Tenure Security Premium in Informal Housing Markets

This paper estimates slum residents
willingness to pay for formalized land tenure in Pune,
India. In so doing, it offers evidence that the legal
assurance of slum residents occupancy of their lands could
benefit them. Previous studies have discussed legal and
non-legal factors that substantially influence the tenure
security of residents in informal settlements. However, it
remains unclear to what extent, and how, the assignment of
legal property rights through the formalization of land
tenure improves the tenure security of residents in informal
settlements and living conditions, even in the presence of
other legal and non-legal factors that also contribute to
their tenure security. To address the question, this study
focuses on the city of Pune, India, where government
agencies have formalized slums by legally ensuring the
occupancy of the residents under slum declaration. Applying
a hedonic price model to an original household survey, this
paper investigates how slum residents evaluate formalized
land tenure. A spatial econometrics method is also applied
to account for spatially autocorrelated unobserved errors.
The spatial hedonic analysis finds that the premium of slum
declaration is worth 19 percent of the average housing rent
in slums. The associated marginal willingness to pay is
equivalent to 6 percent of the average household
expenditure, although it is heterogeneous depending on a
households caste and other legal conditions. This finding
suggests that the assurance of occupancy rights is a vital
component of land-tenure formalization policy even if it
does not directly provide full property rights.