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DO URBAN LAND REGULATIONS INFLUENCE SLUM FORMATION? EVIDENCE FROM BRAZILIAN CITIES

In this paper, we examine the effects of land use zoning and density regulations on formal housing supply and slum formation across Brazilian cities between 1980 and 2000. In particular we look at the performance of cities that have lowered land subdivision (minimum lot size) regulation from the federally mandated 125 m. We develop a model of formal housing supply and slum formation where population growth is endogenous and household migration decisions are influenced by inter city variations in land regulations. We find that the elasticity of formal housing supply in Brazil is very low, and comparable to those found in Malaysia and South Korea, which have highly regulated housing markets. Our analysis of land regulations shows that (a) general purpose zoning and land use planning improves performance of the housing market and stimulates formal sector housing response, thereby reducing slum formation; (b) lowering minimum lot size regulations increases housing supply but is also accompanied by higher population growth. We find that population growth is faster than the formal housing supply response, leading to an increase in slum formation. This suggests that policies that aim to reduce barriers for access to land need to be accompanied by instruments that relax pre-existing distortions in the land market. In the absence of these measures, pro poor land regulations may in fact exacerbate the slum formation problem. 1 This research has been funded by a World Bank Knowledge for Change (KCP) program grant “Dynamics of Slum Formation and Strategies to Improve Lives of Slum Dwellers.” The findings reported in this paper are those of the authors alone, and should not be attributed to IPEA or the World Bank, its executive directors, or the countries they represent. We thank Mila Freire for helpful comments. Author for correspondence: Somik V. Lall; Senior Economist, Development Research Group, The World Bank. Email: slall1@worldbank.org.