Friday, 27 September 2013

* People do not demand houses, they demand habitats

Ricardo Hausmann, a former minister of planning of Venezuela, is a professor of economics at Harvard University
Peter Drucker, the influential management guru, famously said, “What does not get measured, does not get done.” He might have added that what gets measured poorly gets done poorly.

Consider low-income housing. Most developing countries, and many rich ones, define their housing deficit according to the number of families living in units deemed socially unacceptable. But what is meant by unacceptable varies greatly from country to country. Piped water, sewerage, and electricity are seen as essential in the Americas, but not in India.

The problem is that people do not demand houses; they demand habitats. A house is an object; a habitat is a node in a multiplicity of overlapping networks – physical (power, water and sanitation, roads), economic (urban transport, labor markets, distribution and retail, entertainment) and social (education, health, security, family, friends). The ability to connect to all of these networks makes a habitat valuable.
Cities, for example, can be highly productive spaces, because they allow people to combine their different skills to make things that none of them could make individually. People can exchange their knowhow, learn from each other, and trade. Jane Jacobs’s insights on this, published more that 40 years ago, have been confirmed by more recent studies summarized in books by Edward Glaeser and Enrico Moretti.
So, if the deficit being measured is one of houses rather than one of habitats, the solutions often do not solve the real problem. A housing minister who is told to build a certain number of houses will likely fail to build an equivalent number of well-connected habitat nodes. After all, much of what makes a house a habitat lies outside of his department’s purview.
Moreover, if the housing deficit is diagnosed as a dearth of adequate housing, then the solution is to build more houses for those who lack it – that is, the poor. But this is like assuming that new cars should be built for those without them – that is, for people who could buy second-hand cars from those seeking to upgrade. It confuses the construction industry, which builds new homes, with the much larger housing market, which includes all homes.
It gets worse. Because the poor cannot buy adequate housing on their own, public resources must be used. In order to target these subsidies to low-income households, governments typically treat families of different income levels differently: the rich must fend for themselves, middle-class families are provided with assistance to secure mortgage loans, and the poor are offered public housing. To maximize the number of units built, housing ministries make sure that projects meet minimum specifications below a certain per-unit cost threshold. As a result, developers look for the cheapest land, which is obviously the least connected to the networks that would make it more valuable.
This approach has ended up exacerbating the segregation of the poor. It artificially creates – as in France – socially homogenous poor neighborhoods where the unskilled live among themselves, disconnected from others, making it harder for them to benefit from the agglomeration economies that would boost their productivity.
Indeed, because many of these developments are so remote, residents often face a long, uncomfortable, and costly daily commute to reach good jobs. No wonder so many prefer to stay home and work on their own, which may explain why so many developing countries are becoming more urbanized but not more productive.
Confusing the construction of new homes with the housing market is most absurd when dealing with displaced families. For example, the Venezuelan and Colombian governments were confronted with the need to relocate tens of thousands of families displaced by floods in 2010. Although the two governments are far apart politically, both promised the displaced families new houses in new urban developments. In the meantime, people were left for years waiting in shelters. And, once again, these new urban developments have few of the networks that would make them a habitat. The burden of creating integrated communities has been placed on a randomly assembled group comprising some of the least connected members of society.
Instead, displaced families should quickly be given vouchers so that they can obtain an appropriate home without delay. They are bound to choose older homes in established neighborhoods that have already been connected to the many networks that make them a habitat. Large new housing developments should naturally attract those who already have ample social connections, making it easier to kick-start more integrated communities.
In order to separate the problem of the overall housing deficit from the problem of families with inadequate housing, policymakers need to address both supply and demand. On the supply side, urban land – with all its physical and social infrastructure – must expand quickly enough. On the demand side, subsidies should focus on helping families choose from the entire housing market.
This approach would promote socially diverse and productive neighborhoods, rather than segregation and pockets of economic stagnation. But this goal cannot be achieved unless the construction industry is prevented from dictating low-income-housing policy.

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