The Demand for Housing in Developing Countries: Empirical Estimates from Household Data

Abstract

Cities in developing countries are growing at extraordinary rates, often compressing into decades the urbanization process that has taken centuries in developed countries. In coping with this growth, public authorities have devised a wide range of policy instruments to influence the rate and character of city expansion, to meet the needs of people for shelter and urban services, and to allocate resources in ways that redistribute both the costs and benefits of urban growth. Ideally, such policy formulation should be informed by a careful understanding of the behavior of urban markets; in fact, little information on market behavior is available to the policymakers of developing countries. Such basic information is needed for improved project design and, even more important, for improved sector-wide policies. This paper reports on research conducted at the World Bank to increase understanding of developing country housing markets; in particular, of housing-demand behavior. While the overall project examines both the demand for housing characteristics' and the demand for housing as a composite good, this paper addresses only the latter. The objectives of this paper are (1) to review briefly previous evidence on housing-demand parameters in developing countries; (2) to present new evidence on housing-demand parameters based on application of standardized models and comparable variable definitions in 16 cities in eight developing countries (Colombia, Egypt, El Salvador, Ghana, India, Jamaica, Korea, and the Philippines); and (3) to examine similarities and differences among cities in housing demand and, in a preliminary way, offer explanations for place-to-place differences. Limited comparisons are also made to two U.S. cities in order to begin comparison of developing and developed country market behavior.