Regulation and informal settlements in Brazil: a quasi-experiment approach

Abstract

This paper discusses the relation between urban norms and informality and presents some evidence for Brazil using a quasi-experimental approach. Using a theoretical framework that relates the supply of house elasticity with the urban norms I argue and give some evidence that in developing countries a more stringent urban regulation would generate more informality while in developed countries it is expected to generate higher housing prices. But not all norms have equal impact. Zoning and land parceling norms seem to have a large impact on informal housing formation while the urban perimeter and building codes have small or no effect. This conclusion is strong and there are some important consequences to land policy issues. The findings are consistent with the dual market model presented in the paper and refute the notion that the formal and informal market are completely independent, since in this case we would expect no impact from regulation on the informal market. Also the idea that urban norms are not enforced in Brazil is very much questioned in this study by exactly the same argument.