks and mortar is something that theyunderstand.

Certainly, there is little evidence that larger investors purchase rental property in search of profits. Whilepowerful groups in Nairobi do seem to purchase land and construct rows of cheap housing to let, this seemsexceptional within Africa (Amis and Lloyd, 1990). It is not even true of most landlords in eastern Nairobi,where owners in some sites−and−services schemes only let rooms in order to keep up with their mortgagepayments (Lee−Smith, 1990: 184). This process of using rents to invest in their property is also found inself−help settlements in Lagos. As Barnes (1987: 58−9) observes, owners “enlarged and improved theirproperties with rental proceeds.” Whether this is commercial investment, that would expand if incentives wereprovided, or merely a way of eking out an existence is uncertain. Probably it is both.

In Jakarta, Hoffman et al. (1989: 3.3) also find that there is little in the way of capitalist commercial behaviouramong the landlords.

“In almost all cases (96 percent), property was not deliberately purchased for rental purposes.Instead, a decision to rent an existing unit, or build an additional unit on property alreadyowned or inherited, was made at a later date.”

In Latin America, housing has often been built for reasons other than renting. Letting the property may only bea temporary activity (Gilbert and Varley, 1991). In Caracas, a common pattern in self−help settlements is forowners to become landlords when the children leave home (Camacho and Terán, 1991). This is often atemporary arrangement, if older children want to return then the family ceases to rent the accommodation. InMexico City, the accommodation also frequently changes function. It may be built to accommodate the family,be let when the children leave home, or be used to put up members of the extended family or paisanos whenthe need arises (Coulomb and Sánchez, 1991).

In Delhi, domestic renting is certainly very common with the family building accommodation for its own useand only later renting it out when circumstances dictate. Excess space is often available because Indianfamilies usually build with the needs of the extended family in mind. If an adult child and his family shouldleave, space will be available to rent out. If they should come back then the tenants will be asked to vacatethe premises.

Clearly, the incidence of renting depends considerably upon the location of the accommodation. Some ownerslive in well−serviced settlements close to the main transport routes. These owners are likely to receive muchhigher rents from letting rooms. This clearly influences the attitude to letting. Landlords in two settlements inMexico City had very different attitudes to renting. In one, where transport links were good and rents werequite high, less than one fifth believed renting to be a bad business. In the other less consolidated and moreperipheral settlement, much lower rents could be charged and three fifths of landlords thought renting was notworth the effort.

The significance of this domestic renting is that few landlords are susceptible to the kind of incentives whichwould attract commercial landlords. They may or may not respond to the removal of rent controls. They areunlikely to borrow money to extend their property. They are not calculating the return on any investment. This

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does not mean that they will be averse to increasing the number of tenants. What it docs mean is that if thelogic of bankers and businessmen underpins the design of an incentive programme, it will have little realeffect. We return to this issue in chapter VII.

IV. SUPPORT FOR FORMAL−SECTOR RENTAL HOUSING

A. The public sector

As was noted in section B of the Introduction, many governments have built housing for low−income groups.In the early years, much of this housing was built to rent. In Western Europe, vast numbers of housing unitswere built in this way and in some cities, this housing accommodated large numbers of tenants. During the1960s and 1970s, many third−world governments followed this example and built housing for rent. This policywas clearly most popular with communist governments, as in China, but capitalist governments such as thosein Ghana, Mexico, the Republic of Korea, Singapore and Venezuela all had major public rental−housingprogrammes at this time (UNCHS, 1989: 5). In recent years, however, government attitudes have changedwidely and few governments now build housing for rent. In most countries, they have sold the property to theoccupants, often with a generous financial incentive (Daunton, 1989).

Increasingly, the public sector has withdrawn from building or even financing housing at all. The World Bank(1993: 62) is strongly supporting this position; seeking

“to redirect developing−country governments from engaging in building, marketing, financing,and maintenance of housing units toward facilitating expansion of the private sector's role insuch activities.”

The Bank is even more strongly set against subsidized pub lie−housing programmes. While somegovernments continue to build public−housing units, the general ethos has changed. The shift in policy hascome about partly for ideological reasons; a principal factor in the United Kingdom which is one of the modelsfor the new paradigm. An economic rationale also lies behind this decision; notably fears that public housinginvestment is squeezing out the private sector. But, probably the main factor behind the change is theinefficiency with which public housing programmes have operated. As the World Bank (1993: 90) puts it:

“unlike the private sector, where market forces bring about an efficient provision of newhousing, publicly supported housing has no explicit mechanism for ensuring efficiency. In theprivate market the profit motive provides a strong incentive for efficiency; the public sectorlacks this discipline. As a result, the public sector may build in locations where no one wantsto live or produce units costing more than people are willing to pay.”

Unstated by the Bank, but of undoubted importance, has been the desire by governments around the globe tocut spending at a time of economic recession. In this context, there is little likelihood of the State building orfinancing housing on a large scale in most less−developed countries.

Policy towards public housing in the survey countries has broadly followed a similar trend. In India, theFederal Government built housing for rent during the 1950s and 1960s but its record was less thanimpressive. The experience of the individual states was sometimes even worse.

“Rent recovery was poor, eviction difficult and the cost of maintenance high... the structuralcondition of the houses deteriorated. Apart from this the targeting was poor, the houseschanged hands and ended up with income groups higher than the target groups” (Wadhva,1993: 4).

In 1978, the Federal Government resolved to convert public housing tenants into owner−occupiers and theproperty was offered for sale to the occupants. Today, the only rental housing provided by the State is for itsown employees. State governments have gradually followed the same policy (p. 26). In Delhi, however, thesize of government workforce is so large that rental housing units still account for a not insignificant part of thehousing stock. In 1981, government rental housing accommodated 6.3 per cent of all households in the cityand 13 per cent of all tenant households (NIUA, 1989b: 176). But the policy of the Indian Government is clear:

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“most of the government programmes relating to housing are directed towards providing thebeneficiaries with ownership housing or to assist them to acquire such housing on “softer”terms. There are no equivalent programmes for rental housing” (NIUA, 1989: 16).

In Nigeria, public intervention in housing came with the British policy of providing accommodation forexpatriate staff and for strategic indigenous groups such as the police and railway staff. After independence,the Government continued to provide key staff with accommodation and also embraced the concept ofbuilding public housing for poorer groups in society. While ambitious public housing targets were set,particularly during the 1970s, many fewer units were built; between 1972 and 1983 only 45,000 units wereconstructed compared to the target of 261,000 (Ozo, 1993: 13). Public housing in Nigeria was usuallyintended for owner−occupation, although renting was encouraged more under the Third NationalDevelopment Plan, 1975−80. Even then, however, most of the units were sold. As a consequence there is nopublic rental housing in the city of Benin. This may be a good thing in the light of comments on publicmanagement of rental housing in the rest of the country. As Oruwari (1987: 180) puts it:

“rented accommodation by government for the poor is always too expensive to maintain. Theproceeds from rents paid by occupiers are not enough to pay for the management of theestates and the collection of rents is very difficult.”

In Egypt, public housing construction began on a large scale with the July Revolution of 1952. Between 1952and 1960, some 32,000 units were produced, 117,000 in the 1960s and 190,000 in the subsequent decade(Soliman, 1988: 68). When matched against the huge demand for housing in Egypt even these impressivefigures barely scratched the surface. Perhaps this was why so few subsidized units reached the poor (El Kadi,1988: 24), most being allocated to State employees whatever their income (Feiler, 1990: 127). Until themid−1970s, most public housing units were let; since then, most have been sold. Increasingly, the State haswithdrawn from the production of subsidized housing, and in Cairo, the public sector no longer contributessignificantly to increasing the urban housing stock (El Kadi, 1988: 24).

B. Subsidies, targeting and non−economic rents

In the past, most governments used to subsidize public housing whether it was intended for rent or sale. Ifpublic housing was to reach the poor, subsidies were thought to be essential. The problem was that sincethere was so little housing relative to need, such subsidized housing was in great demand. As a result, littleended up in the hands of the poor. It was either allocated to families with some kind of influence or was rentedout to more affluent families by low−income allottees. Studies from around the globe provide abundantevidence of the misdirection of public housing subsidies.

As a result, current thinking on the provision of housing subsidies has changed profoundly. Insofar assubsidies should be given to the poor for housing, or indeed for anything else, they should be transparent.The State should understand clearly how much it is committed to spending on subsidies. The beneficiaries tooshould be under no misapprehension as to how much they can claim. Most of the large lending institutions arecategorical in opposing subsidies to the interest rate. As the World Bank (1993: 126) puts it:

“preferably, subsidies should be one−time capital grants or housing allowances that have afinite duration or a built−in review procedure. Both types of subsidy allow families to seekhousing in the market. Care should be taken to ensure that subsidies do not dampen supplyresponse and lead to increases in house prices.”

Chile provides an interesting case of this kind of policy in action. A loan from the World Bank in 1984represented “one of the first instances of Bank lending in housing where the Bank financed an explicit subsidyprogram, albeit with the understanding that it was to be replaced by a non−subsidized system by the time theproject ended” (Persaud, 1992: 3).

In practice, it is clear that the Chileans continued to offer subsidies but did manage to target them at lowerincome groups. While the subsidy system probably misses the poorest 10 per cent of households, by worldstandards, theirs is not a bad achievement. The principal problem has been that the Government has beenrather ineffective in recovering the non−subsidized loans made to home owners.

“Even with a 75% explicit subsidy.... the average arrears of 90 days or more is greater than70% for every group. This situation (including various additional payment incentive schemes)

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defeats the main attractive elements of the system and makes it rather meaningless to speakof explicit and hidden subsidies” (Persaud, 1992: 6).

Another problem, at least in the context of this report, is that Chile's housing subsidies are directed entirely atowner−occupiers. There is no form of subsidy available to tenants.

Insofar as governments offer subsidies to the poor, then they should offer them to tenants as well as toowners. The failure to do so means that poor families are effectively forced into owner−occupation, whether ornot it suits their particular household situation.

C. Sub−letting of public housing

Where subsidies are offered to tenants in public housing there will always be concern that the intendedbeneficiaries do not pass on the subsidies to other occupiers. In practice, most programmes around the worldhave suffered from sub−letting.

As governments have built housing increasingly for sale and have sold off accommodation to their formertenants, sub−letting has become a less significant concern. However, the issue of whether owners in receiptof subsidies should be allowed to rent out their units remains a major area of controversy. In general,governments frown on this activity although it is clear that the practice is or has been widespread in Chile,Colombia, Jamaica, Kenya, Mexico, Sierra Leone and Venezuela (Handelman, 1979; Klak, 1992: 338; Laun,1977: 310; Persaud, 1992: 6; Stren and White, 1989: 56; Temple and Temple, 1980: 247).

In India, there is no blanket ban on the sub−letting of public housing providing it is approved (Wadhva, 1993:55). Staff quarters can be sub−let but usually only to other eligible employees. The rights of the original tenantcan be cancelled if sub−letting is discovered and, since 1987, a government employee can be disciplined ifcaught. People purchasing public housing are allowed to rent it out providing that they obtain permission,although in practice no one does so. According to Wadhva (1993: 57): “these flats, like the staff housingprovided by the government, are a major source of rental housing for the low and middle−income groups.”

In Nigeria, “as public housing is usually intended for owner−occupation, letting to tenants is alwaysdiscouraged” (Ozo, 1993: 39) In practice, such restrictions have never been obeyed and the authorities havefailed to implement them.

In Egypt, legislation has generally prohibited the sub−letting of accommodation of all kinds including publichousing units (Serageldin, 1993: 29). Of course, many families sought to evade the prohibition. Today,however, the gradual sale of public housing has meant that the illegal sub−letting of rented public housing isno longer a problem.

D. Encouraging formal sector private investment in rental housing

In recent years, few governments have provided much incentive to private companies to invest in rentalhousing. They have certainly provided little or nothing in the way of funding. The only policy to encourageprivate investment that has been at all widely adopted is to ease rent controls. In practice, even this policy hasnot spread very far.

Most governments have concentrated their efforts on stimulating owner−occupation. This approach has beenwelcomed by most building companies and real−estate interests. Even government regulations on creditinstitutions have favoured owner−occupiers, As the World Bank (1993: 118) points out:

“regulations governing mortgage lending are usually biased toward completedowner−occupied housing, making it unattractive or impossible for financial institutions to lendfor rental housing or condominium housing, or for house improvements or unfinished corehouses on serviced sites.”

There are some examples, however, of governments attempting to redress the imbalance in their policy andto provide incentives for companies to build housing for rent. In Mexico, the Government began to offer taxrelief to companies building social−interest housing in 1980, offering more generous incentives for housing

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built for rent. Unfortunately, this programme failed to attract much investment. At the end of 1984, theincentives were increased and cheap credit was offered during a period of rapid inflation on condition that newhousing built under the programme should be let for a minimum period of 10 years and at a rent not higherthan the official minimum salary. The following year, tax incentives were added to the attractions and theminimum rental period was reduced to five years. In practice, the incentives have produced little in the way ofnew rental housing. While the Government claimed that some 60,000 units had been constructed under thisprogramme, very few have been built outside of the main tourist resorts. Even the Ministry of UrbanDevelopment admits to disappointment with the results of the programme, too few companies have shownreal interest (Gilbert and Varley, 1991).

In Saudi Arabia, the Government has been more successful in its rental−housing incentives. The difference isthat the incentives were intended for the construction of housing for expatriate professional personnel.Subsidized loans led to companies building some 24,800 units between 1975 and 1985 (Tuncalp, 1987:353−4). It is clearly much easier to attract investment for profitable high−income rental units accommodatingtenants who are bound to leave the property when they return home.

In the Republic of Korea, however, the Government has also managed to attract private investment into theprovision of rental housing for low−income groups. The offer of subsidized loans and exemption from thecapital gains tax was supported by discounting the sale of serviced land by 10 per cent. Between 1982 and1986, land to accommodate 34,000 units was made available (Byong Key, 1987).

Governments in the case−study countries have been rather parsimonious in terms of the incentives they haveoffered to companies to invest in rental housing. In India, many states do offer some exemption from taxes onnewly constructed buildings for rent; the period of exemption is normally 5 to 10 years although in UttarPradesh it is 40 years (Wadhva, 1993: 18). The Federal Government, however, seems to be reducing suchincentives. Companies have lost some of the tax incentive to provide housing for their employees and, since1992, Ordinary landlords are no longer permitted to charge their housing investment against tax (ibid., 5).Even when the Federal Government makes cheap credit available to builders, rental housing attracts thehighest rate of interest (Wadhva, 1993: 35). In Egypt, construction of housing for rent is treated in the sameway as building for owner−occupation. However, since taxes can account for up to 24 per cent of the cost ofconstruction, this is clearly a disincentive to building of any kind. In Nigeria, taxes on rental income are littledisincentive since few owners declare their income from this source. The corollary, however, is that althoughtax relief on rental income can be charged against the cost of investment, offering landlords this incentivesaves them nothing (Ozo, 1993: 41).

In Nigeria, there is little finance for any kind of housing although owner−occupiers are eligible for cheap creditwhen buying property from the Government. A social rate of interest of 6 per cent is available in suchcircumstances compared with the 22 per cent charged when the individuals build houses themselves.Mortgages are available to buy rental housing but the cost of borrowing is higher; the rate of interest varyingfrom 22 to 29 per cent according to the size of the mortgage (Ozo, 1993: 41). The policy thereforediscourages rental housing, especially building such housing on a large scale.

A review of housing policy in 1985 accepted that more construction was necessary both for rent and forownership. The review recommended some revision to the rent−control legislation, the lifting of the 0.5hectare limit on any one individual's leasing of government land, incentives in the capital market andencouragement for non−profit organizations to produce hostels for special and disadvantaged groups.Unfortunately, very little has been done to implement any of these recommendations.

E. The roles of employers, community organizations, NGOs and cooperatives

1. Employers

Employers have not generally provided housing for their employees. The main exceptions have been miningcompanies which have accommodated large numbers of their workers in areas lacking towns and thegovernment itself which has often built homes for special interest groups, such as the military.

In India, the Government has also encouraged private employers to build homes for their workers. TheSubsidized Housing for Industrial Workers Scheme was launched in 1950 and offers employers loanscovering 50 per cent of the construction cost and a subsidy of 25 per cent. Between 1973 and 1988,employers managed to provide some 2 million homes, much of which has gone to lower−paid staff. In the

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private sector, companies with less than 500 employees have been responsible for the majority of thishousing, contributing some 62 per cent of the total (Wadhva, 1993: 61). Despite the apparently large numbersof units constructed, the Scheme has not been popular with employers because few firms have been anxiousto use their investment surplus for housing. They have been further discouraged by the effects of the tax laws.Some employers have also faced difficulties reclaiming the property when workers have retired; the latterhave simply refused to leave. As a result, employers became less and less keen to utilize the subsidiesoffered, and in 1979, the Government allowed companies to sell off their housing units (NIUA, 1989:174−175).

Employers frequently provide accommodation in Nigeria and the Government offers cheap rentalaccommodation to most professional employees. Where the Government does not have its own housing, itleases accommodation (Ozo, 1993: 44). Since 1979, employers with more than 500 workers have also beenobliged to help their employees with accommodation. The Government has tried to encourage companies todevelop housing estates for this purpose but, in practice, few have followed this route (Okoye, 1990: 80). Mostcompanies simply provide their workers with housing allowances; high−income employees are givengenerous allowances, low−income workers rather little. Because it is difficult to acquire ownership cheaply inNigerian cities,

“these allowances, although paid to all workers irrespective of tenure, provide a major sourceof demand for rental housing and thus acts as a stimulus to investment in rental housing.”

In Egypt, housing has been provided by most major employers and has been encouraged by the requirementto devote 10 per cent of annual profits to workers” housing (Serageldin, 1993).

2. Cooperatives

Cooperatives play a significant; role in improving the quality of housing in many third−world countries. Twomajor reviews, of their contribution in the housing field, however, report very little in the way of involvementwith rental accommodation (United Nations, 1979; UNCHS, 1988). Their principal activity has been in the areaof sites−and−services.

Cooperatives have not always received the full support of the government. In Turkey, for example, where thecooperative movement has a long history, the Central Government has recently discouraged action.

“The policies of the present government aim primarily to promote individualism and privateenterprise in housing, as opposed to collective methods” (Keles, 1990: 166).

In India, cooperatives of workers have been eligible; for subsidies under the Subsidized Housing for IndustrialWorkers' Scheme, although few have taken up the offer. Some tenant co−partnership housing societies havebeen created in India, buying land and buildings and allocating them to share−holding members who pay rentto the society. Such societies mainly cater for lower− and middle−income groups. Such societies arenominally tenant associations but in practice their methods offer many of the advantages of ownership(Wadhva, 1993: 63). Generally, however, cooperative action in India has not been successful among the poorand, according to Bhattacharya (1990: 88), has “completely failed to stimulate housing activities in thelower−income groups.” Perhaps the most successful activity of tenant cooperatives in India has been as away of maintaining rental housing. Bombay and Delhi both have useful experience in this regard (see sectionVII.I).

In Egypt, many trades unions have established housing cooperatives and the Government has supportedthese organizations through subsidized loans (Serageldin, 1993: 31). However, the vast expansion in thesecooperative housing societies from 154 in 1960 to 1720 in 1989 represents more a way of avoiding the legalobligation of employers to build rental housing than a real boom in cooperative activity.

In Nigeria, housing cooperatives have so far played no role in providing rental accommodation (Ozo, 1993:43).

3. Non−governmental organizations

“NGOs are seen as crucial in the development of enabling policies. They have a proven ability to worktogether with the poor, they have shown that they can operate as effective intermediaries betweengovernments and popular organizations, and they have demonstrated their ability to manage the highlyparticipatory projects to which governments have found their agencies unsuited” (UNCHS, 1988: 11).

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Unfortunately, there are few examples of their having engaged in activities to develop rental housing.

In India, the role of NGOs is insignificant although some trusts have established hostels for the needy, forexample, the Muslim Waqf Boards and the All India Women's Conference for Working Women. Most suchtrusts are non−profit−making and they charge low rents. They used to benefit from the acquisition of cheapland but this is no longer possible. As a result, many are now finding the operation of hostels unviable. TheYWCA has recently converted its hostels to commercial uses.

In Nigeria, there has been little activity by NGOs in the housing field. In Benin City, the YWCA is the only NGOto have built rental housing; it operates a hostel for unmarried students.

V. SUPPORT FOR INFORMAL−SECTOR HOUSING CONSTRUCTION

A. Impact of upgrading and legalization programmes

There is considerable debate about the impact of slum upgrading on the tenant population. Much of theacademic literature is convinced that it leads to the displacement of the tenant population. In some instancesthis is bound to happen because the policy is intended to demolish low−income housing, upgrading the areaby creating opportunities for different, always more affluent, kinds of people. But there is also concern aboutthe impact of genuine efforts to improve the quality of housing in situ. In a review of experience in severalthird−world cities, for example, Nientied, Robben and Van der Linden (1990: 38) conclude that:

“higher standards enhance the attractiveness of the project areas, this leads to a demandfrom the better off households who can afford to enter the upgraded settlement.... It hasbecome evident that tenants are the first victims of any trend towards displacement.... a risein rent may compel them to leave their rented home and look for other housing.”

Empirical evidence of such events occurring is provided by Kool et al. (1989).

Similarly, Payne (1989: 47) argues that slum−upgrading in the form of

“regularisation or legalisation can be a double−edged sword. For owners, it represents theirformal incorporation into the official city, and the chance to realise what may be a dramaticallyincreased asset. For tenants, or those unable to pay the additional taxes that usually follow, itmay push them off the housing ladder altogether.”

An almost identical conclusion is drawn by Johnson (1987: 175−176) when he argues that:

“in many upgrading programmes improved tenure security is an explicit goal. Yet ironically,tenure “security” can result in less real security for tenants and other very low−incomehouseholds in the settlement, due to its effect of increasing both marketability andattractiveness of the land.”

Other evidence suggests that tenants, if not actually displaced, benefit little from upgrading programmes. AsSalmen (1987: 203−204) reports of an upgrading project in La Paz:

“five months after the formal termination of the project, over one half (58 per cent) of the 200renter families in the developed area had no access to either water or sewerage connectionsor both. Yet, despite this lack of attention to these renters' basic needs, many of thelandowners/landlords raised rents considerably... taking advantage of the general desirabilityof the area. The renters were, in some respects, worse off than before...”

Several studies in recent years, however, suggest that the evidence is much less clear cut. Indeed, there aremany examples where slum−upgrading has generated more opportunities for tenants. In one scheme inMadras, for example,

“owners constructed rental accommodation in order to increase their income. The result wasthat low−income groups could enter the upgraded settlement, a positive second−round effect

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of the programme” (Baken et al. p.39).

In Cartagena, Strassmann (1982) found that owners began to let rooms in upgraded settlements. Similarly,most upgrading projects in Jakarta have resulted in more renting, even if rents have risen significantly (Taylor,1987: 54). Salmen (1989: 59) also recognizes that in La Paz,

“another significant effect of upgrading was to increase the number of rental units in 8 deDiciembre. People who knew the area well estimated that in late 1979, at the time of projectinception, roughly 30 percent of the households were occupied entirely or in part by renters. Adoor−to−door survey in July 1983 revealed that 179 out of 244 project households, or 80percent, had renters.... One resident said he had planned to buy a truck to generate income.Instead, he borrowed money from relatives to add two rental units to his home and stayed in8 de Diciembre. His story was eloquent testimony that rent is an important source of incomeand a stabilizer of the community.”

In India, there have been several major efforts at slum upgrading which have always led both to the creationof more space for tenants and rising rents. In two schemes, in Calcutta and Madras, rising rents led to thedeparture of many of the original tenants. Their departure was also hastened by deliberate action by thelandlords seeking to maximize their gains from the programme. In another upgrading scheme, however, in theAshok Nagar settlement in Madras most of the tenants remained in the community (Wadhva, 1993: 75−78).Similarly, in the Dakninpuri resettlement scheme in Delhi,

“the number of plots changing hands (albeit illegally) was negligible... Letting rooms orsubletting the house occurred on 40 percent of the plots. Some 3 per cent of the familiesopened small shops on their premises” (Bhattacharya, 1990: 94).

Generalizing on the basis of a number of upgrading schemes in different parts of the third world, Skinner et al.(1987: 230) conclude that

“upgrading mechanisms as applied in the case studies have generally been found tocontribute to improved quality and quantity of housing.... private improvements consisted to alarge extent of adding rooms or otherwise increasing the amount of sheltered space at thedisposal of the households, thus contributing significantly to the expansion of the housingstock.”

Not only does the rental accommodation increase but the social composition of the tenants often remains thesame. Skinner et al. (1987: 236) conclude from their review that “gentrification appears to have been theexception rather than the rule”. Similarly, Baken et al. (1991: 21) conclude that:

“in most cases informal neighbourhood consolidation does not lead to displacement. This canbe attributed to either the cultural and quality barriers rendering low−income neighbourhoodsunattractive to middle income households, or the resistance to move among the originalinhabitants (or both).”

Only where the location of an upgraded settlement is particularly attractive to higher income groups doessome form of gentrification occur (Baken et al.: 50).

Rather surprisingly, the agencies in charge of upgrading programmes seldom encourage the development ofrental accommodation. Indeed, some observers have commented that they have sometimes been unawarethat tenants even lived in the settlement to be upgraded. As Salmen (1989: 80) comments on experience inLa Paz,

“because project staff had been unaware of the numerical significance of the renters, eitheractual or potential, and had little understanding of their living conditions, renters had beenneglected in project planning.”

Few writers now seem to doubt that the authorities ought to permit the letting of rooms and even to encourageit. On the basis of experience in Manila, for example, Leynes (1990) argues that housing administratorsshould reconsider and relax the repressive occupancy rules and regulations. Instead of imposing evictionorders for non−payment of amortization, they should look into the possibilities of helping the affectedhouseholds by allowing them to accept renters. Similarly, on the basis of considerable experience with USAIDupgrading programmes, Johnson (1987: 187) argues that

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“the government should explore the possibility of promoting the construction of one to threeunits per property, provided that they meet some minimum requirements as to environmentalhealth and safety. If such a programme were relatively widespread, the supply shouldmoderate the prices charged and rent controls would not be necessary.”

B. Impact of legalization programmes

Legalization often forms part of an upgrading programme. It is difficult therefore to separate the effects ofinfrastructure provision from those of offering legal title. For this reason, the impact of legalizationprogrammes in encouraging the development of renting is less well−documented than the effects of the widerprocess of settlement upgrading. However, interviews in Mexico City suggest that the lack of a legal title cansometimes deter the creation of rental housing and can certainly affect the form that renting takes (Coulomband Sánchez, 1991). In the Santo Domingo neighbourhood of Mexico City, for example, where most ownerslack title deeds 43 per cent of landlords live on the same property as their tenants. By contrast, in El Sol, alegalized neighbourhood in the east of the city, only 8 per cent live on the same property. The difference inlandlord behaviour is attributed to the fear of many landlords in Santo Domingo that if they do not live on theproperty the tenants might claim the property as their own. Many owners in the same settlement say that theydo not rent because of the fear of this happening.

Similarly, in Caracas, commercial investment in rental housing seems only to occur where the owner holdsformal title to the land. Without a property title, investors fear that the tenants may claim ownership of theproperty. In five neighbourhoods of the city surveyed by Camacho and Terán (1991) only the one with legaltitle had experienced large−scale investment. Clearly, legalization of a settlement can contribute to theexpansion of rental accommodation.

C. Incentives for encouraging informal sector rental housing

In a major survey of housing in Indonesia, Hoffman et al. (1990) argue strongly in favour, of offering credit tosmall−scale landlords. The basis of their argument is that at present most landlords finance their investmentthrough equity (cash and existing property) which necessarily limits the ability to expand production. Ininterviews they discovered “an impressive percentage of rental property owners (who) would respondpositively if credit were made more widely available” (Hoffman et al., 1990: 5.2).

The main benefits would come from the faster development of rooms by those already planningrental−housing investment, from investment on a larger scale by existing landlords, from the entry of newowners into the landlord business, and from improvements in the quality of the housing stock.

The major question mark against offering more credit to self−help landlords is how best to reach them.Currently, few formal−sector banks are prepared to lend to low−income families directly. To extend formalbanking lending to a wider array of families it will be necessary to modify current banking practices. Aseemingly successful attempt at lending to the poor in Bolivia relies on a more frequent collection schedulewith lenders collecting directly from the home. Some commercial banks may be ill−disposed to make thenecessary modifications in their credit arrangements.

Where formal lending institutions are not prepared to lend money, there is an alternative: to channel themoney through community organizations or NGOs. Community development funds are an appropriate methodof lending for housing even when title deeds are lacking. As Baken et al. (1991: 33) argue, a communitydevelopment fund enables a community

“to match public investments, improve the neighbourhood or initiate or strengthenincome−generative activities. The fund's investment share, or the complete investment, wouldhave to be recovered by the community, which would create a rotating fond.”

Effective schemes working on principles similar to this have been established in Guatemala, in Bangladesh(the Grameen Bank) and in a number of countries by the USAID PISCES programme (Baken et al., 1991;Otero, 1989; Philips, 1990). In practice, there has been little sign of such credit being made available for rentalhousing.

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Tax relief. Relief from taxation is a possible method of stimulating rental housing but is naturally a ratherproblematic incentive as far as the informal housing sector is concerned. In Nigeria, for example, although taxallowances can be set against rental income, they are not much of a stimulus to rental housing since fewinformal landlords actually pay tax (Ozo, 1993). In Mexico, however, the fear of being charged income tax isvery apparent among informal−sector landlords. For that reason, few admit to having tenants, and even thetenants are told to tell visitors that they are friends or guests (Coulomb and Sánchez, 1991; Gilbert, 1991: 93).Potentially, therefore, removal of the threat of taxation may be of some help in encouraging informallandlordism.

VI. LANDLORD−TENANT RELATIONS

A. Informal controls on landlord−tenant relationships, joint agenda and the symbiosis of owning andrenting

Relations between landlords and tenants are frequently portrayed as posing one of the major difficulties ofrental accommodation. Landlords denounce the actions of tenants, tenants those of landlords; the frequencyof confrontation is emphasised by both sides. In practice, the picture is very mixed. In some cities, relationsgenerally are not good and everywhere some examples of conflict can be found. Conflict seems particularlycommon between tenants and large−scale landlords in decaying central−city areas (Gilbert, 1993).

At the same time, much recent research suggests that the problems between landlords and tenants are oftengreatly exaggerated. In Indonesia, Hoffman et al. (1989: 3.12−3.13) comment that

“while it seems fair to state that owners do not fit the picture of heavy−handed exploiters ofthe poor, it seems equally fair to say that they try to receive a reasonable return from theirinvestment. While there are family−like aspects to the relationship, they are not a substitutefor the economic realities.”

In Caracas and Mexico City, most landlords and tenants maintain benign relations. During interviews,relatively few landlords and tenants speak badly of one another (Coulomb and Sánchez, 1991; Camacho andTerán, 1991).

Relationships seem to operate best where landlords and tenants live in the same property. In part, this isbecause they get to know one another and sometimes develop a level of mutual dependence (Green, 1988).This is particularly true of those tenants who have lived on the same property for some time. In practice, thereis a surprising number of such long−established tenants. In Indonesia, 27 per cent of roomers had lived morethan three years in their previous residence (Hoffman et al., 1989: 2.9). In Mexico City and Santiago de Chile,the average tenure is three years, and in Caracas seven years. Eviction is a worry for the tenant population,as are increases in rent, but these perennial problems do not seem to have produced the instability that wasso characteristic of say nineteenth−century British cities (Kemp, 1987; Englander, 1983).

Good relations between tenants and resident landlords are also helped by the fact that those who live withtheir landlords tend to have better housing conditions than those with absentee landlords. As Salmen (1989:59) comments in the case of one neighbourhood of La Paz:

“those living with their landlords had better lighting and were more apt to have water andsewer connections and more pleasant grounds than those who lived in quarters owned byabsentee landlords.”

In Lagos, Aika (1990: 96) notes that tenants with resident landlords, “generally felt that services tended to bemore available and repairs carried out more promptly.”

The main causes of bad relations are fairly predictable. Landlords get upset when tenants do not pay the rentor neglect the property. Tenants in return are upset when landlords do not repair the accommodation and failto respond to their complaints. In Lagos, few tenants believe that their landlords look after the houses properly(Aika, 1990). Relations get particularly tense when landlords want tenants to leave the accommodation,especially when they employ blatantly illegal methods to evict the tenants. Of course, most landlords are notunreasonable. In Indonesia, Hoffman et al. (1989: 3.11) report that

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“when owners were asked what they did if a tenant could not pay, approximately 80 per centindicated that they simply waited... When asked about evictions, 10 per cent indicated thatthey had evicted a tenant; on the average three months of non−payment preceded thisaction.”

Of course, circumstances can rapidly change and relations become tenser. Inflation no doubt puts pressureon landlord−tenant relations as it seems to have done in La Paz (Beijaard, 1992). The build−up to an electionmay lead to politicization of the rental−housing debate. Similarly, a sudden change in the legislation cancreate problems, particularly the sudden removal of rent controls (Benton, 1987; Gilbert and Varley, 1991: 57).Both urban renewal schemes and natural disasters can also shift the equilibrium between landlords andtenants and lead to conflict as experience in Mexico City has demonstrated (Azuela, 1987; Connolly, 1987;Coulomb and Sánchez, 1991).

In the survey cities, relations between landlords and tenants seem reasonably good. In Delhi, Wadhva's(1993) survey of 201 tenants found 90 per cent saying that they had good relations with the landlord, althoughthe latter were much less laudatory in their comments, 30 per cent saying that they had bad relations withtheir tenants. Most of the problems cited were predictable; landlords complained about the non−payment ofrent, misuse of the premises and unruly behaviour; tenants criticized rent rises and threats of eviction(Wadhva, 1993: 85). In Cairo, Wikan (1990: 129) claims that “on the whole, relations between owner andtenant are calm, even amiable, especially in the old established quarters.” If there is a major source ofproblems, it lies in the operation of rent controls; landlords do not like legal constraints on their ability to evicttenants. As a result, some have adopted highly unethical methods:

“the shrewdest of them resort to various techniques to make life so unpleasant for the tenantsthat they are eventually forced out: throwing dirty water from the upper floors, pickingquarrels, forbidding tenants to keep pigeons and rabbits on their balconies (an issue wherethey have, in fact, the backing of the law)” (Wikan, 1990: 128−129).

B. The role of the courts, local tribunals, community arbitrators and local controllers

The law works inconsistently in the rental−housing arena. In some countries it seems to work quite effectively,elsewhere hardly at all. In some cities, it works fully in the higher−income residential quarters but hardly at allin the self−help areas. The partial effect of the law is clearly demonstrated in the low−income areas of severalMexican cities where many landlords do not issue tenants with contracts despite the legal requirement to doso. In Puebla, for example, one in five tenants lacks a contract, and in Guadalajara two in five (Gilbert andVarley, 1991: 171). In Mexico City, the proportion of tenants with contracts in peripheral settlements is muchlower, one tenant in six (Coulomb and Sánchez, 1991). Even higher rates of non−issuance have been foundin other Latin American cities (Camacho and Terán, 1991; Edwards, 1982; Gilbert, 1983; Green, 1988). InIndonesia, less than one third of landlords in Hoffman et al.'s (1990: 3.8) survey used a written contract andless than one half of tenants received one.

If landlords fail to issue contracts they are unlikely to use the courts. There is certainly a very good reasonwhy neither they nor the tenants should want to; very few courts around the world seem to make judgementsquickly. In Mexico, the court procedures are extremely slow. In Guadalajara and Puebla, it takes at least twoyears, and can take up to six years, to get a judgement (Gilbert and Varley, 1991: 164). Even if the landlordscan normally expect to win the case, it will do them little good if they have to wait so long. In Pakistan, rentcontrollers take two to three years to take a decision, the High Court a further five years in the case of anappeal, and a further three years should the case be taken to the Supreme Court (Kalim, 1990: 189).

In Benin City, neither tenants nor landlords use the courts. Tenants do not use the courts over threats to evictthem because, apart from considerations of cost, landlords “have almost invariably won possession on thegrounds that the units were required for the use of the landlord or a member of the family” (Ozo, 1993: 58).Despite their likely success in court, very few landlords bother to go through the legal process either: first,because the courts are extremely slow and very expensive and, secondly, because most tenants leave theaccommodation when asked to do so (Ozo, 1993: 56).

In India, only the matter of eviction is likely to be taken to court under the Rent Control Act; although very fewtenants or landlords actually do so. In Wadhva's survey in Delhi, for example, only 7 per cent of landlords and6 per cent of tenants admitted to being prepared to use the courts. When asked what action they took in thecase of arrears, 15 per cent of landlords said that they took violent action, 19 per cent put pressure on the

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tenants, 21 per cent issued an eviction notice, 2 per cent approached the courts and 38 per cent took noaction at all. This reluctance to use the courts is due both to the cost and to the incredibly long delays. InDelhi, there are 22,000 cases pending in the lower courts (Wadhva, 1993: 85) and not surprisingly alldecisions take a long time to reach. In the whole of India, the shortest period taken to resolve a rental case inthe lowest level courts averages 214 days in Tamil Nadu, the longest is the 2355 days in Calcutta.

In Cairo, the law courts also operate very slowly taking anything between three and eight years to come to adecision (Serageldin, 1993: 37). Needless to say, most cases are resolved outside court.

Because of the slowness of the courts, the United Nations (1979) recommend that

“the settlement of landlord−tenant disputes and the enforcement of rent legislation should beentrusted as much as possible to rent controllers and similar local authorities in order toreduce the workload of the overburdened court systems of most developing countries.”

In practice, this good advice seems to have trickled through to few countries. Local executive tribunals seemto be used in very few third−world countries. In La Paz, the Ministry of Urban Development and Housing hasan office which

“works on a voluntary and mediating basis trying to provide a quick and satisfactory solutionto conflicts. In this way an attempt is made to avoid the disagreement becoming a court case,which will certainly take many years....” (Beijaard, 1992: 43).

In Caracas, the local authority operates community boards which have a range of functions includingarbitrating over housing issues (Pérez−Perdomo and Nikken, 1982: 216). Comprising five nominees of thelocal council, they operate at a parish level. The problem is that the nominees are party members who mayoften favour the petitions of their fellow party members. The Federal District's Legal Aid Department also actsto resolve disputes for those too poor to be able to pay for the advice of private lawyers (ibid. pp. 219−20).The Department only acts when both sides agree to its intervention. It does not make judgements, merelysuggesting the basis of a possible agreement between the parties involved.

In Mexico City, the Federal Attorney for the Consumer is required to give tenants free advice, to listen to theircomplaints and to act as a conciliator between them and their landlords. A new kind of magistrate was alsoestablished in 1991, concerned wholly with conflicts arising over rental property.

Disputes between landlords and tenants are sometimes handled by the local community although in practicethis does not seem to be very common. Perhaps the major problem here is that landlords are all too oftendominant figures in the community. How can a fair decision be reached if one side exercises most of thepower? Certainly, community arbitrators do not seem to be used in Benin City, Cairo or Delhi.

VII. FUTURE ACTION

A. The key tasks

The first priority in redressing the current crisis in rental housing is to establish tenure−neutral housingpolicies. Too many governments provide generous incentives for owner−occupation and too few attempt tomaintain, let alone, increase the rental−housing stock. Governments need to rethink their priorities in thehousing arena in the light of the arguments presented in this report. There are strong reasons why rentalhousing should receive equality of treatment from government vis−à−vis that afforded to owner−occupation.

The second priority is to establish forms of government intervention that are transparent, efficient andequitable. Currently, governments intervene in the housing arena in so many ways that their aims are unclearand their achievements often contradictory. The key objectives of housing policy should be to stimulatehousing production, to help produce a mix of housing choices (tenure, location and quality) and to assist thosewho cannot afford adequate housing to improve their shelter situation.

When establishing housing policy, greater attention should be paid to the voices of the variety of actorsinvolved. At present, the authorities listen most attentively to the international lending institutions, the finance

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ministry and representatives of the building industry, land−owners and real−estate agents. The voice of theconsumer, particularly that of the tenant and of the low−income self−help occupier, is seldom heard. Asensitive housing policy requires that government listens to all of the voices in an open and objective way.

The following approaches all rest on the above assumptions.

B. Rent controls

Summarizing the findings of a major economic investigation into the effects of rent control, Malpezzi and Ball(1991: xii) state that “although rent control does indeed lower rents, it restricts the supply of housing.” All toooften it also fails to redistribute income, partly because landlords are not much better off than tenants andpartly because the tenants who benefit are more affluent than the tenants who lose out because of theconsequent supply constraints. As such, Malpezzi and Ball believe that

“rent control fails to meet the goals sought by its advocates.... Policy makers in developingcountries should avoid using rent control to protect low income households or redistributeincome” (p. xiii)”.

Ho (1992: 1188) adds another nail to the coffin.

“Rent control will generally lead to a decline in maintenance expenditure by the landlord andmay accelerate redevelopment. Rent control applied to a segment of the market will lead tofaster deterioration especially for low−to−middle quality housing that is expected to beredeveloped. This may temporarily raise the supply of low−quality housing. For middle− tohigher−quality, rent−controlled housing, the imbalance will be more serious whilst that at thetop end of the controlled market will spill over to the uncontrolled sector of the housing marketand is therefore less acute.”

The authors of the case−study reports are also hostile to rent control. In Nigeria, the legislation has added tothe possibilities for corruption and administrative abuse without actually controlling rents. In Delhi, there issome evidence of controls limiting investment even if for 80 per cent of landlords interviewed in the city, theRent Control Act has not been a real problem (Wadhva, 1993: 46). In Cairo, the view is strongly felt;Serageldin (1993: 19) believes that rent control has contributed massively to the destruction of therental−housing sector.

However, if there is general accord about the need for some kind of deregulation, there is less agreementabout the precise action to be taken. The three case studies are perhaps most emphatic in emphasising theneed to reduce the limits over landlords to evict tenants. It is the fear that they will not be able to recover theirproperty that seems to be dissuading many owners from renting out their property. As Wadhva (1993: 42)puts it: “the basic issue in the supply of rental housing in Delhi is the problem of eviction.” It does not seemunreasonable to suggest that the length of tenancies should be agreed between landlords and tenants at thestart of the tenancy with perhaps a minimum period of notice being laid down by law. Life−long tenancies, andcertainly tenancies that are inherited by children, dissuade too many owners from renting out property.

If this step can be taken immediately, at least on new tenancies, decontrolling rents in one step is moredifficult. Where legislation has seriously depressed rent levels, as in Kumasi, sudden deregulation would beboth highly inflationary and politically dangerous. In such markets, gradual change is needed. Complementarymeasures are also required which will build a political consensus in support of the change and will helpimprove general housing conditions. Even so, gradual deregulation may still cause difficulties. As Malpezziand Ball (1991: xiv) point out

“decontrolling either new construction or new tenants would allow reform to be introducedgradually but only at the cost of reducing renter mobility and the efficiency of the use of thehousing stock. Floating up or out avoids these problems, but in economies with high inflationrates, it may be difficult to increase rents at a rate that both covers inflation and brings realrents up to their estimated market levels.”

The positive effects of deregulation in most markets are to increase landlord confidence, making many feelless like pariahs, lead to the raising of unrealistically low rents, allow the authorities to insist that landlordsmaintain their property in better condition, encourage more mobility in the rental−housing market, and improve

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conditions for new households trying to enter the rental market.

The great uncertainty is whether decontrol will lead to more investment in rental housing. In the informalsector it will make little difference. Nor, will it make any real difference in those markets, like Nigeria, whererent controls have been largely ineffective. In Benin City, after all, only 4 per cent of the landlords who wereaware of the rent controls said that it had had any effect on their decision to invest (Ozo, 1993). But, evenwhere controls have been more effective, can commercial builders really be expected to rush into the rentalhousing market? In India, Wadhva argues that decontrol would not attract more investment into rental housingbecause of the low returns but it would encourage some owners to rent out property temporarily, knowing thatthey could evict the tenants when they needed to. Thus, there would be no more investment, but therental−housing supply might still increase.

Elsewhere, decontrol might also stimulate additional construction at the top end of the market, particularly inlocations that have plenty of foreign visitors, but the world is not as it was in the early 1900s. Today, there aresimply too many alternative attractions for investors.

Rent deregulation is necessary because it is too often either inefficient or ineffective, but it would be absurd toexpect it to stimulate rental housing without any other kind of assistance. As Malpezzi and Ball (1991: xiv)argue

“reforming the rent control regime may not be the first step in dealing with the problems in anyparticular housing market; reform of other forms of housing policy might be more importantthan reform of rent control.”

Certainly, too few of those who recommend deregulation think hard about the real impact that such a measurewill have on the rental housing market.

They need to do so if decontrol is to have any substantial effect on housing supply. As Malpezzi and Ball(1991: 84) put it:

“two generalizations are safe to make. First, the reform must be transparent and credible forchanges to elicit increased investment in practice, and assumes that some politicalconsensus has to be forged in favor of reforms rather than changes imposed 'top down'.Second, virtually all countries require improvements in land, finance, and other regulatoryareas, in addition to changes in controls. Otherwise, no supply response can be assured.”

Unfortunately, few of the governments that have actually reformed rent−control regulations in recent yearshave introduced much in the way of support measures. Indeed, the whole ethos currently underlying housingpolicy in many less−developed countries favours a do−nothing approach.

C. Planning and zoning regulations

Maximum lot−size zoning has been used widely in third−world cities, where planners have viewed it as a wayof confronting the challenge of rapid urban growth, a limited capacity to expand services and the high cost oflow−density development. As Pasha (1992: 1180) argues: “by restricting land consumption, it promises tokeep land values low and curb the physical expansion of the city.” However, in practice, regulation causesmore problems than it resolves and therefore

“municipal governments in third world cities ought to be cautious about adopting maximumlot−size regulations. A better option is to remove the existing constraints to theimplementation of a more rational pricing policy in new housing schemes at the urbanperiphery which seeks to recover fully the incremental costs of provision of municipalservices” (ibid.).

This seems a thoroughly sensible suggestion and one which would favour rental−housing development byforcing owner−occupiers to pay the full cost of urban development.

Wadhva (1993: 105) also suggests that planners should reserve land for rental housing within the residentialarea when it establishes industrial or business development zones. Such a policy would guaranteeaccessibility to rental housing, although this may be difficult to implement, especially if no property developers

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are prepared to build the rental housing.

D. Public−sector housing

Ozo (1993: 65) recommends that the Nigerian Government build public housing, half for sale and half for rent.Such housing schemes should break even but not make a profit. Similarly, Coulomb and Sánchez (1991: 206)believe that the Mexican Government should build public housing for rent. Given the huge demand for cheaprental housing and given that so much public housing has been rented out by new, subsidized, owners, theyrecommend that the authorities take over responsibility for providing such accommodation. Coulomb andSánchez believe that the State should organize the finance and construction arrangements and then pass itover to tenant cooperatives to run the property.

Such advice is unlikely to be accepted in either Nigeria or Mexico today. The politically correct view is thatthird−world governments should, in future, build no housing. Rather they should devote their attention toproviding much more in the way of regulatory support and infrastructure provision. Most governments,encouraged by the World Bank and other lending agencies, are obediently moving out of the field of housingconstruction. Whatever individual writers may think, most governments are unlikely to invest in public housingfor the next few years. Even if they should want to, few have many resources to invest; too manygovernments are still attempting to repay their external debts.

But what should governments do with their existing public housing stock? Should they continue to sell it to thetenants or are there other alternatives open to them? They should certainly not assume that everygovernment is an incompetent manager of its public housing stock. Experience in Hong Kong, the Republic ofKorea and Singapore suggests that some governments manage their housing perfectly well. Wheregovernments are less than competent housing managers, they should learn the lessons of goodadministration from those countries and areas which have developed good habits. Perhaps, too, more scopeshould be given to tenants to manage the property. Leasehold and condominia schemes work well in theprivate sector, so why should they not work in the public sector? Maintenance of the common parts of a publichousing estate or apartment block remains a problem even when the individual units are sold.

Governments should certainly permit renting through the back door both when they sell housing and bypermitting sub−letting in their own rental property. Letting should not be discouraged, especially when it is theonly way a poor purchaser can afford to pay the mortgage. Similarly, there is nothing wrong with subletting,especially if the original tenant gains most of the benefits. If governments disapprove of letting or sub−lettingbecause part of the original subsidy is being passed on to a different beneficiary, the lesson is clear − changethe subsidy mechanism.

E. Encouraging formal−sector private investment in rental housing

1. Taxation

Most governments allow home buyers to charge the interest payments on their mortgage against tax. Bycontrast, tenants are rarely eligible to claim their rents against tax. The practice of giving tax relief onmortgages should be discontinued. That action alone will tend to discourage middle−income households frombuying for purely financial reasons. The greater demand for rental housing will create more profitableopportunities for landlords to build or adapt property for rental purposes.

There is no reason why the landlords of higher−income properties should not pay income tax on their rentalincome but the rate of taxation should be the same as for other kinds of income. Low−income propertiesshould be exempt from tax (see section VII. J).

Rates of property taxation should be equalized so that there is no penalty against landlords. Ideally, propertytaxes should be levied progressively on the value of the property.

2. Financial incentives to builders

Such incentives have so far proved less than successful (see section V.C). The main problem is that fewdevelopers have felt totally confident that governments were prepared to support rental housing. Without

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complete confidence, the financial incentives offered have to be very generous if they are to attract investors.A better method than incentives is to modify the rental regulations, improve the credit facilities available todevelopers, and balance the tax advantages to owners and tenants so as to increase the demand for rentalhousing among higher−income groups.

3. Credit for builders

Private banks do not like the returns on housing compared with those on other forms of investment. They alsoface a genuine problem in providing long−term loans for housing from their generally short−term borrowing. Ifgovernment can help develop a secondary mortgage market, bankers may be more disposed to lend tocompanies investing in rental housing. If they are not prepared to lend for this purpose then there is somejustification for the State making loans directly to builders. The interest rate on such loans should not besubsidized; the only advantage for the builders from State intervention would be that the availability of creditwould be guaranteed.

In Nigeria, pension funds are not allowed to invest in housing and insurance companies can only devote up to10 per cent of their non−life and 25 per cent of their life funds in real estate (Ozo, 1993: 47). The NationalProvident Fund currently invests less than 5 per cent of its investment portfolio in housing. Such restrictionsdo not seem to be particularly desirable. Insurance and pension funds should be permitted to invest inwhatever activity produces the best profit. Since pension funds hold long−term savings, they represent a goodsource of housing finance.

4. Other kinds of incentive

Where governments hold land, a possible use of some of that land is to develop rental housing. This wouldconstitute a considerable attraction to builders where the land market is tight. Where public land is subject toinvasion or other forms of irregular alienation, the sale of such land to builders interested in constructinghousing for rent would produce both an income and a socially−desirable outcome. Perhaps an even moredesirable method would be to rent the land to the developer on a leasehold basis (Wadhva, 1993: 106).

F. Subsidies, targeting and non−economic rents

Giving subsidies to poor households to buy their property distorts the housing market when subsidies are notalso offered to the many, often poorer, households who rent accommodation. In recession−hit Australia, Floodand Yates (1989: 208−209) recommend that

“the major thrust of housing policy should be directed towards alleviating after−housingpoverty and increasing the supply of low−income housing. The most straightforward methodof achieving these aims is by providing rental allowances to solve the problem of low incomesand by providing public housing to solve the problem of supply.”

In current circumstances, this advice is unlikely to be taken up enthusiastically in many third−world countries.However, the concept of rental allowances is not a bad one providing that they are carefully targeted andproviding that landlords are not permitted to raise rents accordingly. It is a policy also recommended byMalpezzi and Ball (1991: xiii) who find it much superior to rent control.

“While a strong regime may reduce rents, rental supplements of equal value paid to lowincome households would have the same monetary benefit as the rent reduction withoutinducing the supply distortions, thereby leaving the households better off.”

Where governments are reluctant to offer subsidies to tenants then they should cease to offer them to homepurchasers. At least this will help to balance tenure choice. In any case, subsidies should be carefullytargeted, directing them at the poorest echelon of households, preferably through the medium of incomesupport. It should then be left to the individual household to decide whether they wish to own or rent.

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G. The role of employers, community organizations, NGOs and cooperatives

In India, Wadhva (1993: 101−2) argues that employers should be encouraged to provide housing for theirworkers. Such a role is debateable. Surely, the main role of employers is to pay a sufficiently high wage orsalary so that their employees can afford decent accommodation? There is no particular reason whyemployers should provide accommodation directly except when there is no alternative, for example, in miningenclaves. Since private sector employers are profit−making organizations, they should be offered noincentives to build housing. Neither should governments provide accommodation for their own employees(except perhaps the armed forces). Governmental responsibility should be to the whole society not just to civilservants.

Perhaps there is more scope for encouraging employees to band together through cooperative methods tobuild housing both for ownership and for rent. Insofar as tax relief is made available for housing, it should beavailable for such purposes.

Tenant cooperatives offer a viable method of improving the maintenance of rental housing. They alsorepresent a good way of removing exploitative landlords. Collective ownership of tenements may haveconsiderable long−term advantages. The gains from any increase in property value can be shared among themembers; tenants who leave can retain their rights to a share of the increase, new tenants can benefit from alower rent (CHEF, 1985).

The provision of housing by trusts and charitable institutions is also desirable, particularly the building ofhostel accommodation for short−term residents. Whether governments should help such trusts is a mootpoint, although, in the case of Delhi, Wadhva (1993: 103) argues that land controlled by the State under theLand Ceiling Act should be made available to them. Certainly, such help would be compatible with efforts tohouse those with special problems and would therefore represent a suitable case for subsidies.

H. Incentives for public and private sector collaboration

Consistent housing policy is a necessary, if not a sufficient, basis for good collaboration between the publicand private sectors. If government policy is constantly changing, the private sector cannot calculateprofitability very accurately and will tend to favour short−term schemes. In the housing sector, a short−termapproach rarely offers a good basis for improving the housing stock. Constant changes in policy mayintroduce a lack of trust, a major disincentive to investment. In Nigeria, even voluntary organizations havebeen discouraged from becoming involved in housing delivery because they do not know what may comenext. In the past, one Nigerian Government even seized voluntary−sector schools.

The removal of unnecessary controls over the private sector is clearly urgent (de Soto, 1985). It will reduceunnecessary bureaucratic involvement, simplifying the making of investment decisions. It will also encouragelandlords to begin to trust the State.

I. Rental housing in the central city

Central−city areas pose many problems for the authorities. Frequently, the property has decayed to such anextent that landlords lack the incentive to repair them, especially given the low rents paid by the tenants. Atthe same time, the authorities feel obliged to intervene in order to safeguard the health of the residents, toimprove the quality of the accommodation and to help resuscitate the city centre.

In the case of Mexico City, Coulomb and Sánchez (1991: 201) suggest that one remedy is to establish aspecial fund which will be used to repair decaying tenements. Landlords will be required to pay a setproportion of their rents to the fund. The resources will be used to provide subsidized credit to the landlordswith the worst accommodation. The fund would be managed by a committee of representatives of landlords,tenants and the local authorities. The committee would decide which properties should be repaired first.

In India, a similar strategy has been used in the central districts of Bombay and, between 1969 and 1989,some 13,000 buildings were repaired by the Maharashtra state government. In addition, buildings beyondrepair were purchased by the government, for the equivalent of 100 times the monthly rental income, for thepurpose of redeveloping the property. The cost of the programme was financed through a cess on landlords

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and tenants and through contributions from state and federal funds. While the scheme appears to have beenrather badly managed and has made large losses, the principle behind the Bombay programme seems sound(Dua, 1991; Wadhva, 1993). Attempts are now being made to involve tenants and landlords more directly inthe programme. The potential of the scheme is such that it has been adopted by the authorities in Delhi.

Wadhva (1993: 106) also suggests that a modified form of land adjustment might help reduce central−citydecay. Under this proposal, landlords would be free to redevelop and extend their property providing that theymade accommodation available to their existing tenants at the existing, or at an agreed, rent. The remainingflats could be rented out at the market rate. The advantage of the scheme is that landlords have the chance ofmaking a profit from the advantageous location of their property while the sitting tenants do not lose their rightto live in the central city.

J. Incentives for encouraging informal−sector rental housing

Most of the real potential for expanding the supply of rental housing lies in the self−help sector. Since the poorare a majority in most third−world countries, even in most parts of Latin America, there is really littlealternative. The more significant question is how best to do it?

1. Building rental incentives into upgrading programmes

The provision of water, electricity and schools, the improvement of transport links, and the integration ofself−help settlements into the urban fabric are a virtually guaranteed way of increasing the supply of rentalhousing. Studies from many countries have demonstrated that tenants wish to move into improvedneighbourhoods and that landlords respond to the increased demand for shelter. Not only does the upgradingof self−help settlements improve the quality of owners' lives, it also increases their opportunities for lettingrooms.

Unfortunately, official projects all too frequently ignore the effects of upgrading both on the existing tenantpopulation and in terms of the opportunities for generating more rental accommodation. At the very least,officials in charge of such programmes should be made aware of the presence of tenants and of the possibilityof increasing the housing stock by encouraging owners to expand their property. There would seem to be littlereason to prohibit the letting of property in upgraded settlements, something that has all too often occurred inthe past.

Johnson (1987: 183) even goes so far as to recommend that “a programme of encouraging the construction ofrental units should be established concurrently with the upgrading process.” The authorities might encouragethe construction of one to three units per property, offering cheap credit to homeowners wishing to participate.

“To qualify for such a loan, the room(s) should have access to water and sanitary facilities,and must meet minimum structural standards. To avoid absentee landlordship, and thechance for abuse of the system as a result, a system of incremental equity transfer could bedevised” (p. 187).

In recent years, Governments in Brazil, Chile, Mexico and Peru have been offering title deeds to self−helphouseholds in order to rectify the widespread illegality of tenure in their major cities. This legalization processis likely to encourage many of the new owners to begin to rent out rooms or even to let their whole property.Insofar as legalization encourages owners to think of renting out their property, it is to be welcomed. It is alsoto be seen as a way of encouraging banks and finance companies to lend to these micro−entrepreneurs. Assuch, legalization is to be welcomed as part of the upgrading process. In many cities, however, it is notessential since many owners let property anyway.

2. Income tax

Various writers have suggested that small−scale landlords be freed from the obligation to pay tax on theirrental income (Coulomb and Sánchez, 1991; Gilbert and Varley, 1991; Wadhva, 1993; Ozo, 1993). Theargument has little to do with the loss of income suffered by the landlords, for few poor landlords actually payincome tax. The main concern is about the fear that these landlords have about being charged tax in thefuture. This fear, it is argued, prevents them from expanding their operations. It also discourages them fromadapting the property to make it more suitable to accommodate tenants. Landlords are afraid to do this incase it becomes obvious that they are letting their property. The subtlety of the proposal is that although tax

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relief actually costs the exchequer nothing, it makes the landlords feel respectable, allows them to apply forcredit to expand their scale of operations and also helps to make the informal renting sector more transparent.

3. Credit programmes

Governments should encourage banks and finance institutions to lend to self−help settlers. Credit wouldenable the latter to expand their existing business activity, an important component of which is rental housing.The problem currently is that too few formal−sector institutions are prepared to lend to self−help, owners.Governments should seek to discourage such attitudes.

Unconventional finance mechanisms, including community−based lending institutions may be required toreach self−help landlords. For informal−sector lending to work properly, Hoffman et al. (1989: 5.9) suggestthat:

“(1) The loan terms must be suitable for low income households. This means that loanamounts must be small and maturities short. (2) Loan originators should be institutions whichthese small investors will approach. Hence, we emphasize community−based bodies. (3) Theloan transaction (application, processing, and collateral) must be kept as simple as possible.In addition, alternative forms of collateral should be considered. (4) The funds for thisprogram should be channelled through commercial banks in order to assure a sufficientsupply of loanable funds, and also to help integrate the community institutions into thenational financial system (establishing correspondent bank relationships).”

While there are all too few successful attempts to reach the informal sector through community−basedinstitutions, Baken et al. (1991: 14) recognize that: “a rather successful exception is the PISCES programme(financed by USAID) which directly supports the small−scale activities of the urban poor.” The experience ofthe Grameen Bank in Bangladesh is also worthy of imitation. Although this has done little to support rentalhousing, its practice could be modified to cater for this kind of lending. Grameen Bank practice relies onneighbours who know and trust one another. It is described by Otero (1989: 5) as follows:

“each new group selects a leader, receives training and guidance from program staff, andeventually receives a loan. The loan is subdivided among members of the group so that eachperson can invest in his or her own business. The group is responsible for collecting the loan,managing it, and deciding how to reinvest it. By building in the incentive of future loans, theprogram makes participants into co−owners, so that they work to keep the Bank solvent.”

These kinds of experience can easily be communicated to third−world governments.

K. Changing the role of the courts, local tribunals, community arbitrators and local controllers

Currently, the rental legislation in most third−world countries operates very badly. Few landlords or tenantsunderstand it and few can afford to pay the legal bills required to adjudicate disputes. Even when cases aretaken to the courts, the legal system is so slow that few disputes are actually resolved. As often as not, thecourt system is used as a delaying advice by one side in the case. The court system has to be substantiallymodified in third−world countries if it is to play any useful role in the majority of landlord−tenant disputes.Mobile courts might be of some help in this respect although the cost would normally preclude their use ininformal−sector areas.

More should certainly be done to devise alternatives to court proceedings. The first is to publicize widely goodlandlord−tenant practice. A standard contract should be available in every neighbourhood which iscomprehensible to most landlords and tenants. It should lay down normal expectations about length oftenancy, the raising of rents, eviction and maintenance. By insisting that every tenant and landlord sign acontract, fewer disputes are likely to arise. The contract does not have to be legally notarized, merely signedby both parties. There should be a simple enforcement mechanism known to both landlords and tenants.

In India, Wadhva (1993) argues that the Rent Control Act so favours tenants that many refuse to talk withlandlords. No collaboration is possible under these circumstances so the Act must be reformed. Once that isaccomplished, joint landlord−tenant councils should be established which could act as information and advicecentres. They could advise about maintenance problems and could also help tenants find accommodationwhen they need to move house. The last is a particularly important function given that the refusal of tenants to

49

move is a major source of landlord−tenant conflict.

In Nigeria, Ozo (1993: 59) also recommends the development of joint landlord−tenant associations under theleadership of traditional community leaders. The only problem with this suggestion is that in Benin City, thetraditional leader of the community is the landlord who has lived longest in the community.

Clearly, such potential conflicts of interest are not likely to encourage tenant involvement. Even so, theprinciple of landlord−tenant associations is sound enough.

L. Options for landlord−tenant collaboration

The responsibility for maintenance in rental property is a recurrent problem and, where rents are low,landlords often fail to fulfil their responsibility under the law. According to Miceli (1992: 15) when severalUnited States court decisions in the 1960s and 1970s “compelled landlords to maintain their units inaccordance with local housing codes” the burden of maintenance was effectively shifted “away from tenantswhose responsibility it had been in common law”. Establishing a division between ownership and use createda moral hazard problem which led “both parties to invest too little in maintaining the quality of the unit” (p. 17).

Maintenance appears to be the main area where most landlords and tenants could collaborate more than atpresent. In practice, there are precedents. In Benin, some landlords permit their tenants to undertake repairsdeducting the cost from the rent. In Delhi, where rents can be raised legally, landlords and tenants collaborateover the cost of repairs; where rents are fixed, tenants tend to bear the whole cost (Wadhva, 1993: 72).Certainly, legislation should permit the co−financing of repairs by tenant and landlord as it does in certainstates of India. Such collaboration could be encouraged through the intermediation of NGOs although it willprobably not work in old property where very low rents mean that the landlord would not be interested.

VIII. CONCLUSION

The conclusion to this report is straightforward. There is an overwhelming need in every society, bothdeveloped and less developed, to redress the current imbalance in the structure of the housing market. Atpresent, owner−occupiers receive many favours from the State and tenants and landlords very few. This biasneeds to be remedied and a more tenure−neutral policy introduced. The reason why is simple. Every societyneeds to offer its people a wide range of housing choices to accommodate their needs. Part of that range ofchoice involves tenure. Those governments that have deliberately and successfully created a high level ofowner−occupation realize that they may have limited the choice available to certain minority groups. They arenow attempting to remedy some of the distortions that they have introduced into the housing market. Ifdeveloped countries which have managed to eliminate large swathes of rental housing now regret thatdevelopment, it would seem incumbent upon governments in less−developed countries to avoid a similardilemma; Instead of ignoring the rental−housing stock and encouraging owner−occupation, they shouldexamine the virtues of rental accommodation and look for appropriate ways of assisting its development.

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