Affordable Housing and Informal Settlements

Informal settlements, often referred to as slums, are a pressing issue in many developing countries, where a significant portion of the urban population resides in inadequate housing conditions. Public-driven attempts to provide decent housing to slum residents have either failed or achieved minimal output when compared to the growing slum population. This has been attributed mainly to the shortage of public funds. However, some urban areas in these countries exhibit vibrant real estate markets that may hold the potential to bear the costs of regenerating informal settlements. This paper sheds light on an innovative hypothesis to achieve slum regeneration by harnessing the real estate market. The study seeks to answer the question “How can urban public policy facilitate slum regeneration, increase affordable housing, and enhance social inclusion in cities of developing countries?” The study approaches slum regeneration from an integrated land economics and spatial planning perspective and demonstrates that slum regeneration can successfully be managed by applying land value capture (LVC) and inclusionary housing (IH) instruments.

Informal settlements are characterized by inadequate housing, lack of basic infrastructure, and poor living conditions. These settlements often emerge as a result of rapid urbanization, where the demand for housing outstrips the supply of formal housing options. The growth of informal settlements is a significant challenge for urban planners and policymakers, as it poses risks to public health, safety, and social cohesion. According to the United Nations, over 1 billion people worldwide live in informal settlements, and this number is projected to increase if effective solutions are not implemented.

Despite the challenges posed by informal settlements, some urban areas in developing countries exhibit vibrant real estate markets. These markets have the potential to contribute to the regeneration of informal settlements by providing the necessary financial resources. The real estate market can play a crucial role in slum regeneration by attracting private investment and leveraging land value capture mechanisms. By harnessing the real estate market, cities can generate the funds needed to improve infrastructure, provide affordable housing, and enhance social inclusion.

The study proposes the use of land value capture (LVC) and inclusionary housing (IH) instruments to facilitate slum regeneration. Land value capture is a mechanism that allows the public sector to capture a portion of the increased land value resulting from urban development projects. This captured value can then be reinvested in public infrastructure and affordable housing initiatives. Inclusionary housing, on the other hand, requires developers to include a certain percentage of affordable housing units in their projects. By combining LVC and IH, cities can ensure that the benefits of urban development are shared more equitably among residents.

To demonstrate the potential of this approach, the study adopts a hypothetical master plan and related housing policy and strategy aimed at addressing housing needs in Kibera, the largest slum in Nairobi, Kenya. Kibera is home to over 200,000 residents who live in inadequate housing conditions. The simulated master plan is complemented with economic and residual land value analyses that demonstrate that by availing land to private developers for inclusionary housing development, it is possible to meet slum residents’ housing needs by including at least 27.9% affordable housing in new developments, entirely borne by the private sector.

The findings suggest that under a robust public-led governance umbrella, market forces can significantly contribute to filling the financial gap to achieve the end of slums by 2050 in coherence with the United Nations Agenda 2030 targets and principles. By leveraging the real estate market through LVC and IH instruments, cities can increase both affordable and market housing in upgraded neighbourhoods, hence enhancing social inclusion. This approach not only addresses the immediate housing needs of slum residents but also promotes long-term sustainable urban development.

The regeneration of informal settlements is a complex challenge that requires innovative solutions. By harnessing the potential of real estate markets through land value capture and inclusionary housing instruments, cities in developing countries can make significant strides towards providing decent housing, enhancing social inclusion, and achieving sustainable urban development. The case of Kibera in Nairobi demonstrates the feasibility of this approach and highlights the importance of public-private partnerships in addressing the housing crisis in informal settlements.

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