Slum Dwellers’ Property Rights

The Minister for Housing and Urban Poverty Alleviation, Kumari Selja, recently outlined what she says are the four key components of the Draft Model Property Rights to Slum Dwellers Act, 2011.

1. The Act states that every landless person living in a slum area in any city or urban area (on a date to be specified by the State Government) shall be entitled to a dwelling space at an affordable cost;
2. Every Slum dweller shall be given a legal entitlement, which shall be in the name of the female head of the household or in the joint name of the male head of the household and his wife;
3. The dwelling space so provided shall not be transferable but shall be mortgageable for the purpose of raising housing loan;
4. It provides for the establishment of City / Urban Area Slum Redevelopment Committee for carrying out functions specified under the Act and the establishment of a State Slum Redevelopment Authority to continuously monitor implementation of the Act and to recommend corrective measures wherever necessary.

It is encouraging that the government is taking seriously the idea of extending property rights to tens of millions of the poorest Indians, and there are elements of the Act that are positive. But there are also some real problems with the way in which the current draft model legislation addresses the problem.

First, the good. The Act would give every slum dweller a legal title to property. The fact that the legislation recognises the importance of property rights and seeks to extend those to the poorest demonstrates real wisdom. Rather than just providing housing, the Act confers ownership. And property that is owned is a powerful thing. It can be mortgaged to raise funds, as the Act clearly lays out (though it limits that to housing loans). It can be sold so that other property can be purchased (though this act wouldn’t allow that for the first seven years). It can be transferred from parents to children. And ownership also encourages long term thinking. When I own the land I’m living on, I want to make sure it is well taken care of so that its value increases. I have an incentive to pick up the trash, make improvements to the buildings, and discourage criminal activity in the neighbourhood. Areas full of people who own their property improve over time; areas where people do not own the property on which they live disintegrate.

The major problem with the legislation is that it seeks to provide all slum dwellers with a home of at least 25 sq. meters and that meets certain standards in terms of water, sanitation, etc. This sounds great, but it raises lots of questions. Where is the government going to find all these houses? Who is responsible for building them? Why 25 sq. meters rather than 20 or 30? What if the family’s circumstances change and they need to leave? Or what if they would rather live in a smaller house and free up some of those resources to buy a sewing machine or tools so they can work to raise themselves above subsistence?

A better strategy would be to give slum dwellers title to the property that they, in practice, already own. Go into a slum and everyone knows what belongs to whom. There are whole systems of informal rules — economist Hernando de Soto calls them “extralegal” — that already exist within those communities and govern people’s interactions with each other. This includes property. If the government could tap into those systems and formalise slum dwellers’ ownership of their property, then they would empower the very poor to use that property to its full potential. That may not look like 25 sq meters of living space for every family, but it will give the poor the power to use their property, together with the skills and creativity that they possess, to make a better life for themselves and their children.

A system that tells people the government is responsible for their housing and specifies exactly the type of housing to which everyone is entitled, ultimately disempowers the poor. It puts the government in control, allowing officials to make decisions about what families need rather than giving people control over their own lives. A system that instead extends formal property rights where informal ones already exist, is a much more empowering system. Moving that “extralegal” property into the legal sphere will be difficult and messy, but it is ultimately the best way to empower the poor to help themselves.