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close this bookThe Human Settlements Conditions of the World's Urban Poor (HABITAT, 1996, 233 p.)
close this folderVI. Reducing the human settlements problem of the urban poor
View the document(introduction...)
View the documentA. The scope for public/private partnerships
View the documentB. The potential for employment generation in human settlements development through construction activity
View the documentC. The potential for employment generation from HBEs
View the documentD. Public participation and capacity-building
View the documentE. Increasing the access to residential land
View the documentF. Improving access to housing finance
View the documentG. Improving access to appropriate building materials
View the documentH. Improving infrastructure and sanitation
View the documentI. The effect of building and planning codes and regulations on the human settlements conditions of the urban poor
View the documentJ. Renting as opposed to ownership: Options for the urban poor

J. Renting as opposed to ownership: Options for the urban poor

Commentators are highly cautious over making estimates of the numbers of households living as tenants in developing countries. What is known, however, is that the numbers are substantial and that they vary markedly from one country to another. Whilst ownership remains exceptional in Chinese cities (despite the current initiatives towards privatization), in other countries, such as Venezuela and Colombia, the majority are owners. Gilbert summarizes the situation as follows, “most people in West African, Chinese, Indian and Korean cities rent accommodation; a majority in the cities of the larger Latin American and Middle Eastern cities tend to be owner occupiers” (Gilbert, 1990).

The nature of renting also varies between one country and the next. The most obvious distinction is between renting in the public or private sectors. On gaining independence many African, South Asian and South-East Asian countries emulated the experience of the developed countries and embarked upon state funded programmes for rent, usually to targeted population groups, such as civil servants or specialist workers. Not only have these programmes been comparatively modest, but they have also invariably experienced difficulties of administration which has, sooner or later, resulted in their conversion to programmes for sale. Wadhva (1994) charts the experience of such schemes in India. Apart from problems in securing rent recovery, she identified three reasons for the failure of these early programmes; firstly, the high cost of operation and low revenues rendered the schemes non-financially viable; secondly, the procedures specified by central government to make subsidy available were very cumbersome; and finally there were serious problems in administering the accommodation (Wadhva, 1994). Very similar problems over administration and management, and rental recoupment have been experienced in other African and Asian countries. As a consequence, and with the possible exception of China, few developing countries have significant amounts of publicly rented accommodation.

In strong contrast, the private rented sector often plays a highly significant role in the housing market of developing countries. It too, varies significantly between countries in many ways e.g. in the type of landlords; the relationship between landlord and tenants; the impact of legislation; the nature of tenancies, and the forms of accommodation. Thus, the formalized nature of private tenancy arrangements in the Republic of Korea, where there are three forms of tenancy,6 is in marked contrast to the informal tenancy arrangements, or the availability of free accommodation in some West African cities (UNCHS, 1993f); or the enormous complexity surrounding tenancy arrangements in the bustees of Calcutta.

6 These are chonsei, wolsei and sakwolsei (although the latter only accounts for about 5 per cent of tenancies). Chonsei is the arrangement whereby the tenant pays a deposit to the landlord on commencement of the tenancy, but no rental payments; so that rent is equivalent to the opportunity costs of the deposit, plus devaluation over the tenancy period, after which the deposit is returned. Wolsei describes a more familiar situation where rental payments are paid regularly over the tenancy period together with a deposit. Sakwolsei is the circumstance where the deposit is equal to the sum of monthly payments over the period of the tenancy - a hybrid of the other two forms. Chonsei accounts for almost 60 per cent of private tenancies in South Korea and wolsei for about 37 per cent. In 1990, 55 per cent of households in urban areas in Korea were tenants (Kim W-J., 1994).

The variation in size in the privately rented sector in various countries has stimulated much discussion over which factors influence and determine the growth or contraction of the sector. Edwards (1990), distinguishes between housing built specifically for letting and other housing which may, at some stage, be made available to let. In the case of the former, whilst it is comparatively rare to find housing constructed for letting in the informal sector, it is relatively frequent in the formal sector. Such housing may be historic in that in the older, core areas of cities there are often tenemental structures specifically built to house workers (as in many South Asian cities), or former colonial areas now subdivided to provide rented accommodation. It may also be contemporaneous, providing housing for rent, remains widespread in many African countries, for example. The main factors affecting the supply of such accommodation are summarized by Edwards (1990):

“The most important factor... is the rate of return on investment. Although rents are usually low in this sector, the multi-occupancy character of tenements and the fact that little or nothing is re-invested by the landlord in maintenance can make them an attractive proposition. Also significant are legal control (on rent levels or the subdivision of dwellings), the historic pattern of urban development... the location of employment opportunities which require a proximate supply of cheap labour, and the availability of capital... Finally, commercial redevelopment of the inner city... inevitably reduces the stock of cheap rental housing in the same area”.

The bulk of rental housing in developing countries, however, is provided by low-income home owners in both legal and illegal settlements. Edwards (1990), argues that there are two critical sets of factors determining the supply of such property, first, the ease with which the poor gain access to home ownership, and second, the propensity for low-income owners to let their property. The main determinants of the first are well known, the price of marketable land and of materials, the accessibility of that land to the urban poor, and the relative income levels of the low-income groups. As far as the propensity for homeowners to let is concerned much less is known, but Edwards suggests the key factor again is the profitability of letting; other factors also include, the influence of government policies, such as rent control or slum clearance programmes; income levels, the size and design of dwellings; lifecycle changes affecting the household (and influencing the availability of space available for letting in the dwelling); and cultural factors, such as obligations to kin, or the need for separate space for female members.

Work by Kumar in Madras (1994), has tried to shed light on the motivation of landlords to let their properties. He argues that low-income landlordism may be divided into three; these are, first, “subsistence landlords” who generate rental income in order to meet “essential consumption expenditure”; second are the “consolidator landlords” where rents are used “to improve the material base of the household and the dwelling”; and third, “petty-capitalist landlords” where rents contribute to “the expanded reproduction of capital in the form of landed property” (Kumar, 1994).

The shifts in policy focus advocated by the GSS have led to a growing recognition in recent years of the part played by private renting in providing shelter for the urban poor. At present, however, policies to encourage the privately rented sector are tentative and guidelines are broad-based; they are handicapped as Gilbert (1990) acknowledges by a lack of information about the sector and an absence of policy initiatives which might act as examples of good practice. The World Bank has sought to encourage sub-letting in sites-and-services programmes; the Government of the Republic of Korea has provided subsidies to encourage companies to construct employees housing (see above, section V.D); and the Kampung Improvement Programme in Indonesia has encouraged the provision of accommodation to rent. Yet, such initiatives remain rare and do not constitute a strategy.

Clearly much work remains to be done to encourage a healthy privately rented sector. In stressing the critical link between the growth of low-income homeownership and the availability of accommodation for rent, Edwards makes an important contribution to policy. He confirms that a strategy aimed at encouraging low-income home-ownership may result in an additional dividend for the urban poor through opportunities for renting. Kumar’s work is important too in that it highlights distinctions in the financial motivation of landlords. He suggests that a strategy for encouraging landlordism needs to understand better the financial factors likely to encourage home-owners to become landlords and to devise appropriate fiscal and financial incentives, rather than relying on a general exhortation, “to review rent control legislation”. Much may also be done to modify building and planning standards to create a more positive environment to encourage expansion, where appropriate, rather than inhibit it.

The development of appropriate rental strategies is essential as the urban expansion in the coming decades will mean that rental housing must assume an increasing share of housing supply and will need to become “a vital part of a government’s arsenal of enabling policies” (UNCHS/ILO, 1995). A number of recommendations should thus be adopted to encourage opportunities for renting:

· progressive withdrawal of rent controls;

· tax benefits on rental income where this is appropriate and practical;

· encouragement of house extensions in well-built and well-located housing in order to increase accommodation for rent.

At the same time any strategy for encouraging the expansion of the privately rented sector needs to introduce safeguards for tenants and for the poorest. As Sundaram (1990b) points out, the security of tenants in unauthorized settlements is rarely a matter of legal argument, but more “a function of community pressure, perception of de facto legality of the settlements, and the clout of the landlord”. In such circumstances there should be the capacity for arbitration in landlord/tenant disputes, perhaps vested with local NGOs or neighbourhood associations, and safeguards against arbitrary eviction. For the poorest, their security should rest with governments and Sundaram (1990b) suggests hostels to provide accommodation for single, working women and night shelters for the homeless, such as those being constructed in all metropolitan cities in India.