The function and credibility of urban slums: Evidence on informal settlements and affordable housing in Chile: Fid-Bau Portal

The function and credibility of urban slums: Evidence on informal settlements and affordable housing in Chile

Celhay, Pablo A. / Gil, Diego

Abstract In recent decades, governments and international organizations have made strong efforts to promote homeownership among low-income households. However, in many countries, informal housing arrangements persist. A strong reason for this is emphasized in the “credibility thesis” which posits that informal settlements play a functional role and serve informal dwellers by supplying other valuable attributes that formal housing may not provide. Based on a comprehensive survey of 1588 households living in 69 irregular settlements and 32 subsidized housing projects in Santiago, Chile, we analyze the functionality of informal settlements by examining two hitherto under-researched indicators for credibility: residents' perceptions on location and neighborhood security. Results show that in the low-income housing sector some individuals may prefer to live in an informal settlement because these places are more functional with respect to some relevant urban attributes to which they give more weight. In effect, households living in informal settlements are less willing to move from their current municipal district, are closer to jobs, and report lower rates of neighborhood vandalism relative to those living in formal subsidized housing projects. This is related to the fact that in Chile many individuals who have had access to affordable housing have moved to segregated urban areas. The results show that even within well-functioning urban areas where there is strong protection to private property rights, urban informality may still provide a better geography of opportunities than formal homeownership.

Highlights • This study builds on the “credibility thesis” to analyze the persistence of informal settlements in Santiago-Chile. • We examine data that allow us to compare households living in informal settlements and households that own a subsidized housing unit. • We find that individuals living in informal settlements have stronger preferences for staying close to their current neighborhoods. • We show that those living in informal settlements have higher perceptions of neighborhood security and higher future economic expectations. • The article argues that some low-income households face a tradeoff between housing formality — owning a house — and neighborhood quality.