Housing Relocation in Developing Countries: Opportunity or Isolation?

Over the course of the last two decades, there has been a significant trend toward urbanization worldwide as the promise of jobs and wealth has driven many people to relocate. A record 54 percent of the world’s population now lives in urban areas, with the largest increases occurring in developing countries. However, this urban expansion has also caused a growing number of people to live in informal and even illegal settlements. In India, which boasts the second fastest growing economy among G20 countries, 24 percent of the urban population lives in slums. These individuals live in cramped spaces with inadequate amenities and typically hold low-paying jobs in informal sectors.

Many developing countries’ governments, including India’s, respond to this problem by providing opportunities for inhabitants of slums to relocate to subsidized public housing. For example, in 1987, the city government of Ahmedabad, which is located in Gujarat, India, along with the Self Employed Women’s Association (SEWA), which is a trade union for female workers, offered a housing lottery for beedi rolling workers who had a monthly income below 700 rupees, or $11 USD. The 110 winners were randomly selected out of 497 eligible women who participated in the lottery. The winners were given the opportunity to live in single-story 200-square-foot row houses with better amenities and located 7.5 miles from the city center. In order to move into the new housing, the winners made down payments of 900 rupees, or $14 USD. Their monthly rent was 124 rupees, or $2 USD, and they were guaranteed housing for 20 years.

Fourteen years after this endeavor, a study by Sharon Barnhardt et al., evaluated how this housing lottery affected the winners’ residential location, socioeconomic well-being, and social capital. The authors tracked the original 497 lottery participants and successfully surveyed 89 percent of them. They found that although all winners signed a lease agreement, 34 percent of them never moved into the subsidized public housing and another 32 percent moved in but returned to the slums within ten years. Only 34 percent remained in public housing at the time of the survey.

Compared to those who did not win the lottery, the winners indeed lived with better amenities — including durable walls and roofs, as well as private toilets. Surprisingly, however, the authors did not find any significant difference between the winners’ and losers’ socioeconomic well-being. This was determined by examining income, expenditures, asset ownership, employment status of the participant and her husband, working hours, money and time spent on commuting to work, health, fertility and their children’s educational attainment.

The authors further analyzed the results by exploring differences in social capital. They found that moving into public housing created geographic isolation among the winners, severing their social network ties. Compared to the lottery losers, the winners reportedly lived farther from their adult children and were thus able to see their children less frequently. While beedi rolling, which is the rolling of tobacco to make a type of cigarette, is a caste-based occupation, the authors observed that winners had fewer neighbors from the same caste. Moreover, they found that winners were less likely to know someone who could provide support in the instance of a life-disrupting event. If those in the winning group did have this type of connection, they had known these people for an average of three fewer years than the lottery losers.

This study provides the first evaluation of a natural experiment in subsidized public housing in a developing country. It shows that supplying subsidized public housing is not a panacea when addressing the needs of the newly-urban poor and that it is difficult to make subsidized public housing attractive enough to induce relocation. Typically, policymakers focus on commuting time and access to key public facilities, such as schools and hospitals, as incentives to encourage people to move. However, this study suggests that policymakers may be overlooking the losses in social capital that can result from relocation. In order to better maintain social capital, policymakers can consider alternative approaches, such as neighborhood-wide relocation or slum-upgrading programs.

Article source: Barnhardt, Sharon, Erica Field, and Rohini Pande. “Moving to Opportunity or Isolation? Network Effects of a Randomized Housing Lottery in Urban India.” American Economic Journal: Applied Economics, 9(1) (2017): 1-32.

Featured photo: cc/(mathess, photo ID: 480521537, from iStock by Getty Images)

Nurzanty Khadijah

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