Housing in Low-Income Cities: Learning from 19th Century European Urbanization

During the nineteenth century London grew from a city of one million people to six million, a rate of expansion commensurate with the rapid urbanization currently underway in Africa. Further, per capita income in London in the mid-nineteenth century was roughly comparable with that in Africa today. But unlike modern Africa, nineteenth century London and the Northern English boom cities did not develop informal shanty towns. Formal housing was built at a pace that broadly kept up with migration. Of course, the urban poor were not well-housed, but they were, by-and-large, appropriately housed given their level of income: the problem was essentially that of poverty, not of housing.

Urbanization and Housing

The new housing for migrants was built by small firms. Typically, the freehold on the land would be owned by one of the great estates which therefore had the incentive to plan the urbanization process. In effect, much of the increase in productivity resulting from higher population density was captured by these great estates. This was efficient, in that the externalities of urbanization were internalized, but was of course highly inequitable. The estates would install basic infrastructure such as a road network on a tract of land, and then sell off leaseholds in smaller plots to building companies. A building company might build a row of houses, constructing them using standardized architectural plans and labour-intensive techniques. Most of the occupants would be tenants rather than owner-occupiers. Their landlords were usually not large corporations, but older people who invested their retirement savings in a few properties, living in one of them and renting the others out.

This produced three desirable side-effects. The housing was professionally built to standard designs and therefore easy to value; its construction generated jobs; and there was mixed occupancy by tenants, owner-occupiers and landlords, tending to produce both better maintenance of the housing stock and greater social cohesion.

In turn, this efficient market-led process rested on good regulation and financial innovation. Building regulations were set at a level that was appropriate for the level of income rather than being based on some elite notion of ‘desirable’ accommodation. As a result, the building costs of adhering to formal standards were not pushed so high as to induce informality: they could actually be enforced. Second, there was clarity in legal rights. Leaseholders had enforceable title, and could in turn use title as collateral since there was a functioning legal process of foreclosure. Landlords had clear rights to evict tenants for unpaid rent. Formality and legality supported financial innovation. Banks have seldom been able to provide finance for non-elite housing: their administrative costs are too high. Instead, specialist housing finance organizations emerged – building societies – which pulled in deposits from lower-income households and lent them to middle-income households with low risk thanks to the sound collateral, and consequently at long maturities and low margins.

Urbanization in contemporary Africa

In contrast, Africa has bifurcated urban housing. Elite homes are constructed by foreign construction companies using capital-intensive techniques and imported materials. The structures are individually designed, and adhere to OECD building standards, usually inherited from the British 1947 Town and Country Planning Act which was imposed indiscriminately in the colonies. They are financed by savings or by banks. Ordinary people live in informal housing. Their homes have usually been self-built without adherence to building standards (which are unenforceable because they would impose excessive costs), and their design is idiosyncratic. The owners have de facto rights but lack legal title. Similarly, tenancy arrangements are likely to be informally enforced. The investments have usually been self-financed because title is unclear, the property is difficult to value, and low-cost, long-maturity loans are unavailable.

African governments can learn from nineteenth century successes. Building regulations, both for construction and the minimum size of plots, are inappropriately high for the level of income. Evidently, ministries of housing prefer to mimic their international peer group, rather than face reality. The rights over urban land, over foreclosure for debt, and over tenancy are insufficiently clear and enforceable to support low-cost finance. The middle ground between self-build and international construction companies is missing.

Governments can also learn from nineteenth century failures. Public infrastructure for sanitation did not keep pace with housing construction. And although the externalities of urbanization were internalized, they were not socialized. The capital gains on prime urban land that in Britain accrued to the great estates, and in Africa currently accrue to politicians, should be accruing to government.

Housing policy is too important for Africa to be left to ministries of housing.