Formalizing informal homes, a bad idea: The credibility thesis applied to China’s “extra-legal” housing

Abstract

Discussions about informal housing in developing, emerging economies often revolve around the need for prohibition, privatization and formalization. Private title is seen as a guarantee against indiscriminate expropriation leading to tenure security, better access to utilities and mortgage, and higher investments. However, the argument that formalization and privatization out of necessity lead to better rights of otherwise “victimized slum-dwellers” can be questioned. In addition, prohibition of informal housing can marginalize socially weaker groups, while drawing on critical resources for enforcement. We argue that to avoid externalities, one first needs to probe into the perceived function of existing property rights before considering institutional form, irrespective whether formal or informal. China’s extra-legal housing − or “Small Property Rights’ Housing” (SPRH) − is a case-in-point. Extra-legal housing is estimated to account for one-third of the Chinese urban housing stock. In light of this scale, we maintain that extra-legal housing performs a vital function in providing social security, i.e. affordable housing for low(er) income groups. The argument is supported through a survey amongst 300 respondents in 7 medium and large-sized cities. The survey finds that − despite alleged tenure insecurity − SPRH rallies a high level of perceived credibility along three dimensions: economic, social and psychological. Our findings indicate that urban planning and housing policy should consider institutional differences in line with existing functions. In this case, based on the CSI Checklist (Credibility Scales and Intervention), maintaining status-quo or co-optation might be more sensible as credibility is perceived to be high.