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Opinion, by Matias A. Sueldo
 
RIO DE JANEIRO, BRAZIL – Facing the World Cup in 2014 and the Summer Olympics in 2016, Brazilian authorities are rushing to deal with the country’s many illegal housing settlements, known locally as favelas.  Nowhere is this more evident than in the Marvelous City of Rio de Janeiro, where authorities and civil society inspired by the Peruvian economist Hernando de Soto have recently made a renewed push for full ownership titling in Rio’s favelas. 
 
Unfortunately, their well-intentioned efforts are wasting taxpayer money by driving gentrification and ultimately the atomization of these long-established communities. The de Soto-inspired titling offensive began in 2009 when the state of Rio de Janeiro amended its constitution to permit the donation of government-owned lands of “social interest.” 

For squatters on private land, the authorities recently created the legal tool of usucapião urbana coletiva (collective urban adverse possession), which allows large groups of low-income urban claimants to file suit together for private land they have possessed for a certain period of time.

Indeed, de Soto’s ideas have become received wisdom not just in Rio but throughout the global development community, and have motivated mass titling programs worldwide.  Reporting on Rio, the New York Times has repeated many of the same hackneyed but untested theories he espoused in the 1990s.

Since then, research by the Lincoln Institute of Land Policy and others across Latin America has challenged many of de Soto’s central claims.  They have found that, in long-established illegal settlements, residents clarify property rights themselves and use community mechanisms to safeguard those rights. 

Legal title adds security only insofar as it prevents eviction by the state which, at least in Brazil, has long since given up on forced resettlement as a generalized policy (although it is still used on occasion).  Such informally-derived security is enough to motivate residents to improve their land and housing units.
 
Furthermore, long-time residents of illegal settlements have been serviced by private utilities, government departments, the police, and civil society organizations – all without official land titles.  Perhaps most fatally for de Soto, residents of illegal settlements have been found to enjoy access to illegal financial markets that do not require official title as collateral.
 
With their money, these residents form an active part of regional land and housing markets.  Transactions in the favela “segment” of those markets simply occur outside official channels.  For this reason, while newly titled neighborhoods have been perceived to undergo rising land and housing values (measured over a “legal” base of nil), the resulting values are generally only somewhat superior to values in the antecedent untitled market segments.

Unsurprisingly, what does drive up values are actual improvements to land, housing, government services, and urban infrastructure – such as those occurring today in Rio de Janeiro.  In Rio, government investments are driving up land and housing values in favelas, and the titling policy is then transferring full ownership rights to residents. 
 
Title holders to this newly valuable property confront what economists call “eviction by the market,” and what everyone else calls receiving an offer you can’t refuse.  As individual title holders succumb and sell their land, entire neighborhoods are gentrified.  There are already some signs that this is occurring, with U.S. and European investors buying up plots in recently titled favelas.  
 
In short, the titling process is adding little public value but driving gentrification. The titling-gentrification process is undermining decades of public money and efforts. Huge public investments are being lost or diverted from the original target populations.   

Displaced families must scatter to low-cost, legal housing available only on the extreme urban periphery.  Once there, they face an unknown community and relatively higher housing and transportation costs (we have already seen this process in America during the destruction of centrally located low-cost housing).  Many families prefer to move to other existing favelas or to start new ones in the urban core close to their original communities and jobs.
 
Without a doubt, longtime favela residents deserve legal title to their land – but two alternatives to the current approach should be considered.  First, the state government could hold ownership of the land and grant residents the right to use it with only limited transfer rights.  This would help preserve existing communities and, most importantly, retain low-cost housing in the urban core.

Alternatively, authorities could complete the titling push but tighten zoning regulations.  Future developers of multi-family residences should be required to build mixed-income housing, with a portion of units reserved for low-income families.  As we have seen in the U.S., this would likely not preserve existing communities but it would keep low-income housing available in Rio’s urban core.
 
Either way, Rio’s titling policy needs to be re-thought before gentrification drives some of its oldest and most vibrant communities to society’s margins.
 
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Matias A. Sueldo completed a dual-degree program at Yale University’s Law School and Harvard University’s John F. Kennedy School of Government.  He wrote his law school thesis on Rio’s favelas.

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