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Measuring risk on investment in informal (illegal) housing: Theory and evidence from Pune, India

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  • Kapoor, Mudit
  • le Blanc, David

Abstract

In this paper we analyze a household's decision to invest in informal (illegal) housing in developing countries. Using a simple model of housing supply, we show that the difference in the rates of return on housing investment in the formal and informal sectors reflects the additional risk associated with the latter. Using household survey data from Pune (a large city in India), we estimate this risk premium in the city to be approximately 22%, or 150 basis points. We use our approach to estimate the informal risk premium for cities in other countries based on results from previous studies.

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  • Kapoor, Mudit & le Blanc, David, 2008. "Measuring risk on investment in informal (illegal) housing: Theory and evidence from Pune, India," Regional Science and Urban Economics, Elsevier, vol. 38(4), pages 311-329, July.
    • Handle: RePEc:eee:regeco:v:38:y:2008:i:4:p:311-329
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    Cited by:

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    4. Brueckner, Jan K., 2013. "Slums in developing countries: New evidence for Indonesia," Journal of Housing Economics, Elsevier, vol. 22(4), pages 278-290.
    5. Jan K. Brueckner & Harris Selod, 2009. "A Theory of Urban Squatting and Land-Tenure Formalization in Developing Countries," American Economic Journal: Economic Policy, American Economic Association, vol. 1(1), pages 28-51, February.
    6. Indrawan PERMANA & Yuzuru MIYATA, 2012. "An Urban Economic Model Of Ilegal Settlements In Flood Prone Areas In Palangkaraya City, Indonesia -A Partial Equilibrium Analysis-," Regional Science Inquiry, Hellenic Association of Regional Scientists, vol. 0(1), pages 29-38, June.
    7. Yuzuru Miyata & Hiroyuki Shibusawa & Indrawan Permana, 2014. "Economic Analysis of Illegal Settlements in Flood Prone Areas in Palangkaraya City in Indonesia - A General Equilibrium Approach -," ERSA conference papers ersa14p527, European Regional Science Association.
    8. Brueckner, Jan K. & Rabe, Claus & Selod, Harris, 2019. "Backyarding: Theory and evidence for South Africa," Regional Science and Urban Economics, Elsevier, vol. 79(C).
    9. Yuzuru Miyata & Indrawan Permana, 2012. "The General Equilibrium Model of Illegal Settlements in Palangkaraya City, Indonesia: A Numerical Simulation," ERSA conference papers ersa12p592, European Regional Science Association.
    10. Brueckner, Jan K. & Mation, Lucas & Nadalin, Vanessa G., 2019. "Slums in Brazil: Where are they located, who lives in them, and do they ‘squeeze’ the formal housing market?," Journal of Housing Economics, Elsevier, vol. 44(C), pages 48-60.
    11. Samwel Alananga, 2017. "The value of formal titles to ownership in residential property transactions: Evidence from Kinondoni municipality Tanzania," ERES eres2017_19, European Real Estate Society (ERES).
    12. Celhay, Pablo & Undurraga, Raimundo, 2022. "Location Preferences and Slums Formation: Evidence from a Panel of Residence Histories," Regional Science and Urban Economics, Elsevier, vol. 97(C).
    13. Niu, Dongxiao & Sun, Weizeng & Zheng, Siqi, 2021. "The role of informal housing in lowering China’s urbanization costs," Regional Science and Urban Economics, Elsevier, vol. 91(C).

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