Property Rights, Land Markets, and Poverty in Namibia's 'Extra-Legal'
Settlements: An Institutional Approach
and Chris E. Cloete
Despite the fact that land and real estates
assets comprise a significant proportion of the national wealth of most
countries, these assets remain dormant or are under utilised in most
developing countries (World Bank, n.d.). Thus there is clearly a need to
investigate how the potential of land and real estate can be unlocked to
aid the process of economic development and poverty alleviation in
This paper represents work in progress of
ongoing and wider research of urban land and real estate markets in
Namibia. The research attempts to apply the conceptual tools of the New
Institutional Economics, principally the theories of transaction costs
and property rights, to the analysis of land and real estate markets in
Namibia's ‘extra-legal’ urban settlements and how these markets
interface with poverty alleviation.
In the context of this wider research, this
paper has a number of more limited objectives. Firstly, an attempt is
made to clarify in conceptual terms the link between property rights,
transaction costs, property markets and poverty alleviation. Secondly
the theoretical and empirical literature relevant to this subject is
reviewed and critical knowledge gaps highlighted. Thirdly, the proposed
Flexible Land Tenure System is briefly discussed and its potential
contribution to the functioning of property markets in informal
settlements analysed. Finally the paper presents preliminary survey
information from some settlements in the City of Windhoek to illustrate
the potential application of the institutional approach to analysing the
interface between property markets and poverty alleviation.
The rest of the paper is organised as
follows. Section 2 sketches out some background issues for context.
Section 3 develops a conceptual framework that links land and real
estate markets to poverty alleviation. This is followed in section 4 by
a brief survey of the literature. The proposed Flexible Land Tenure is
discussed thereafter in section 5. Preliminary survey information from
some settlements in Windhoek is then presented in Section 6. The paper
concludes in section 7 by articulating the research agenda.
In surveying the urban landscape in
developing countries, Jones (2003) draws attention to three
'transitions' currently underway, transitions which he says will set the
context for research activity and policy formulation. The first one is
increasing urbanisation of the developing countries, with many countries
expected to have over 80 percent of their populations living in urban
areas by 2025. Namibia's urban population is projected to rise to just
under 60 percent in 2025, up from 41 percent in the year 2000 (Ibid,
citing DfiD 2000). This of course means that the orderly development of
urban areas is going to continue to be problematic, with the historical
explosion of informal settlements set to continue unabated. Currently in
most developing cities in Asia, Latin America, Sub-Saharan Africa and
the Arab States between 25 and 70 percent of the urban population is
living in irregular settlements (Durand-Lasserve and Royston 2002, 3).
These figure are likely to increase.
The second transition refers to what Jones
calls the urbanisation of poverty. Increasingly poverty is becoming
proportionally more in urban areas.
“The number of poor people in urban areas in
some countries is now increasing at a faster rate than in rural areas ….
By 2025, it is estimated that two thirds of the poor in these regions
[Latin America, East and Central Europe, Central Asia], and a third to
almost half the poor in Africa and Asia will live in cities or towns.
More than 90% of the urban poor already live in the South” (DfID 2000, 3
cited in Jones 2003).
The scale of the problem is immense. Up to
500 million people in developing countries live in absolute poverty,
representing about 40% of all poor and 25% of the urban population
(Jones 2003). The World Bank reportedly sees urban poverty in
apocalyptic terms as the most significant and politically explosive
problem of this century (World Bank 1991, cited in Jones and Ward 1994).
And within urban areas, the map of poverty can be superimposed on
informal settlements with a fair degree of accuracy (Durand-Lasserve and
The third transition according to Jones is
the greater prominence given to property rights in the development
agenda. This transition is a natural consequence of the ascendancy of
new institutional economics within economics thinking, with its emphasis
on property rights and transaction costs. Thus, the ideas of leading
proponents of property rights in developing countries - such as Hernando de Soto, the World Bank and UN-Habitat - are
symptomatic of this transition. As a consequence, for example, land
titling programmes have been implemented in many countries in the last
few decades (Payne 2002).
Namibia is classified as a lower middle
income country with a 1997 per capita income of US$2,220 (Hansohm 1999).
This is relatively rich by African standards. This statistic however
obscures the great inequalities in the distribution of wealth which
exist in this country. It has been estimated that 5 % of the population
earns more than 70 % of the national income with the poorest 55 %
earning a meagre 3 %. On the consumption side, the richest 1% of
households consume as much as the poorest 50% (Schade 2000, 111). Schade
further observes that Namibia’s Gini Coefficient of 0.701 (calculated in
1993/94) is the highest measured worldwide to date, indicating a highly
unequal and skewed income distribution (see also Tvedten and Nangulah
1999). A large proportion of the population, therefore, live in abject
poverty. Using food consumption ratio as an indicator, the incidence of
poverty was estimated at 47 % in 1993/94 (Schade 2000, 113).
Schade (2000, 119) attributes the causes of
poverty to high unemployment and unequal distribution of assets,
particularly land, which in turn reflects the legacy of apartheid.
Under this system, Black people were prohibited from formally owing
land. Tvedten and Nangulah (1999) argue that poverty reduction can only
be achieved if there is an active public policy of redistribution of
assets, including land. In this context, the Namibian Government has
been engaged in an ambitious land reform programme since independence
from South Africa in 1991. While this programme is motivated mostly by a
desire to address historical injustices, it is regarded by many as
essential to the alleviation of poverty (Hansohm 1999).
The focus of land reform efforts in urban
areas has been to provide secure property rights to thousands of
Namibians who were deliberately denied these rights under apartheid.
Also seen as needing secure property rights are the thousands of
residents of squatter settlements that have proliferated after
independence (Jacobs and Egumbo, 1996). These often lead precarious
lives amidst immense poverty on the periphery of urban areas (Peyroux,
A key policy innovation is the proposed
'flexible land tenure system', which has been piloted in some urban
settlements. The system will be scaled up to the rest of the country as
soon as the legislative framework is in place. Briefly, the flexible
land tenure system is a three-tiered approach to granting of full
(freehold) property rights. The system is expected to be quicker and
cheaper in its procedures than the current formal system. It is
conceived as a low-cost approach to the provision of full freehold
rights to those Namibians who at present own property 'extra legally'.
The system is ‘step-wise’ and the entry level or movement between levels
is dependent on one’s ability to pay for required services after
agreement with other residents. It aims to be a bridge or ladder between
informal and formal property rights, between collective and individual
ownership. A fuller discussion of the flexible land tenure system
follows in section 5.
3.1 The New Institutional Economics
In his path-breaking book, The Mystery of
Capital, Hernando de Soto uses the analogy of nuclear fission to
emphasize the enormous latent value of real estate, which can be
unlocked to fight endemic poverty in developing countries, the trigger
being appropriate formal ownership regimes. De Soto's work is an example
of the application of property rights theory, which in turn is a key
part of what has been called the New Institutional Economics (NIE). The
purpose of the NIE is both to explain the determinants of institutions,
such as property rights, and their evolution over time and to evaluate
their impact on economic performance, efficiency and distribution (Nabli
and Nugent 1989 cited in Kherallah and Kirsten 2001). A central
proposition of the NIE is that institutions matter and that they are
amenable to economic analysis (Mathew 1986, 903 cited in Williamson
2000, 595; Williamson 1990, cited in Pratten 1997, 782).
The NIE is based on a few concepts “ that
are logically coherent and that provide powerful tools for delineating
the questions to be explained and for shedding light on a large set of
facts and relationships among these facts” (Menard 2001, 86). The
central ones (and those directly relevant to this study) are theories of
property rights and transaction costs.
3.2 Transaction Costs
There appears to be no consensus in the
literature on the exact meaning of “transaction costs.” There is however
a lot of common ground. Eggertsson (1990, 14) defines transaction costs
as the costs that arise when individuals exchange ownership rights to
economic assets and enforce their exclusive rights. This is close to
Demsetz's definition where transaction costs are referred to as the cost
of exchanging ownership titles (1988, 64) and to Barzel's, (1989, 2),
who see them as costs associated with the transfer, capture and
protection of rights. North on his part (1990, 27) says that transaction
costs consist of the costs of measuring the valuable attributes of what
is being exchanged and the costs of protecting rights and policing and
enforcing agreements. These definitions broadly capture the sense in
which transaction costs are conceived in this study.
There are several types of transaction costs
but in this study we are interested in those costs arising from the need
to use the market system, such as in land and real estate markets. These
market transaction costs arise principally due to information problems.
As Eggertsson (1990, 15) puts it, when information is costly, various
activities related to the exchange of property rights between
individuals give rise to transaction costs. Eggertson lists these costs
The search for information about the
distribution of prices and quality of commodities…, the search for
potential buyers and sellers and for relevant information about
their behaviour and circumstances.
The bargaining necessary to find the
true position of buyers and sellers.
The making of contracts.
The monitoring of contractual partners
to see whether they abide by the terms of the contract.
The enforcement of a contract and the
collection of damages when partners fail to observe their
The protection of property rights
against third party encroachment.
Furubotn and Richter (1998, 44ff) condense
the cost of using the market into three categories: search and
information costs, bargaining and decision costs and supervision and
High transaction costs cause market failure.
In order for exchange to take place, the gains from the exchange must be
significantly higher than the cost of exchange. Thus if the transaction
costs are too high, exchange will not take place or will be severely
constrained (Eggertsson 1990, 16), and we speak of market failure.
Alternative ways of resource allocation, such as state provision, then
become necessary. That is why the analysis of transaction costs is
important to the understanding of markets and the role of the state.
3.3 Property Rights
Property rights of individuals over assets
consist of powers to consume, obtain income from, and alienate these
assets (Barzel 1989, 2). According to Furubotn and Richter (1998, 72)
the rights to an asset "consist of the rights to use it, to change its
form and substance, and to transfer all rights in the asset, or some
rights, as desired". Eggertsson identifies three basic categories of
property rights. First there are user rights, which determine what an
individual can legitimately do on his property. Second there is the
right to earn an income from an asset and to engage in contracts with
others for this purpose. Third, there is the right to alienate or sell
ownership rights over an asset to others (Eggertsson 1990, 34).
Economists concerned with property rights
often consider any restrictions on those rights, called 'attenuation of
rights' to be undesirable (Barzel 1989; Eggertsson 1990). As Barzel goes
on to explain a person's ability to realise the potential value of
property depends on the extent of their property rights, which as
discussed above consist of the ability to use (and exclude), to
alienate, and to derive income from the property. The ability, or power,
to exclude prevents the property from becoming common property, and the
ability to alienate and to derive income permits the realisation of
gains from exchange. Since restrictions, in general, reduce freedom of
action, restrictions on a person's property rights reduce the value of
the property to its owner (Alston et al 1996; Barzel 1989),
making such restrictions appear to be harmful (Barzel 1989, 85). The
implication of this in terms of real estate is the promotion of
unregulated markets and of freehold ownership.
Well-defined and secure property rights are
seen to be the sine qua non for the emergence and continued
function of decentralised markets, and the efficient use of resources.
Firmin-Sellers (1996, 1) notes that insecure property rights to land
inhibit economic growth. Individuals demand or value property rights
because they allow them to capture potential benefits accruing from
resources. The actual benefits are a function of the property rights one
possesses; the more property rights one possesses over a resource, the
greater is the value of a resource. The argument for secure rights with
respect to land, as an example, can be stated as follows (Alston et
al 1996, 32): the more secure one's property rights (1) the more
secure is the future rental stream that the land produces, (2) the
better one is able to use land as collateral and (3) the larger is the
market for sale. Well-defined and secure property rights therefore
stimulate demand for resources, encourage investment, promote markets
and have positive effects on asset values.
Realising the potential value of an asset
presupposes exchange. To the extent that high transaction costs prevent
or severely constrain exchange, this potential cannot be realised. The
conventional wisdom is that well-defined property rights lower
transaction costs. Indeed there is a widely held view that high
transaction costs arising from defective formal property rights account
for the underdevelopment of most developing countries. North (1990, 67)
puts it as follows:
"When we compare the cost of transacting in
a third world country with that in an advanced industrial economy, the
costs per exchange in the former are much greater- sometimes no exchange
occurs because costs are so high. The institutional structure in the
third world lacks the formal structure (and enforcement) that underpins
efficient markets. However frequently there will exist in third world
informal sectors (in effect underground economies that attempt to
provide a structure for exchange. Such structure comes at a high cost
however because the lack of formal property right safeguards restricts
activity to personalised exchange systems that can provide self
enforcing types of contracts”.
This is a key argument in Hernando de Soto's
Mystery of Capital. De Soto (2000) argues that informal property
rights in third world countries prevent the emergence of impersonal
exchange systems he sees as necessary to unlock the 'dead capital'
locked in the immense real estate holdings. He advocates a formalisation
of property rights as a necessary condition for fighting poverty in
3.4 Linking Urban Land and Real
Estate Markets and Poverty- A Conceptual Framework.
One of the distinguishing features of land
and real estate markets in comparison to other markets are relatively
high transaction costs (Liu et al 1990; Clapp et al 1995).
Transaction costs in property markets can be broken down into three
categories (after Furubotn and Richter 1998, 44). These are search and
information costs, bargaining and decision costs, and supervision and
As we have argued above, realising the
latent benefits of real estate presupposes exchange in the capital,
rental or development markets. We have made the point that high
transaction costs may cause markets to fail or not to function well.
Well-defined and secure property rights for their part play an important
role in creating incentives, lowering transaction costs, increasing
demand for and investment in real estate. All these have potentially the
effect of fostering exchange in real estate markets and enhancing social
and economic welfare.
As Alston and others emphasize, real estate
is often the major, if not only, asset held by the poor and " their
ability to claim and sell land and then to move on to settle, claim and
sell yet again and again is a critical element in social and economic
advancement" (Alston et al 1999, 10). Through this process,
according to the authors, individuals eventually accumulate enough
wealth to stay on site permanently. The key in this process is property
rights. The authors argue that secure tenure allows the development of
wider markets, encouraging land to be used for highest-valued uses and
allowing owners to capture capital gains from sales (Alston et al
1999, 3). The authors also make the point that if property rights are
enforced, uncertainty of control is reduced, allowing individuals to
focus on productive activities, instead of spending scarce resources on
defending their claims. All this has salutary effects on poverty
The context is settlement on the Amazon
frontier, but the principle has clear relevance to the urban poor in
most developing countries, where the desirable end-state may be full
integration into the formal sector. Research in urban settlements of
Ecuador, Hungary, the Philippines and Zambia for example show that
housing is by far the most important productive asset held by urban poor
(Moser 1998). In many ways, informal settlements can legitimately be
conceived as frontier regions for new immigrants, being a point of entry
into the formal urban economy (see for instance Berner 2000). While
Alston and others emphasize property rights in their analysis,
transaction costs are equally important as it is these which ultimately
determine if markets will function well.
We concur with Jones exhortation that
research based on robust theoretical and empirical platforms needs to
demonstrate more clearly the links between land markets and poverty
alleviation (Jones 2003). Conceptual tools of the New Institutional
Economics (NIE), principally theories of property rights and transaction
costs, provide an appropriate framework for such research
The thesis of this paper is that both
(relatively) high transaction costs and inappropriate and/or inadequate
property rights configurations account for the failure to unlock the
potential of real estate to create wealth. The contention is that
relatively low transaction costs and secure property rights in real
estate markets are a necessary (but not sufficient) condition for the
unlocking of the potential of real estate to alleviate poverty. These
two factors create conditions that make it possible for large numbers of
secure and impersonal transactions in a decentralised market to take
Contrary to conventional wisdom, however, we
argue that higher transaction costs and insecure property rights are not
an inevitable feature of informal land and real estate markets. Antwi
and Adams (2003, 69) puts this argument succinctly thus:
"From one’s understanding of the economics
of property rights, there are no automatic reasons why insecurity and
lack of clarity of property rights should result simply because
transactions are organized informally. Indeed informal transactions may
predominate precisely because this mode of organizing transactions may
be better attuned to available opportunities. This would be the case if
the costs of organising transactions differently far outweigh the
Indeed, many studies (for example Antwi and
Adams 2003; de Soto 2000; Omirin and Antwi 2004) have shown that
navigating the formal system may be too costly for the poor. In the
context of property transactions, the formal system prescribes the use
of lawyers, conveyancers, and other professionals who come at a cost. In
addition there are costs arising from bureaucratic procedures such as
delays and corruption. If these costs are excessive, activities will be
driven into the informal sector. Thus, informality may be an optimal
solution to the complications of the formal legal process (de Soto 2000;
On the other hand informal land markets are
not without their own problems. Fekade (2000) for instance notes that
participants in informal markets are faced with problems such as
conflicting and unrecorded ownership claims, multiple sales of the same
property and other costs arising from insecurity of property rights. In
similar fashion, Kironde (2003) observes that while the informal land
market is credited with supplying land at low cost, it exhibits a number
of problems, principally high transaction costs and defective property
rights. These, according to Kironde, include lack of information on land
availability relying on communication by word-of-mouth, considerable
possibility of fraud, and lengthy negotiations. In addition he argues
that there is no general framework for setting land prices and that land
acquired has no official title. Kironde offers no empirical support for
these conclusions but nevertheless highlights issues that are of
The question of the relative levels of
transaction costs and security of property rights, as well as their
effects on property markets and incentives, is therefore a matter of
empirical investigation in each specific case. This forms the raison
d'être for this research.
The link between property rights,
transaction costs, real estate markets and poverty alleviation is
illustrated in the figure below. As the figure indicates, there is a
dynamic two-way relationship between property rights and transaction
costs. Well defined, secure and well enforced property rights reduce
transaction costs- by clarifying property boundaries, validating
ownership rights and making those rights easily transferable (Lanjouw
and Levy 2002). The need for extensive search of ownership is, thus,
obviated (Pamuk 2000). Similarly it reduces resources spent on private
enforcement (Field 2003). Low transaction costs for their part stimulate
the demand for secure property rights as a prerequisite for engaging in
Secure property rights and low transaction
costs are predicted to increase market turnover, by expanding market
depth and making it easier for exchange to take place. Increased market
activity provides opportunities to realise capital gains, as well as
gains from the letting and development markets. This, in turn, should
increase aggregate wealth, resulting in increased demand for, and values
of assets including real estate. Increased aggregate wealth and higher
land values should stimulate increased general economic activity,
increasing the demand for credit and therefore the need to use real
estate as collateral. A self-reinforcing virtuous cycle should then kick
Crucially, all these outcomes are predicated
on the existence of facilitative institutional arrangements/regulatory
Figure 1. Property Rights, Transaction
Costs, Land Markets and Poverty Alleviation: A Conceptual Framework.
It will be noted from
our illustration that the demand for credit (and therefore the need to
use real estate as collateral) will only reach significant levels once a
certain threshold of economic activity has been attained. As many
studies have shown, the demand for formal credit in informal settlements
for purposes other than consumption is low (Smith 2003; Ward 2003). This
can be explained by the lack of opportunities to invest such credit.
Deininger and Binswanger (1999) note that titling will confer benefits,
but only under conditions where informal land transactions are common, a
credit market that permits the use of title as collateral exists and
profitable investment opportunities exist. The latter two conditions are
likely to be absent in many informal settlements. Credit supply depends
on the lenders' confidence that they can foreclose (Smith 2003). However
for cultural and economic reasons it may not be possible to repossess
land as a consequence of default, rendering conventional credit markets
The emphasis in some of the literature on
the link between formal property rights, access to conventional credit
and improved welfare is therefore premature. The immediate task is to
increase turnover in markets. This of course means directing attention
to those factors that impede exchange. The key therefore is to gain a
better understanding of transaction costs in informal real estate
markets and how they are mediated before taking prescriptive action.
This means examining how formal and informal institutional arrangements
work to facilitate or hinder the functioning of land and real estate
markets in informal settlements. Property rights, due to both their
incentive effects as well as their effects on reducing transaction
costs, are clearly important.
Following on from our conceptual framework,
land and real estate markets in informal settlements will need the
following attributes if they are to be a tool for poverty alleviation:
Well defined, secure and enforced
Liquidity i.e. frequent numbers of
Low levels of uncertainty with regard to
Low levels of transaction specific
investment, such as security deposits.
This conceptual framework is consistent
with, and dovetails with the emerging consensus in conceptualisation of
poverty, the so called vulnerability/capital assets framework. Under
this conceptualisation, poverty is seen as "vulnerability to insecurity,
impoverishment and reduced self-respect of households which lack assets
that they can mobilise and manage in the face of hardship (Rakodi 1999;
Moser, 1998). Poor households are seen to be managers of portfolios of
assets, which constitute a stock of capital that can be stored,
accumulated, exchanged or depleted and put to work to generate a flow of
income or other benefits (Rakodi 1999). These assets include tangibles
such as labour and human capital, housing and largely intangible assets
such as household relations and social capital (Moser 1998).
According to Rakodi (1999) the crucial
determinants of households’ ability to achieve increased well-being are
their access to these capital assets and the effects of external
conditioning variables which constrain or encourage the productive use
and accumulation of such assets. Moser (1998) goes on to point out that
operationally the vulnerability/capital assets framework facilitates
interventions promoting opportunities, as well as removing obstacles, to
ensure the urban poor use their assets productively. "In those urban
contexts where the poor are systematically excluded from formal sector
jobs, and the capacity of macroeconomic growth strategies to generate
additional jobs is limited, the removal of tenure-insecurity related
obstacles that prevent or constrain households from using their housing
effectively as a productive asset is possibly the single most critical
poverty reduction intervention" (p. 11).
4.0 Literature Survey
The 'popular economics' of Hernando de Soto
is perhaps a fitting place to begin a survey of the literature. In the
words of Jones (2003) de Soto has placed a well-known discussion of
property rights, legal reform and state intervention into an
anti-poverty discourse. The central message in de Soto's Mystery of
Capital is that the poor in developing countries possess immense
resources, but they hold these resources in defective forms. "Because
the rights to these possessions are not adequately documented, these
assets cannot readily be turned into capital, cannot be traded outside
of narrow circles, where people now and trust each other, cannot be used
as collateral for a loan and cannot be used as a share against an
investment (de Soto 2000, 6).
De Soto describes these resources as 'dead
capital' to emphasise the point that they cannot be deployed to create
wealth. In describing the ‘undercapitalised’ informal sector which is
the abode of this dead capital de Soto (2000, 29-30) says: " It is a
world where ownership of assets is difficult to trace and validate and
is governed by no legally recognised set of rules; where the assets'
potentially useful economic attributes have not been described or
organised; where they cannot be used to obtain surplus value through
multiple transactions because their unfixed nature and uncertainty leave
too much room for misunderstanding, faulty recollection and reversal of
agreements. Where most assets in short are dead capital".
In more formal terms de Soto is arguing that
ill defined and enforced property rights result in high transaction
costs, thereby impeding the development of impersonal exchange systems
necessary for the creation of surplus value. In practical terms de Soto
is advocating the formalisation of property ownership in the
'extra-legal' sector, and the simplification of the formal procedures
for granting formal property.
Perhaps not unexpectedly, considering the
polemical nature of his discourse, de Soto's arguments have elicited
some fairly robust criticism. For example the methodology used to arrive
at the estimate of the amount of 'dead capital' remains obscure and of
doubtful validity. Payne (2002, 11) argues that that de Soto fails to
provide any empirical evidence to support the posited causal
relationship between the development of property rights and increasing
prosperity of the West. There have been calls for empirical validity of
de Soto's arguments, noting that interest among the poor in possessing
property title have been found to be quite low, the security of such
title overrated and the necessity of title to extend a finance market
for reasons other than consumption largely unproven (Jones 2003; Smith
It is perhaps apposite to state that for our
part we share de Soto's theoretical framework but not necessarily his
conclusions, which properly must be subjected to empirical verification.
A major research project commissioned by the
UK government's Department for International Development (DfID), and
recently completed, had as its main aim to test de Soto's thesis of a
linkage between property rights and poverty (Home and Lim 2004). Teams
of researchers undertook empirical work in peri-urban areas in Botswana,
Trinidad and Zambia. The overall results with regard to the main aim of
the research project can be fairly described as ambiguous.
This project, the only one to the best of
our knowledge with such an objective, directly engages with the main aim
of this research and therefore deserves a detailed review. The study
found little evidence of market activity in peri-urban plots “with
plot-holders more likely to pass their land to relatives…than sell”
(Home and Lim 2004). This finding is consistent with the observation by
Doebele (1994) that anecdotal evidence suggests that real estate markets
in informal settlements are not well developed despite considerable
de facto security of tenure. Home and Lim attribute this to
“resistance to market pressures”, resulting from the conception of land
as a security and welfare support rather than as a tradable asset. The
conclusion here appears to be that de Soto's ideas cannot work because,
for social reasons, people will not participate in the market even if
they are granted formal property rights. An equally plausible
explanation for little market activity on the other hand, which the
authors do not address either theoretically or empirically, is the
possibility of high transaction costs in these markets.
Another major finding of the research is
that there is widespread aversion to the use of land as collateral.
According to Home and Lim (2004) land tenure regularisation is supposed
to facilitate access to finance but the plot holders in all the three
countries were reluctant to pledge title deeds in case they lost their
land. This finding is also consistent with results elsewhere. In our
view, the emphasis in the literature, including from de Soto, on the
value of real estate as collateral for accessing formal credit is
misplaced and premature in many cases. It must be noted however that a
finding of risk aversion to mortgages is not the same as finding that
formal credit is not beneficial to poverty alleviation efforts.
The study could be criticised on
methodological grounds. The research adopts an essentially
anthropological approach to address a question whose theoretical
substrate is in economics. Because de Soto writes in a 'popular' style,
the fact that his ideas are grounded in a strong theoretical framework
remains obscure. Those not fully conversant with this theoretical
framework are therefore likely to deal with de Soto's ideas rather
superficially. The research team of land surveyors, planners, a lawyer
and a social anthropologist would have benefited from the added
perspective of a land economist. The research thus missed a valuable
opportunity to examine the land market process in these peri-urban
areas, and thereby help to illuminate an area that has not been well
studied (Antwi and Adams 2003; Gough and Yankson 2000; Kironde 2000;
Moving further afield, “the influence of
property titles as outlined in the existing literature has focused
almost entirely on three outcomes established in a paper by Besley
(1995): gains from trade in land, greater investment incentives, and
improved credit access” (Field 2003; also Smith 2003). Alston et al
(1999) see the promotion of market formation as one of the primary
outcomes of a property rights regime. According to the authors, clear
and recognised property rights have three salutary effects. Firstly,
they assist in attracting buyers, thus supporting wider markets.
Secondly, they allow owners to focus scarce resources on productive
activities rather than on defending their claims. Thirdly, they promote
investment by creating incentives for longer term planning horizons on
one hand and making mortgage finance feasible. Deininger and Binswanger
(1999) and Deininger and Chamorro (2004) for their part list reduction
of private enforcement activities, greater incentives for investment,
access to credit and increased transferability of land as the key
benefits of secure property rights. Formal property titles reduce
information asymmetry about land ownership and quality or transaction
costs generally, thus encouraging the development of wider markets.
Consequently property titling is
increasingly considered an effective form of government intervention for
targeting the poor and encouraging economic growth in urban areas (Field
2003). It is seen as the main instrument for increasing land tenure
security, stimulating land markets and facilitating the use of land as
collateral in credit markets (Lanjouw and Levy 2002; Deininger and
Binswanger 1999; Deininger and Chamorro 2004). Ward (2003) list the
positive outcomes associated with full property title regularisation,
reflecting conventional wisdom in this area, as follows:
Provides security against eviction.
Brings people into the market from which
they can benefit by free sale at full market price.
Raises land values.
Provides incentives that stimulate
investments in home improvements and consolidation.
Makes possible the introduction of basic
services such as electricity and water.
Generates greater access to credit by
using the home as collateral on loans.
Incorporates residents into the
property-owning democracy and citizenry.
Integrates settlements and property into
the tax and regulatory base of the city.
It will be apparent that many of these
outcomes would potentially have the effect of reducing poverty. Results
of empirical research addressing the effects of formal property rights
are however mixed. "The assumption that markets that are 'formal' or 'regularised'
are more efficient and productive is not yet proven. On the other hand,
some of the literature argues that 'informality' and illegality reduce
the costs of land and housing for the urban poor. Others argue that as
long as the poor are insecure as to the legal status of their homes,
their major assets in life, they will never enjoy full access to the
economic and political system. One of the most interesting reviews of
this issue ... concludes that the current state of research does not
permit prediction of whether a more formalised land market is likely to
benefit or harm the poor" (Doebele 1994, 52).
Research by Alston and others in the
Brazilian Amazon frontier show that title is ' a vital institution in
promoting investments and in expanding markets' (1999, 8). Title was
seen to significantly increase land values and wealth, and to create
incentives for long-term planning. Though this was in the context of
settlements in the frontier regions of the Brazilian Amazon, the results
have relevance to urban settlements where successive waves of immigrants
are analogous to frontier settlers and where land can be an important
means for capital accumulation.. Urban informal settlements are in many
respects a frontier region, juxtaposed as they are between the formal
and informal, the rural and the urban.
Besley (1995) reports on his investigation of the
relationship between investment and land rights in Ghana. He tests the
hypotheses that (1) security of tenure encourages investment, that (2)
security of tenure makes access to formal credit easier (encouraging
investment as a result of increased demand as well as lower interest
rates), and that (3) there are gains from trade arising from easier
transfer of rights in the capital and rental markets (superior transfer
rights are modeled as lowering the cost of exchange). Besley finds that
the data are supportive of his models (p.910).
Besley concludes that better rights to land
encourage or facilitate investment but these need not be formal
transferable rights (Rakodi 1999).
Much cited research on small scale farmers
in Thailand by Feder and Onchan (1987) and Feder and Feeny (1991) found
that formal titles and collateral play an important role in economic
development (Alston et al 1999). With regard to their impact on land
values Lanjouw and Levy (2002) find that in urban Ecuador the effect of
land title was to raise values by almost 24 per cent. These results have
been corroborated by Kim (2004) who found out that in Vietnam properties
with legal title transferred on average between 3 - 10 per cent higher
than those with incomplete rights. Similar findings are reported for
Nicaragua where receipt of registered title was found to increase land
values by 30% and at the same time greatly increase the propensity to
invest (Deininger and Chamoro 2004). Evidence from Peru suggest that
households in titled communities devote fewer human resources to
informal property protection, both at the household and the community
levels, and more resources on productive activities outside the home
(Field 2003, 4).
While there has been much attention placed on
property rights, literature that has as a central focus the study of
transaction costs in informal real estate markets is rather thin. This
could be explained by the well-known problem that transaction costs are
notoriously difficult to observe, let alone measure. Gough and Yankson
(2000) show evidence from Ghana of markets bedeviled by high transaction
costs, with numerous disputes arising due to lack of documentation and
poor boundary definition and ill defined property rights, though this is
tempered by the high cost of formalisation. Results from Tanzania also
make allusion to informal markets ham-strung by lack of information,
considerable possibility of fraud, and lengthy negotiations (Kironde
Results from other research however has not
been wholly supportive of the posited benefits of formal property rights
to land, taking issue with the often a priori assumption
that lack of formal title has a negative impact on informal land markets
(Antwi and Adams 2003; Ward 2003). Evidence from a study of informal
transactions in Ghana found out that most of them were the optimal
solution in an environment where the formal system is riddled with
excessive bureaucracy and cost, and the resulting formal property rights
of limited value (Antwi and Adams 2003). Ward (2003) argues that
informal land markets are far from sluggish but rather dynamic with free
exchange. It is precisely the informality and poor serviced status that
makes housing in informal settlements affordable in the first place (Doebele
1994; Ward 2003). Ward argues that housing is firmly entrenched as a
commodity within the marketplace in informal settlements, albeit a less
regulated one. Ward further notes that it is not only legality and
secure property titles that prime the marketplace as de Soto seem to
argue. In both formal and informal land markets, regulation and
restrictions sometimes can, and do, severely inhibit rational
development and urban productivity. With regard to the former, the
policy ambiguity, procedural complexity and prohibitive cost involved in
obtaining titles which legalize ownership of urban land has forced the
urban land market to further proceed in the informal or illegal way (Fekade
2000, citing McAuslan, 1985, p. 8).
Durand-Lasserve (2003) points to research in
(rural) South Africa that seems to suggest that individualisation of
tenure has been found to increase inequality and landlessness, to have
little or no impact on the mortgageability or productive use of land, to
fall into disrepair after the first set of transfers, and to lead to
ever increasing fragmentation of land parcels. Smith (2003) on the other
hand argues that tenure security’s apparent inability in much of Africa
to increase credit use is traced to poorly functioning and
under-capitalized credit markets; inadequacy of the observed range of
land rights and enforcement thereof to inspire confidence in lenders;
and risk aversion on the part of producers.
Razzaz (1993) presents results from Jordan
that cast doubt on the assumed causal relationship between formal
property rights, security of tenure and land investment. Kironde (2000)
finds that titles in settlements around Dar es salaam, Tanzania, does
not result in significantly higher land values.
The point to underline here is that one must
not make a priori assumptions based on notions of formality or
informality. Some authors have even questioned the usefulness of
maintaining this dichotomy. Elsewhere, research from urban Ecuador
suggests that the effect of formal property rights on economic behaviour
and welfare depends on an informal source of those rights (Lanjouw and
Levy 2002). Institutionalists acknowledge that the interaction between
the two are important (see for instance North 1990), and must be taken
into account when designing formal property rights. The extent to which
informal institutions reinforce or contradict formal property rights
systems is crucial in explaining the success or failure of the latter.
It is common knowledge that formal property institutions in much of
Africa are not indigenous, having been imported from the West as a
result of colonialism.
According to Lanjouw and Levy (2002) the key
distinction is not whether property rights are formal or informal but
rather whether they are transferable or not. Thus stronger rights to the
extent that they are not transferable may make it difficult to engage in
transactions. On the other hand evidence from Vietnam shows that real
estate markets can function very well even with incomplete legal
property rights, (Kim 2004). This underscores the importance of
empirical research to try and provide answers.
Overall, a survey of the literature reveals
a number of gaps. The major problem identified is lack of basic
information regarding the functioning of urban land markets in Africa
and other developing countries (Antwi and Adams 2003; Gough and Yankson
2000; Payne 1997). This is particularly the case for informal
settlements. Basic questions, for instance, about the numerical size of
the informal sector, the volumes of transactions, sums of money
involved, the amount of land changing hands, the general pattern of the
distribution of land transactions, land prices, or land values have not
been satisfactorily answered (Doebele 1994; Kironde 2000). We remain
relatively ignorant about the behaviour of the actors, the incentives
and constraints they face, the cost of exchange that they incur and the
mechanisms by which exchange is facilitated.
In particular little systematic attention
has been placed on the role of informal institutions that allow markets
to function regardless of government regulations (Pamuk 2000; Rakodi and
Leduka 2003). Formal real estate markets rely on a host of institutional
arrangements, organisations and actors to structure and facilitate
exchange (see Keogh and D'Arcy 1999, Jaffe 1996). These include
statutes, land registries, listing agreements, contracts, estate agents,
conveyancers, lawyers and so on. Informal real estate markets on the
other hand are defined by the absence of many of these. It is therefore
of interest to find out how the problem of exchange is resolved in
institutional terms and the resulting incentives and constraints.
Without this knowledge it becomes difficult to see how these markets
may aid poverty alleviation and to make prescriptions for improvement.
Another problem identified is that many of
the studies are not informed by rigorous theoretical frameworks. For
this reason Deobele (1994, 54) argues that "stronger discipline should
be imposed on the growing number of case studies to prevent them from
being particularistic descriptions, which resist generalisation and thus
reduce their potential for predictivity".
5.0 Proposed Flexible Land Tenure
It is estimated that the total number of
families living in informal settlements without secure tenure in Namibia
is around 30,000 out of a population of just under 2 million (Durand-Lasserve
2003). Local authorities accept the informal settlers, but would like
to formalise the areas so that the residents get formal rights and the
local authority can collect taxes and charges for utilities (Republic of
To respond to the demand for secure tenure,
the development of a flexible land tenure system has been devised
(Durand-Lasserve 2003), and a final draft of the legislation has been
published. According to the final draft of the Flexible Land Tenure Act,
the objectives of the act are three fold (Republic of Namibia 2004). The
first objective is to create alternative forms of land title that are
simpler and cheaper to administer than existing forms of land title. The
second objective is to provide security of title for persons who live in
informal settlements or who are provided with low-income housing. The
final objective is to empower the persons concerned economically by
means of these rights. A reading of these objectives suggests that the
provision of property rights to inhabitants of informal settlements is
seen as a means to the end of improving their economic welfare.
A new statutory form of tenure is proposed
for housing blocks ('block erf') consisting of up to 100 families
(Durand-Lasserve 2003, Republic of Namibia 1997). The blocks in question
will in practice be carved out of underlying land that is owned under
freehold by mostly local authorities but settled informally. Once the
block has been hived off, it will be registered in freehold ownership in
the main Windhoek Deeds Office in the name of either the local authority
or any other entity which may assume ownership by purchase or grant. The
underlying owner's title will however be effectively sterile as they
will be precluded from ordinarily exercising their full range of rights.
The rights of the residents of these 'block erfs' will take precedent.
The Flexible Land Tenure introduces two
types of property rights, 'land hold title' rights and 'starter title'
rights. Starter title rights are the entry level rights and provide the
holder with the right to perpetual occupation of a site within the block
and the right to transfer or to otherwise dispose of the right. The most
significant effect of the starter title would be to give security of
tenure in perpetuity for those residents of informal settlements who are
at present occupying land that does not legally belong to them.
Land hold titles are of a higher order and
confer on the holder all the usual rights of ownership under the common
law. Crucially, it will be possible to mortgage these titles and
therefore provide the basis for the development of credit markets.
Upgrading from starter title to landhold
title or eventually to freehold ownership will be possible depending on
the resources available to and the wishes of the concerned groups. Thus
the system is a stepwise and flexible approach to the provision of full
freehold property rights.
The Act in section 4 makes provision for the
creation of institutions called Land Rights Offices. These are expected
to be the lead implementing structures for the Flexible Land Tenure.
They are envisaged to be decentralised land registries and are expected
to provide low cost land management services to informal settlements.
They are expected to maintain registers, give advice to parties on all
aspects of permitted transactions, archive all relevant documentation
such certificates of title and deeds of transfer, attend to land
The Flexible Land Tenure System is expected
to be cheaper and simpler than the present system of formalising
property rights. One of the problems with the current system is that it
requires accurate but expensive survey work to be done by licensed land
surveyors. The shortage of surveyors in the country means that their
services are costly and that there is a huge backlog of work. It is
envisaged that under Flexible Land Tenure survey standards with regard
to internal subdivisions of ‘block erfs’ will be relaxed, making it
possible for 'land measurers' (survey technicians) to undertake such
subdivisions. The Polytechnic of Namibia has since started a training
programme for such survey technicians. The cost of survey is therefore
expected to come down by the twin effects of increased numbers of
trained survey technicians and lower survey standards.
Another source of potential cost savings is
the dispensing with the requirement for conveyancers or legal
practitioners in order to effect transactions such as sales. The Land
Rights Offices are expected to assume some traditional functions of
legal practitioners with respect to land transactions. In addition
transactions will be much simplified by the use of standard forms, such
as certificates of title, sale or lease contracts. Land Rights Offices
are expected to be located as close as possible to the informal
settlements which should improve accessibility, and therefore reduce
costs, for the low-income groups.
There is a good deal of scepticism regarding
whether the Flexible Land Tenure can deliver a significantly cheaper and
simpler system of land registration in Namibia. Critics have argued that
survey and conveyancing costs tend to be a relatively small proportion
of the total cost of land registration and that in any case the proposed
system does not hold much promise for cost reduction in this respect. In
the absence of empirical data, it is difficult to gauge the soundness of
this argument. However it must be pointed out that the Flexible Land
Tenure System aims to encroach into the traditional turf of professions
such as land surveying and property conveyancing. Some of the more
robust criticism has come from these professions and, in this context,
must be seen as a natural reaction.
A critical reading of the draft Flexible
Land Tenure Act does reveal that the legislation prescribes fairly
elaborate procedures for the creation of starter and/or land hold
titles, and for upgrading these. Thus, for example, feasibility studies
must be carried out, the 'block erf' surveyed and subdivided etc.
Further the land may have to be purchased from the current owners. The
creation of Flexible Land Tenure will, therefore, not be without cost,
even if these costs are expected to be significantly lower than under
the current system. It is not clear at the moment who will bear these
costs. Informal settlers are clearly not in a position to make much more
than token contributions.
These points of concern notwithstanding, it
is our view that the Flexible Land Tenure System is potentially a
powerful tool in the fight against urban poverty. Both theory and a
critical body of empirical literature have demonstrated the effect of
better property rights in providing incentives for economic development
and poverty alleviation (see review in section 4).
Of perhaps greater importance is the role
that the proposed system could play in reducing transaction costs in
informal real estate markets, consequently increasing market activity.
Settlement level Land Rights Offices could play an important role in
providing reliable information to market participants. They could serve
as clearing houses or information centres. In addition to the obvious
roles of issuing certificates of title and validating ownership claims,
they would take the roles of conveyancers, estate agents and valuers.
They would thus help draw contracts, give legal advice, bring buyers and
sellers together, host information on available properties and prices as
well as attend to disputes. This should greatly help to reduce the
uncertainty and information costs associated with exchange in markets
that are not well served by equivalent institutions.
Running Land Rights Offices is going to
cost, and in this era of 'cost recovery' the temptation may be to pass
on the cost to the 'beneficiaries'. This may be counter productive.
These Offices should be seen in the context of Government responsibility
to create an 'enabling environment' for markets to work better and
therefore are legitimate areas for public expenditure. As Deininger and
Binswanger (1999) argue, the provision of market information systems is
one area suitable for government intervention. Such systems should
reduce transaction costs by improving the availability of information
about land prices and markets. According to the authors, these systems
would expand participation in sales and rental markets thereby improving
the acceptance of land as collateral by financial institutions.
The Namibian Government has been running
full-scale pilot projects in informal settlements in the Northern town
of Oshakati since the late 1990s. Results from these projects are not in
the public domain and so it is not clear what lessons have been learnt.
This research aims to remedy that.
6.0 Some Ground Truth
An empirical survey was carried out in the
Greenwell Matongo C and Havana Extension 1, informal settlements on the
outskirts of Windhoek in October and November 2004. As indicated in the
introduction, this paper represents work in progress of ongoing
research. The survey did not aim to generate statistically significant
relationships, but rather was meant to be a reality check to explore the
applicability of the conceptual framework to the specific circumstances
of Namibia's informal settlements. Thus the more limited objectives were
to gain an appreciation of the likely order of magnitudes of the
variables, their amenability to empirical study and potential problems
likely to be encountered in a substantive survey. The findings presented
below are merely indicative.
The above caveat notwithstanding, the survey
came up with interesting findings. In addition it helped to more sharply
delineate the research questions and, in future, will aid in the design
of more robust research methods and instruments.
6.1 The Study Area
Greenwell Matongo C ('Greenwell'
hereinafter) and Havana Extension 1 ('Havana') settlements are located
in the northwest of Windhoek, adjacent to Hakahana and Wanaheda
Townships. They are further flanked by Havana 2 Extension 1 informal
settlement to the west and Monte Christo Road informal settlement to the
south. They are located approximately 10km from the city center.
Settlers in Greenwell Matongo C have
purchased the land they occupy from the Municipality though the area has
not yet been formalised. All are members of various group associations
from whom they got loans to purchase the land. The settlers have good
security of tenure, subject to the rules of the savings associations and
the conditions attached to the loans. Those in Havana Extension 1 on the
other hand are occupying land on 2-year leaseholds from the Windhoek
City Council, after having originally illegally occupied it. The terms
of their lease imposes restrictions on what they can do with 'their'
In terms of our conceptual framework
therefore, settlers in Greenwell Matongo C have better and more secure
property rights than those in Havana Extension 1. It should be noted
that both these settlements are neither formal nor illegal. They are
'extra-legal' in the sense of de Soto.
These two settlements were chosen due to the
fact that in Greenwell Matongo C a significant number of settlers have
acquired land using savings associations while Havana is one of the
biggest settlements in Windhoek with many people occupying municipal
land on leasehold. Leases are due to expire in 2 years.
The 'comparative institutional'
methodological stance was adopted. As indicated above these settlements
differ in the (de jure) property rights that the settlers have over
land. This is taken as a point of departure from which any significant
differences are elicited. As in Lanjouw and Levy (2002) we asked
settlers questions about their perceptions of property rights, how they
acquired them and their ability to make transactions of various kinds.
Further questions sought to determine the cost of construction, the
incidence and nature of disputes, perception of market values, future
plans etc. In addition we took measurements of house sizes and noted the
building materials used.
21 households were sampled in Greenwell, 7
from each of the 3 savings associations located in the area. 20
households were sampled from Havana, 2 from each of the 10 sections. A
total of 41 respondents comprising heads of households were interviewed
with the aid of a questionnaire.
6.3 Observations and Discussion
Table 1 shows comparative summary
statistics of the two samples.
Table 1: Comparative Summary
Greenwell Matongo C
Havana Extension 1
Monthly Income (N$)*
*1 US$ = approximately 6 N$
Based on these statistics there is no reason
to believe that there are significant differences in the demographic
composition, education, employment and income levels of the two samples.
58 % of the respondents across both samples are in formal employment,
with the majority of these in 'blue collar' jobs (security guards,
bricklayers, cleaners, domestic workers, carpenters, mechanics etc).
Those without formal employment are engaged in activities which include
selling of liquor, kapana (meat), fruits and vegetables.
Table 2 shows comparative data on dwellings
occupied. It is obvious that there are significant differences between
the two samples. Dwellings in Greenwell are on average more than twice
as big as those in Havana and cost much more to build. In addition,
settlers in Greenwell use the more permanent brick compared to the zinc
sheets in Havana.
Settlers in Greenwell clearly feel secure
enough to invest substantial sums of money in their housing. At this
stage we are more interested in the magnitudes of the values, rather
than the reasons/causes for differences.
Table 2: Dwelling Variables
Greenwell Matongo C
Havana Extension 1
Dwelling Sizes (m2)
Building Costs (N$)
Purchase Costs (N$)
* Market Value as perceived by respondents.
Average building cost of
N$ 17,450 (1 US$ = approx. 6 N$) are significant in a
country where incomes are low. In 1997 the GDP per capita was US$ 2,220
(Hansohm 1999) but bearing in mind the highly skewed distribution of
income, average incomes for the vast number of households are
significantly lower. The perceived market values are equally
substantial. The figures illustrate the potential that exists for
capital gains in sale markets. In addition, the spread that is observed
between building costs and perceived market value suggests that
opportunities exist for profitable speculative development. It should
however be noted that the effect of land values have not been taken into
account at this stage and is likely to complicate matters. Both
settlements are located on relatively high value public land but the
settlers have not had to incur the full market cost. As has been
indicated above, those in Havana invaded public land at no cost and went
on to acquire leaseholds from the local authority. The settlers in
Greenwell Matongo on the other hand have bought the land from the local
authority but at concessionary prices. Significantly, official
restrictions on property sales on the open market mean that prices for
both land and real estate are distorted.
It is interesting to note that all settlers
in Greenwell built their dwellings themselves, whereas there have been
some purchases of completed dwellings in Havana. This seems to suggest,
rather curiously, that there is more sales market activity in Havana.
This is corroborated by other evidence. When asked what plans they had
for the properties in the next few months, 7 respondents from Havana
indicated plans to sell compared to none from Greenwell. This may be a
case of stronger rights being less transferable and needs further
The complete absence of renting in both
samples suggests that rental markets are not well developed. This points
to an additional line of enquiry.
The survey sought to establish how the
settlers acquired the land, their perception of the rights that they
believed they had, and their sense of security. All the settlers in the
Greenwell sample acquired the land under the aegis of the respective
savings associations. Fourteen of the settlers in Havana admit to
invading vacant land, while 5 acquired completed dwellings and 1
inherited the property.
An attempt was made to find out how settlers
find the plots. Those in Havana used information from friends or
relatives or personally searched for available plots. This is indicative
of high search costs in terms of time. On the other hand settlers in
Greenwell appear to be able to draw on more formal sources of
information by virtue of being members of savings associations.
Respondents were asked to indicate what
rights they thought they had on their property out of the following: to
sell, to use, to make improvements, to give out and to rent out. The
results are interesting. All the respondents in Greenwell indicated that
they did not have both the right to sell and the right to give
out. On the other hand those in Havana indicated that they had both
these rights but not the rights to make improvements and to rent out.
This result may partly account for the differences in housing investment
and market activity between the two samples. It illustrates, perhaps
tritely, the influence of different property rights configurations on
Property related disputes were found in both
samples 4 from Greenwell and 6 from Havana. Disputes were over ownership
and boundaries. Better property rights are predicted to reduce such
disputes. The incidence of property related disputes in these
settlements, the resources that are spent on their resolutions and the
mechanisms for dispute resolution are therefore a matter of interest.
As indicated above this survey had the
limited objectives of 'testing the waters' and of piloting the survey
instrument. The magnitude of the likely variables such as market values,
development costs, income levels etc have been appreciated and confirm
that there is potential for meaningful property markets. Opportunities
therefore exist for the urban poor in Namibia to make capital gains,
earn rental income or make capital profit in the sale, letting and
development markets respectively.
The Research Agenda
According to Doebele (1994, 44) research
must meet four requirements if it has to have impact on policy makers.
First it must resonate with issues that have priority in the mental
agenda of policy makers concerned. Secondly, it must be done within an
established intellectual framework that makes it comparable with other
work on the same subject. Thirdly it must have the ability to be
predictive. Finally, it should be in a form that suggests prescriptions
This research aims to satisfy the
requirements. Firstly, the incidence and visibility of urban poverty in
Namibia, as in many other developing countries, is such that it cannot
be ignored. Secondly, the New Institutional Economics provides an
appropriate intellectual framework with which to analyse the interface
of property markets and poverty alleviation. Theories of property rights
and transaction costs bring both predictive and prescriptive
capabilities to the analysis of these markets.
The NIE can contribute to the analysis of
property markets in a number of ways. Fundamentally, institutional
analysis directs attention to the importance of the institutional
environment within which property market activity takes place and the
institutional structure of the property market itself. A broad range of
property issues then becomes amenable to institutional analysis. Of
particular interest to us is what has been referred to as the property
market process (D'Arcy and Keogh 1999; 1996).
According to Armitage and Keogh (1996, 1)
the property market process is specific to the market in question and
“may be defined variously in terms of the institutions which
collectively constitute the property market, the legal framework which
constrains the operation of those institutions, and a set of conventions
which govern the way that actors operate and perceive opportunities in
the market”. To this we can add the effect of these institutions and
conventions on economic outcomes.
There is much value in adopting an
institutional approach to the study of informal urban property markets.
As indicated in this paper, there is much that we do not know about how
these markets function. There are a number of research questions that
need addressing, first asked 10 years ago by Doebele with respect to
what he termed the second hand housing market (Doebele 1994, 50). They
are worth repeating here verbatim both because of their currency and the
fact that they have hardly been addressed.
"Why do so few re-sales appear to be taking
place in informal settlements (if indeed such is the case)? When do they
occur, to whom are the plots or properties sold and how is the price
fixed? How do sellers use the proceeds of their capital accumulation,
and what economic consequences result? For example are the proceeds from
such sales generally used to purchase better housing, to capitalise
micro-enterprises, or to fulfill one-time social obligations such as
weddings or funerals? Does the exclusion of land and housing from formal
markets actually cause them to appreciate in value more rapidly than
they would be if they were formally marketed? Is the absence of a second
hand market constraining an efficient urban property market in general? How
does sluggishness in such a market affect the succession or (filtering)
phenomenon in which marginal housing stocks receive and pass up
successive categories of urban migrants?"
Jones (2003) urges a more systematic audit
of policies such as squatter upgrading and tenure regularization in
order for them to be associated with poverty alleviation. He argues that
research needs to determine the impacts of reform on the poor and the
consequences on land markets, specifically on land prices within and
without regularized settlements, and the perception of various agents.
Jones (2003) goes on to ask pertinent
questions: "As the poor already invest in their homes, is access to
finance the only or principal mechanism by which regularization
addresses generation-to-generation poverty established by the denial of
property rights? Are reforms creating new forms of illegality that might
be more complex to resolve and which might lock the poor into more
exclusionary social or spatial patterns?”
Additionally, the following questions need
answers: What institutional arrangements facilitate or constrain the
function of informal property markets? What incentives or constraints do
actors face? What is the case for reform? What is the (potential)
contribution of real estate to poverty alleviation?
This research aims to provide answers to
some of these questions in the context of Namibia's informal
settlements. A better understanding of these markets is necessary if
they are to be marshalled in the fight against poverty. As Jones (2003)
puts it, we need to know more about how governments can intervene to
reduce land transaction costs without setting unrealistic regulations
that raise land prices to the poor (Jones 2003).
The research aims to "demonstrate clearer
the links between land markets and poverty alleviation" (Jones 2003) and
in a manner that 'takes into account the complex relations and processes
engaged in residential land production and distribution' (Jones and Ward
The research complements current studies
examining informal land delivery systems in six other African countries
(Rakodi and Leduka 2003).
Lecturer in the Department of Construction, Economics, and Management at
the University of Cape Town in South Africa. He previously taught in the
Department of Land Management at the Polytechnic of Namibia, and the
Department of Land Economy at Copperbelt University in Zambia.
Chris E. Cloete
is a Professor in the Department of Construction Economics and Program
Leader for Real Estate and Research at the University of Pretoria in
Tshwane, South Africa. He is the author of Property Finance in
South Africa and Property Investment in South Africa.
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