The informal construction sector and the inefficiency of low cost housing markets

Abstract

Urban low cost housing markets in developing countries are often inefficient and subsidized programmes can add further market distortions. In the case of South Africa, one of the important causes of the inefficiency of the housing market (and one that is often ignored) is the fact that housing policies and construction practices systematically exclude the informal construction sector: the very sector that has been the only source of delivery of affordable housing for the bottom poor. After the end of the apartheid era and the transition to democracy in 1994, an ambitious programme of subsidized housing was implemented in the country. Since then, more than 1.6 million housing units have been built but the housing policies have not created a functional residential market for low income South Africans. In spite of the good intentions of the stakeholders in the marketplace, some projects developed by NGOs do not help to overcome these shortcomings and frequently accentuate some of the inefficiencies of the market. Four case studies of housing projects in Cape Town show the common constraints derived from institutional structures and prevailing attitudes among the NGOs and other stakeholders that prevent the informal sector from being involved. Giving greater participation to the informal sector in subsidized housing projects might prove difficult as it requires modification of structural policies and reformulation of the principles and values of urban intervention. However, these changes are required to reduce the housing deficit in South Africa.

Keywords:

• Housing development
• residential
• informal housing
• markets
• South Africa.

Notes

1. Prices are also related to cost of production in the neoclassical economic model.

2. The formal and informal sectors sometimes merge, making this distinction less clear (for example some formal companies subcontract informal enterprises).

3. The perceived value in 2006 might be higher. But even in this case it would not do justice to the commercial value of about R386 for m² of serviced land.

4. The urban layout of Mfuleni and Wallacedene was defined by the municipality before the intervention of the NGOs.

5. Available area for future additions is considered here as the portion of the plot that can be built with a space of minimum 2.5 by 2.5 metres without interrupting ventilation and lighting in the original unit.

6. In a citation of the World Bank publication ‘Housing: enabling markets to work’ (World Bank, 1993).