Do land use regulations help give rise to informal settlements? Evidence from Buenos Aires

Cynthia Goytia, Eric J. Heikkila and Ricardo A. Pasquini

Land Use Policy, 2023, vol. 125, issue C

Abstract: This paper examines how land use regulations applied in the formal sector can influence housing outcomes in both the formal and informal sectors, using metropolitan Buenos Aires as our case study. In particular, it addresses the question of whether land use regulations may contribute to the presence of informal settlements by restricting opportunities in the formal sector. In this context, the contributions of this paper are several-fold. Our theoretical model provides a direct test of a crowding-out hypothesis by which binding land use regulations limit the absorptive capacity of the formal sector, thereby creating spillovers into the informal sector. The base model is also extended to accommodate two alternative adjustment mechanisms whereby households relocate either to municipal jurisdictions with more suitable land use regulations (the Tiebout mechanism) or to locations further from the city center where land costs are lower (the Alonso mechanism). We also employ two distinct yet complementary datasets. First, we conducted a survey of representative households living in informal settlements and in nearby formal areas. The other dataset is derived from an innovative merging technique applied to the Census and the National Expenditure Survey (ENGH) of Argentina. Notwithstanding their rather distinctive approaches, both methods yielded similar results. At an empirical level, our findings confirm the existence of a rent premium for accessing the formal housing sector, consistent with our model predictions. Our results also show a strong interconnection between infrastructure provision and housing outcomes, which underscores the important role of infrastructure both in delineating formal sector housing developments and in delivering essential housing services, broadly defined. While we find clear evidence of the Alonso mechanism, our empirical findings suggest that the Tiebout adjustment mechanism may not be fully realized in metropolitan Buenos Aires due to lack of variability in land use regulations across local jurisdictions – there is little incentive for a household in one jurisdiction to relocate to another jurisdiction if land use regulations there are no different.

Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:lauspo:v:125:y:2023:i:c:s0264837722005117

DOI: 10.1016/j.landusepol.2022.106484

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