Building the city: urban transition and institutional frictions

Anthony Venables, J. Vernon Henderson and Tanner Regan

No 11211, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We model a growing city and calibrate the model with data on Nairobi, focusing on investment decisions and the evolution of the built environment over time and space. We distinguish between formal and informal (slum) sector construction. The former can be built tall, but structures once built are durable and cannot be modified without complete demolition. In contrast, slum structures are malleable and do not involve sunk costs. As the city grows, areas will initially be developed informally and then formally; formal areas are redeveloped periodically. This process can be hindered by formalisation costs of converting slum to formal sector usage. The size, shape and appearance of the city are sensitive to formalisation costs which vary by location and result in a hotchpotch of developments. In the empirics, we analyse Nairobi for 2003/4 and 2015 using unique data and develop a novel set of facts about the evolution of the built environment. Built volume in the core part of the city increases by 50-60% over 11 years driven by increased height of redeveloped buildings. We calibrate the welfare cost of delayed formalisation. We find that, in the older slums nearer the city centre, even after paying slumlords for the value of their land in perpetual slum use, formalisation would bring a gain of about $13,000 per slum household, in a context where slum households spend about $260 a year on housing.

Keywords: City; Urban; Urban growth; Slum development; Urban structure; Urban form; Housing investment; Capital durability (search for similar items in EconPapers)
JEL-codes: O14 O18 R1 R3 (search for similar items in EconPapers)
Date: 2016-04
New Economics Papers: this item is included in nep-iue and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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Related works:
Working Paper: Building the city: urban transition and institutional frictions (2019)
Working Paper: Building the City: Urban Transition and Institutional Frictions (2016)
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