Policy Research Working Paper 9580 Titling and Beyond Evidence from Dar es Salaam, Tanzania Alexandra Panman Nancy Lozano-Gracia Urban, Disaster Risk Management, Resilience and Land Global Practice March 2021 Policy Research Working Paper 9580 Abstract Land titling has been a policy priority for developing coun- study city—Dar es Salaam, Tanzania—to show that in cities try cities for decades. In Sub-Saharan Africa and across the where broader property rights institutions are incomplete world, tenure formalization has been promoted as a tool to and informal sources of tenure security are strong, formal improve the quality and value of urban housing. The track property rights may not be valued by households. This raises record of these projects, however, has generally been disap- questions about the households’ willingness to pay for reg- pointing. Why is this? This paper argues that project design ularization and suggests that complementary strategies to has paid too little attention to contextual features of land build trust in government and consolidate public benefits markets in estimating the benefits of formalization to indi- of titling will be needed to ensure that projects have a ben- vidual households. The paper draws on evidence from a case eficial impact. This paper is a product of the Urban, Disaster Risk Management, Resilience and Land Global Practice. It is part of a larger effort by the World Bank to provide open access to its research and make a contribution to development policy discussions around the world. Policy Research Working Papers are also posted on the Web at http://www.worldbank.org/prwp. The authors may be contacted at nlozano@worldbank.org. The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the views of the International Bank for Reconstruction and Development/World Bank and its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent. Produced by the Research Support Team Titling and Beyond: Evidence from Dar es Salaam, Tanzania Alexandra Panman (University College London) Nancy Lozano-Gracia (Sr. Economist, World Bank)1 Keywords: Land Titling – Dar es Salaam – Tenure formalization – Property Rights JEL: O12, O18, R38, R52 1 The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the views of the International Bank for Reconstruction and Development/World Bank and its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent. The authors are grateful to Christopher Adam, Douglas Gollin, Diego Sanchez-Ancochea, Joachim de Weerdt, Mary Grace Weber, and Victoria Stanley for comments on early drafts of this paper, as well as comments from participants of the University of Gothenburg’s Annual Conference on Governance and Local Development. The data used in this paper was collected under the World Bank’s Spatial Development of African Cities work, with support from the UKAid through the Multi-donor Trust Fund on Sustainable Urban Development (TF071544).. Alexandra Panman gratefully acknowledges funding from the UK’s Economic Social Research Council and St. John’s College, Oxford. Introduction Titling has been a policy priority since the mid-1990s at least (Buckley and Kalarickal 2005; Payne and Durand-Lasserve 2012). Since this time, property formalization initiatives have been a continuous feature of the portfolios of bilateral aid agencies and international organizations. Projects to provide titles to informal households have been implemented all over the world, and in at least 23 countries in Africa alone (Ali et al 2015). 2 What do policy makers expect titling can do? The case for titling was perhaps most famously made by Hernando de Soto, who linked property formalization to access to credit. In much of Sub-Saharan Africa, however, credit markets are underdeveloped. In these contexts, there may be a vicious cycle and expectations that titling alone can result in improved access to credit are muted (Buckley and Kalarickal 2006; Payne and Durand-Lasserve 2012). Instead, proponents of titling link formalization to improved housing quality and poverty reduction objectives through two key channels: increased tenure security and reduced property transaction risks. Informally owned property is generally expected to be less secure than property where ownership can be upheld by legal documentation. This higher insecurity, in turn, is logically linked to lower investment in housing. As Payne and Durand-Lasserve (2012) stated in their report to the UN Special Rapporteur on adequate housing, it “is undeniable that perceived security of tenure is widely accepted as a precondition for households to invest in house construction or improvements” (Payne & Durand-Lasserve 2012, p.46). Many therefore suggest that there is a causal link between informality and housing quality, and that the provision of title deeds to informal owners can stimulate a process of increased investment in housing. Informal property is also thought to be more difficult to transact than formal property. Lack of legal documentation will make the process of buying and selling property opaque and riskier than for formal property. This can be understood as higher transaction costs, which dampen the value of the assets (UN-HABITAT 2013; Becker and Morrison 1999; Collier 2017). As such, informal property is expected to trade at a discount relative to formal property. 3 Formalization is therefore anticipated to increase the value of the assets held by the poor, and the impact of titling projects is often measured in property price appreciation (Field and Kremer 2006). 2 It is notable that property rights were accorded an important role in attaining the only specifically urban Millennium Development Goal (target 11), and feature prominently in the preparatory documents for Habitat III - the Issue Paper on Urban Land’s first ‘Key Driver for Action’ is: “Secure tenure rights of people and communities as a means to achieving sustainable urban development” (UN-HABITAT 2015). 3 Lanjouw and Levy (2002) set out the rationale neatly: a risk neutral household will not buy a property unless the price of the property is less than the utility it derives from the property multiplied by its expectation of being able to keep the property. Only households that are close to the seller (such as friends or family) can have sufficient information on the nature of the informal rights that the seller holds to properly assess the security of their claim. Given these information constraints, the uncertainty cannot be accommodated to mutual satisfaction of the buyer and the seller by adjusting the price of the property. Formal titles remove this uncertainty, and thereby increase the pool of potential buyers to include strangers. 2 In addition to these potential benefits for informal households, titling projects may also have wider social benefits. Formal rights are often seen as a precondition for the development of land cadastres that are linked with property tax registries. Property tax can be an important source of funds for public goods in urban areas, and an accurate cadastre can save costs in public infrastructure planning and implementation. Land cadastres are also essential for wider sustainable land management systems, including planning expansion of infrastructure and service provision and to adapt to climate change-related challenges as well as to shape effective development controls to prevent urban expansion into hazardous areas. The track record of urban land titling initiatives to date has, however, been ambiguous. Evaluations tend to focus on the individual benefits of title, for which the combined evidence base is inconclusive at best. There are a number of well-known cases in which positive outcomes have been documented. For example, Erica Field’s research in Peru finds that titling resulted in increased investment in housing, as well as other indicators of improved tenure security such as increased participation in work outside of the house (Field 2005, 2003, 2007). Yet there are counter-examples of projects that fail to achieve expected improvements and in some cases, titling efforts appear to even be associated with increased tenure insecurity (Durand-Lasserve and Selod 2009; Payne, Durand-Lasserve, and Rakodi 2009; DFID 2002). In Sub-Saharan Africa, most projects have failed to make it beyond pilot stage (Ali et al 2015), raising the question of whether there are unobserved factors that influence the likelihood of projects being adopted and scaled successfully. Furthermore, long term evaluations are often lacking, and hence the question remain as to what extent the inconclusive results of many studies or evaluations are due to the fact that capitalization of changes driven by increased tenure security are long term processes and hence cannot be observed in the short term. In this paper, we shed new light on this debate by exploring how the broader context of land and housing markets may matter for achieving expected outcomes of titling projects. Because land markets are subject to imperfections and inefficiencies, if projects are designed without taking them into account, the results may be less than optimal. Further, complementary efforts and investments may be necessary to ensure that the final objective is achieved. For example, institutional arrangements such as accessible public records to overcome information failures and effective court systems to uphold contracts are vital to ensure the fluidity of land markets. In developing country cities, these institutional structures are often incomplete and if titling efforts are implemented alone, they may fall short to create the expected changes. Other structures, such as informal or customary tenure security arrangements, may operate in their place. Although these institutional arrangements are relatively under-studied in property market analysis, there is a strong theoretical case to anticipate that they may impact the value households assign to titling. For one, formal documents of property ownership are unlikely to hold the same value in contexts where there is widespread corruption and lack of confidence in administrative records as they would in places where there is high trust in formal institutions (Platteau 2000, 145–47). Equally, where informal ownership is sufficiently well established such that there are also informal mechanisms for enforcing rights and individuals do not fear loss of their assets, one might anticipate that the risks associated with informal transactions are perceived, and may in fact be, lower. If strong informal institutional arrangements to 3 support informal transactions exist, the relative difference in risk between formal and informal transactions may be smaller than theory would predict. 4 In this paper, we examine the case of Dar es Salaam, Tanzania. Like in many Sub-Saharan African cities, Dar es Salaam is marked by widespread informality of tenure and the absence of foundational property rights institutions such as accurate and accessible public records on land ownership. We ask: is it reasonable to expect that in this context a formal title will be associated with higher quality housing and a real estate premium? Ultimately, will households support a national or local program of property formalization and most importantly, will they be willing to pay to acquire the rights to the property they live in? In order to answer these questions, we analyze differences in the formal and informal stock of housing in the city and measure the value that households place on formal documentation using a hedonic price model. The findings show that there are few observable differences in levels of perceived tenure insecurity and housing quality across formal and informal households and indicate that there is no market premium for holding formal tenure documentation. This likely reflects the influence of local institutional frameworks for land and housing markets and suggests that design of potential project benefits of titling needs to pay much more attention to the specific environment in which the intervention is being applied as well as to complementary measures that can be taken to complement the intervention. Motivation Dar es Salaam is the largest and most economically important city in Tanzania (UN Habitat 2009). According to the 2012 census, the city is home to a population of 4.4 million over a landmass of 1,393 square kilometers. It is one of the fastest growing cities in Sub-Saharan Africa, and current estimates put the population at over 5 million (Jones et al. 2016). As with many other cities in the region, Dar es Salaam is marked by tenure informality, which has been identified as a policy priority at both local and national levels. 5 Indeed, recent research highlights that urban policy is dominated by a “binary conceptualisation extralegal and legal, formal and informal and an understanding that extralegal must become legal and emerge from the ‘shadows’ in order to achieve development” (Campbell 2013 p498). In targeting tenure informality, local and national authorities in Dar es Salaam have drawn on support from international development organizations including bilateral agencies, the World Bank, and Hernando de Soto’s Institute for Liberty and Democracy. None of these projects has developed beyond pilot projects (USAID 2010). As with many titling projects across the world, these outcomes may be attributed to implementation challenges. Yet project evaluations also indicate that demand for titles is weak among informal households. Using data from a Randomized Control Trial (RCT), Ali et al (2014) estimate that even if the price 4 Although it is widely acknowledged that informal sources of tenure security exist, and that some cities have large informal land markets, there is only a small literature that seeks to understand how these markets operate in practice. A recent example is Birch, Chattaraj, and Wachter (2016). 5 Urban development is one of the two main pillars of the Mkukuta II national poverty strategy. This strategy stresses: (I) development of settlement plans, land surveys and gender-balanced issuance of land titles; (ii) establishment of land reserves in peri-urban areas; (iii) regularization of unplanned settlements; and (iv) capacity- building for local leaders, including education and awareness-building on land rights, obligations and women’s rights (USAID 2010). 4 were reduced to 20 percent of the cost of issuing a title deed, less than 50 percent of eligible households would purchase it. 6 This raises questions about whether uptake is limited by low perceptions of the benefits of titles in the city; a question also raised by a previous titling project evaluation by the Norwegian Agency for Development Cooperation (USAID 2010). As discussed above, the benefits of title are often understood in terms of access to credit, improved tenure security and housing quality, and improved transferability of property. Mortgage markets in Dar es Salaam are underdeveloped, and recent evaluations of titling projects have noted no impact of formalization on access to credit (Collin, Sandefur, and Zeitlin 2015; Parsa et al. 2011). 7 These results are in keeping with established theoretical expectations about the impact of formalization in contexts where credit markets are incomplete (e.g. Dasgupta and Lall 2006). What about the anticipated benefits of improved security of tenure and transferability of property? How sound is the case that titling will lead to improvements in quality of housing and its benefit capitalized in property values? In practice, the relative benefit of title depends on both the functioning of formal and informal property rights systems. As in many Sub-Saharan African cities, formal property rights institutions are incomplete in Dar es Salaam. Processes to resolve land disputes are time consuming and costly (Kironde 2000; Pedersen 2013). Formal land records are thought to be out of date and are not publicly accessible. Corruption may be widespread: data on perceptions of corruption collected through the Afrobarometer survey in 2014 show that 35 percent agreed with the statement that most/all judges are corrupt, while 50 percent agreed with a similar statement about the police, and 25 percent for government officials. 8 As such, in many cities in the region, ownership claims certified by formal documents are not beyond dispute (Collier and Venables 2017). In addition to this, there is reason to believe that informal institutions to support informal property transactions exist. Most property in the city is informal, but it was not acquired through invasion or squatting (Kironde 2006, 2000; Kombe 2005). Instead, most land is purchased through informal channels, often witnessed by influential local figures and even local authorities (Kombe 1994; Kombe and Kreibich 2001; Kombe 2005). Although these authorities do not have any official capacity to administer land transactions, qualitative research indicates that informal owners express high levels of security in their tenure (Kironde 2000; Kombe and Kreibich 2001; Moyo 2006). 6 The full cost of the title in the RCT was 100,000 shillings. The design of the RCT included various voucher discounts. The estimated demand curve shows that predicted take-up at mean values of the socio-economic controls was 20 percent. The take up rises to 45 percent at a price of 20,000 shillings (Ali et al. 2014). Affordability is likely a consideration – at full cost, title represents just under one third of the median household monthly income in the sample – yet the authors find that price sensitivity does not vary much with income. It is further worth noting that participants in the RCT received information on the benefits of titling from the local partner NGO that was implementing the project. As such, it is possible that demand among households that lack information on the potential benefits of titling may even be lower. 7 It is notable that in Dar es Salaam only 3 respondents in the entire MLSC survey stated that they had made any kind of mortgage payment in the last 30 days. Indeed, Tanzania has one of the smallest mortgage markets in East Africa (Jones et al. 2016). 8 2017 data shows an improvement on these scores. The 2014 results are reported as they coincide with the timing of the MLSC survey. 5 In this paper we therefore explore whether there are indeed observable relationships between property formality, security, and values. To this end, we draw on data from the Dar es Salaam Measuring Living Standards in Cities (MLSC) survey. Data Overview The MLSC survey is a new instrument designed to enhance understanding of cities in Africa and support evidence-based policy design. The instrument was developed under the World Bank’s Spatial Development of African Cities Program. It was piloted in Dar es Salaam between November 2014 and February 2015. The data is available online through the World Bank’s data catalogue. A number of innovations in both the sampling strategy and questionnaire design were introduced in order to explore questions relevant to understanding living standards in urban areas, including the relationship between informality of tenure and housing values and quality. It is widely anticipated that location within cities is important for access to a range of amenities and opportunities. The MLSC survey was thus designed in order to be able to explore locational attributes. It is geo-referenced and provides information on urban living standards at an unprecedented level of granularity. Moreover, the survey sample was stratified to be representative for four different areas in the city in order to allow comparison across different geographic areas within the city. Specifically, the city was divided into concentric circles to facilitate comparison between the city center, the ‘consolidated core’, and the periphery of the city. In addition to this, satellite imagery was used to differentiate across different patterns of settlement in the city. Using a semi-automated algorithm, the team was able to classify enumeration areas (EAs) as either having a regular, planned layout or irregular ‘shanty’ characteristics. 9 As indicated in Figure 1, most of the irregular EAs were located in the center of the city. As such, the central stratum was then further divided into ‘regular’ and ‘irregular’ areas in the sampling, in order to allow for comparison across the two. Figure 1: Sampling stratification by distance to city center and location of irregular or ‘shanty’ areas according to satellite classificatio 9 The variable ‘irregular’ is defined by using a semi-automated algorithm to classify areas based on their textural and structural composition, as detected from satellite images. The algorithm classifies enumeration areas based on their physical characteristics, such as how tightly packed the roofs are, the angle of rooftops, and amount of surrounding vegetation. The methodology has been proven effective in a number of cities across the world. Further details of the classification for Dar es Salaam can be found in Antos, Lall, and Lozano-Gracia (2014). 6 In total, close to 2,000 households were interviewed. In this paper we focus our analysis on owner-occupier households, who account for about one-third of this sample. Renters are not included in the analysis, as land titling policy and research is almost entirely silent on the topic of rental housing. 10 This is an important omission in the literature, as it is likely that renters make up a significant portion of residents in developing country cities (Marx, Stoker, and Suri 2013; Gulyani and Talukdar 2008; Baker and Schuler 2004). We therefore explore the experience of Source World Bank 2016 renters in depth in an accompanying paper forthcoming). The survey questionnaire was carefully phrased and tested to capture sensitive data on housing values and formality of property ownership. Household survey data has long been used to analyze housing values in contexts where official data on housing transactions does not exist. There are, however, challenges in ensuring the accuracy of these data. For example, surveys often ask homeowners to estimate the rental value of their property. Yet this assumes knowledge of rental markets and may arouse suspicion about the motivation of the question (anecdotal evidence suggests respondents may interpret it as interest in renting the property). After careful testing, the MLSC questionnaire was therefore modified to ask: “If a friend of yours wanted to buy a property like this in the same neighborhood, how much would he/she have to pay?”. This phrasing was also designed to minimize any endowment effect in responses. 11 The data must nonetheless still be used with caution. Challenges to accurate valuation remain, particularly as some households may simply lack knowledge of housing values in their area. Salue estimates provided range widely, yet it is notable that in keeping with theoretical expectations, prices decline with distance from the city center, as depicted in Figure 2. This graph also shows rental values paid by renters, as a point of comparison, which are more straightforward to collect as it is a value that renters pay with some regularity. 10 Indeed, the housing literature on developing countries in general has remarkably little to say about rental housing (Gilbert 1991; Campbell 2013). One of the few examples of research that includes rental tenure in exploring the theoretical impacts of tenure formalization is Lanjouw and Levy’s (2002) research that draws on data from informal settlements in Peru. Its notable, however, that they only explore how titling could increase the supply of rental housing, based on the assumption that housing without formal tenure cannot be rented out. 11 Drawing on lessons from behavioral economics and psychology, we can anticipate that people often ascribe more value to things merely because they own them. 7 Figure 2: Weighted Average of Estimated Sale and Collecting data on the Rental Prices by Distance to City Centre formality and security of property ownership also requires careful design. Informality is an umbrella term that covers a wide range of ideas, but it has become standard practice in the titling literature and in policy research to classify households as ‘informal’ if they lack legal tenure to prove ownership claims. This reflects the theoretical a dichotomy between formal, NB Prices have been converted into USD using an average of the ‘legal’ market transactions and official exchange rate over the time of the survey those that are instead framed (1USD:0.000455TSH). by social norms and occurs outside of ‘legal’ exchange (UN-HABITAT 2013). Tanzanians often describe themselves as ‘owning’ their property if they have inherited or paid for it. Legally, however, the President owns all the land. Citizens are granted legal recognition of the right to occupy general land for residential use through a Certificate of Right of Occupancy (CRO), which last for between 33-99 years. In order to qualify for a CRO, land must have been surveyed and be located in an area allocated for residential use in a town planning drawing (Moldrop Wolff, Kuch, and Chipman 2018). As indicated in Table 1, only 4 percent of households that define themselves as owning their property say that they have a ‘Certificate of Right of Occupancy’ (CRO). CROs are not, however, the only form of legal recognition for property. Existing qualitative research suggests that it is not uncommon that households fail to complete or renew the paperwork required have a CRO, despite being eligible for them. This may in part reflect the lengthy delays that were associated with processing these forms in the past (Kironde 2006). 12 These households may nonetheless possess other documents that can be taken as an indication of eligibility for CRO and may thus have implications for both households perceptions of the formality of their property and their capacity to assert their claims in court. As such, following consultation with land office officials as well as trials of the survey instrument, the MLSC survey asked households to identify if they had any of the six forms of 12 World Bank Doing Business indicators suggest that the costs and time to process formal documents have been reduced in recent years. Yet it is likely many eligible households still do not have the full legal documentation. Indeed, it is notable that in February 2017, adverts for mortgage finance from the FNB bank were visible in various locations in Dar es Salaam claiming that applicants can secure a loan within three days, and that “we’ll even get you the title deed” (in Swahili and English). 8 documentation of property ownership set out in Table 1. 13 As indicated in this table, we find that 40 percent of households have at least one form of these documents. We therefore classify 60 percent of owner-occupied households as ‘informal’, on the basis that they do not have any formal documents of tenure in the analysis that follows. Where relevant, we also present results comparing the findings if formality is defined on the more restrictive category of possessing full CRO or title deed. Table 1: List of Documents Households say they Formality of tenure is linked to Possess improved housing outcomes through Document type % anticipated effects on security of Certificate of Right of 4% tenure. In order to test this Occupancy relationship, however, we must also Title deed 13% capture a measure of tenure security Inheritance letter 5% directly. There is no single authoritative Traditional Right of 1% way of doing this. The most commonly Occupancy used metric is households’ self- Settlement permit 15% assessed risk of property being taken Letter of allocation 10% away without their consent. This is Total at least one formal* 40% arguably the most useful measure * households can possess more than one document. because household investment decisions are shaped by perceptions of security. As Lanjouw and Levy stress, even “if perceived security differs systematically from actual security, it is perceptions that give us the better variable for understanding utility” (Lanjouw and Levy 2002, 999). In the MLSC survey households were therefore asked to state whether they felt concerned about having their property taken away from them without their consent. 14 In response to this, one-fifth of households surveyed express some degree of concern. We classify these households as insecure. The survey further captures key features of housing characteristics and amenities (Table 3). These variables help us to build a picture of the quality of housing in the city, but also to disaggregate features that influence housing values. Thus, we are able to distinguish between properties based on the type of building, its age, and size (measured both in terms of the number of rooms and an estimate of roof area based on satellite imagery). We can also identify 13 The MLSC also asked households if they had a ‘Sales Agreement’. This category was not included in the final list of formal documents of tenure however. This is because – although a notarized Sale Agreement is a formal document required for the transaction of property with other forms of documentation – the questionnaire was ambiguous in its wording that it referred to an official contract, given that many people in Dar es Salaam record informal sales with an informal agreement between the interested parties. Since households with a formal, notarized Sale Agreement are also likely to have another form of documentation, households that indicated they only have a Sale Agreement were classified as informal. It should also be noted that the list of formal documents did not include temporary residential licenses (valid for 2-5 years), which were introduced as a pilot scheme in 43 wards in 2005. Just over 200,000 households that were made eligible for the licenses in the first phase of this scheme, but less than half (44.5%) had taken them up by 2012, and the second phase has yet to be rolled out (Sheuya and Burra 2016). Assessments of tenure security to date suggest that there is little reason to expect that these temporary licenses impact tenure security (Collin, Sandefur, and Zeitlin 2015; Moyo 2006). 14 Households categorized themselves as either ‘not concerned’, ‘a little concerned’, or ‘very / extremely concerned.’ 9 whether the house has amenities such as access to electricity from the utility company, connection to water or sewage mains, and whether the property is serviced by public garbage removal services. We use these variables to ‘unbundle’ the value of properties in hedonic price analysis, allowing us to explore not only price premiums associated with each of these amenities but also to test whether there is a price premium for formality of tenure. Table 2: Definition of Variables Variable Definition Obs Mean SD Min Max . ln_sale Dependent variable, log of 799 16.85 2.11 9.21 21.42 estimated sale value of house (TSH). Tenure variables Formal Dummy variable that takes on the 811 0.40 0.49 0 1 value of 1 if the household has any of 6 legally recognised documents of ownership Title Dummy variable that takes on the 811 0.16 0.36 0 1 value of 1 if the household has either title deed or CRO Insecure Dummy variables that takes the 811 0.22 0.41 0 1 value of 1 if the household expresses any degree of concern that their property may be taken away from them without consent H ousing characteristics and amenity variables House Dummy that takes on value of 1 if 811 0.84 0.37 0 1 the property is a detached house (rather than a semi-detached house or flat) Prop_age Number of years since the 811 12.69 10.21 1 65 property was first built. For missing values (111 observations), the median property age for the strata was imputed. Prop_age Prop_age squared, to account for 811 265.32 459.36 1 4225 2 possible ‘vintage effect’ of property Mains Dummy variable that takes the 811 0.36 0.48 0 1 value of 1 if household is connected to either piped water or sewage system Electricity Dummy that takes the value of 1 if 811 0.57 0.49 0 1 household is supplied electricity by the utility company 10 Garbage Dummy that takes the value of 1 if 811 0.44 0.50 0 1 household garbage is collected by the municipality Concrete Number of roof, floor, and/or 811 1.95 0.42 0 3 roof that is made of concrete. Rooms The number of rooms the 811 3.64 1.61 1 15 household occupies Sublet The number of rooms that the 811 1.12 2.37 0 22 household sublets to tenants Roof_area The estimated roof area (calculated 798 112.02 86.55 4 1044 from satellite imagery) Locational attribute variables KM_cbd Measure of distance from the city 798 15.50 8.53 0 35 center, rounded to 0.5 kilometers. Irregular Dummy that takes the value of 1 if 811 0.21 0.41 0 1 the house is located in an ‘irregular’ EA, as identified by satellite imagery How do formal and informal houses compare? In this section we explore broad trends in the quality of housing across formal and informal properties with descriptive statistics. We test the hypothesis that formal property owners face greater security of their assets and live in higher quality housing than informal households, as theory would predict. The results are summarized in Table 2, which shows that although there is some observable difference in terms of location and age of the housing stock, the differences in security of tenure, quality of building materials, and access to services are surprisingly small. As discussed above, in Dar es Salaam, one-fifth of households surveyed express some degree of concern that their property may be taken away from them without their consent. Notably, the proportion of informal households that feel insecure regarding their property rights is less than 5 percentage points greater than formal households. Why is this? Insecurity of tenure in Dar es Salaam is largely driven by concerns over expropriation from the state. The vast majority of insecure respondents (170) stated that they worried about government expropriation. That fear of expropriation is not strongly tied to tenure formality is likely the outcome of provisions for expropriation under Tanzanian law, which do not distinguish between houses on the basis of formal tenure. Indeed, the Land Acquisition Act (1967) and Land Act (1999) maintain the President’s role as custodian of all land landowners are compensated, regardless of formal tenure status: “it does not matter whether they are registered or not provided they are recognized locally as the owners” (Kironde 2009, 14). 15 15 Even properties in surveyed areas can be expropriated, and there are examples of politically influential figures whose properties have been expropriated. Indeed, it is worth noting that in October 2017 the 11 Although high levels of concern over expropriation are to be expected, economic theory would lead us to anticipate that people would also be concerned about conflicts with other citizens. This is not the case. Only 10 survey respondents expressed worry that they might lose their property to a relative, and one spoke of fear of a money lender/ bank. These findings are at odds with theoretical expectations, but they align with insights from existing research in the city, which highlights that informal households do not express high levels of tenure insecurity as there are strong informal institutional arrangements to secure tenure even in the absence of titles (Moyo 2006; Kombe 2005; Kombe and Kreibich 2001). Recent work explores how these arrangements work and what their implications are for the functioning of the market (Panman, forthcoming). Perhaps the strongest indicator that there is little variation in the levels of insecurity among formal and informal households is that there is little observable variation in the quality of building materials across these residences. As indicated in Table 2, formal houses are larger in terms of number of rooms, the difference in the mean roof size, which is used as a proxy for property size in squared meters, is not significant. Furthermore, we do not see a clear pattern between formality of tenure and building height, as is often anticipated. Figure 3 shows that while most buildings are one story high (97 percent), there is a mix of tenure status among both single level and multi-story buildings. 16 Figure 3: informality and building height Informality is often also tied to lower access to public services. Overall, service deficits are high in Dar es Salaam. Indeed, it has been well documented that water and service delivery is marked by technical challenges such as fragmented planning, poor management of services, deteriorating infrastructure, and simply inadequate levels of ground water supply to meet current levels of demand (Pastore 2015; Jones et al. 2016; de Waal and Cooksey NB these figures chart data on building heights for 533 owner-occupied 2008). Existing qualitative households. research in the city suggests that households with informal tenure face similar challenges in accessibility as those with formal tenure (Andreasen and Moller-Jensen 2016; Burra 2004). The MLSC survey shows that Tanzanian Minister of Lands himself was reported to have demolished a 3-bedroom house he owned in Arusha to make way for a road. 16 We do not have information on building height for all houses in the survey, as the decision to record building heights came once listing had already begun. 12 the difference in the proportion of formal and informal households with access to mains water and sanitation is less than 7 percent across the two groups. Informality is commonly associated with irregularity of settlement patterns across the world. Indeed, the term ‘informal settlement’ has come to be a synonym for slums. It is thus notable that a larger portion of formal households in Dar es Salaam live in areas identified as ‘irregular’ than informal households – as shown in Table 2. This indicates that we must be cautious in attributing irregularity of neighborhood development to the absence of legal land ownership rights. Instead, Panman (forthcoming) argues that differences in the informal institutional frameworks for land use management play a pertinent role in driving these differences across areas – with important knock-on effects for housing quality. We further test the links between formality of tenure and housing quality characteristics using a logistic regression (for detailed results see Annex 1), with the aim of disentangling the conditional relationship between these individual variables and formality of tenure. It is notable that we fail to find any significant relationship between formality of tenure and security of tenure, housing quality, access to services, or even locational attributes of housing. The only correlations that appear significant are those with the property age and taxation. This may reflect growing strains on government capacity to register property and update tax registers over time, but the results are likely characterized by endogeneity problems. Table 2: Formal and Informal Owner-Occupied Housing Compared (means) Informal Formal Insecure 24.4% 18.2% ** Connected to mains 33.5% 40.1% ** Connected to Electricity 52.0% 65.7% *** Has garbage collection 41.3% 48.1% ** Located in irregular EA 16.6% 26.9% *** Is a freestanding house 87.3% 78.7% *** Pays property tax 24.2% 58.6% *** Has concrete walls 96.1% 96.6% Has concrete roof 3.1% 2.5% Has durable floor 93.4% 95.7% Number of rooms 3.51 3.85 *** Rooms sublet 0.91 1.43 *** Roof size 109.00 116.48 Property age 11.10 14.93 *** Distance from city centre 16.16 14.51 *** NB in the table above, means are compared for continuous variables, and proportions for dummy variables. *** Difference in means/ proportions significant at the 1% level ** Difference in means/ proportions significant at the 5% level * Difference in means/ proportions significant at the 10% level Is there a price premium for a formal title in Dar es Salaam? 13 In the following section we use hedonic price analysis to explore the value of formal documents of ownership, as a way to explore the expectation that underpins titling projects that informal households would be willing to pay to formalize their property. The hedonic method allows us to uncover implicit prices for different features that make up the price of composite goods like housing. The method has been applied to estimate the size of the price premium for formal title in a number of developing country cities, including Manila, Philippines; Bogota and Cali, Colombia; Jakarta, Indonesia; and Ho Chi Min City, Vietnam (Friedman, Jimenez, and Mayo 1988; Dowall and Leaf 1991; Kim 2004). To the best of our knowledge, the hedonic method has only been applied in Sub-Saharan Africa to measure the value of formal property documentation for undeveloped plots in Bamako, Mali (Durand- Lasserve, Durand-Lasserve, and Selod 2013; Selod and Tobin 2013). 17 We estimate a log-linear form of the hedonic regression model: ln(P) = β0 + β1(T) + β2 (H) + β3 (L) + ε Where P is self-reported housing values; (T) includes tenure variables; (H) refers to house characteristics and amenity variables; and (L) are locational attributes. As discussed above, the housing value estimates range widely. As such, we take a cautious approach to using the data and employ a robust regression, which weights observations based on the size of their residuals through a process of iterative re-weighting. 18 Tenure variables refer to formality and security of tenure, housing characteristics include the property size and services it has, while location attributes refer to distance from the city center, and a variable that indicates if the house is located in a visibly irregular neighborhood. A full definition of these variables is provided in Table 3 and discussed above. The results are presented in Table 4 below. As would be expected, the results indicate that the value of housing reflects both housing and neighborhood amenities. A larger house – measured in number of rooms and square meters – is associated with higher estimated sales value, all other things being equal. There is a positive and statistically significant effect for access to all services measured, ceteris paribus. For example, access to mains water/sanitation and electricity are both associated with a 30 percent price premium. The effect is negative for distance from the city center. Furthermore, as theory would predict, households that feel insecure in their tenure also estimate the value of their house 51 percent lower than those who feel secure, all other things being equal. 17 There is a small handful of papers that employ hedonic methods in the region, but these do not measure the value of titles (Arimah 1992; Megbolugbe 1989; Lozano-Gracia and Young 2014). 18 Values that are clear outliers – i.e. observations that are unusual given the value of predictor variables – are weighted 0 and thus effectively excluded from the analysis. In the analysis below 56 observations are weighted 0. There are no clear patterns in the characteristics of households that suggest that the estimates are biased for a specific reason. The proportion of informal, insecure, and migrant household heads differs by no more than 5% of all owner-occupiers. They do not differ in age (mean age is 46), or proportion with secondary education or higher. 14 In contrast, the results do not indicate that formal documents of property ownership are associated with a property price premium. Households with formal documents of tenure value their property only fractionally higher than informal households, and the effect is not statistically significant (column 1). Given that some forms of property documentation such as a traditional right of occupancy may not be highly transferable, the analysis is repeated in column 2 using a restricted definition of formal. This restricted definition includes only title deeds and/or Rights of Occupancy. Once again, the results fail to indicate that there is a price premium associated with title. In annex 2 we conduct further robustness tests, including interviewer and enumeration area fixed effects. In all specifications, the effect associated with title is small and insignificant. It is worth noting that neighborhood quality appears to be a very important factor in the value of housing. Houses located in irregular areas are valued 30 percent lower than those in regular areas, all other things being equal . In addition to this, garbage collection commands a considerable premium of 60 percent– which likely reflects the value of being located close to a passable road, since this is one of the main obstacles to garbage trucks servicing houses. This is interesting because irregularity of settlement and lack of roads are neighborhood characteristics often associated with tenure informality; indeed, it is worth noting that one of the seminal pieces of literature on the value of housing formalization by Friedman, Jimenez, and Mayo (1988), housing is categorized by these types of locational attributes rather than data on whether the housing is formal or not (i.e. housing is considered formal unless it is located in a ‘squatter’ area). Yet, as discussed above, in Dar es Salaam there is no clear connection between legal documents of ownership and regularity of neighborhood, and thus the irregularity of the settlement pattern in these areas cannot simply be attributed to lack of formal property documentation. (indeed, a larger portion of households with legal documents of ownership are found in these areas than those without, as shown in Table 2). Table 3: Hedonic Estimates for Sale Price of Housing (log) Column 1 Column 2 Formal 0.0600615 (0.0819881) Title 0.0411778 (0.0878603) Insecure -0.5114768*** -0.5115314*** (0.0974709) (0.0976775) House -0.103271 -0.1100553 (0.1176632) (0.1173343) Prop_age 0.0209549* 0.0213482* (0.0118724) (0.0118578) Prop_age2 -0.0002136 -0.0002143 (0.0002454) (0.0002453) Mains 0.2840554*** 0.2805397*** (0.0879394) (0.0883849) Eletricity 0.2947525*** 0.2941781*** (0.0909353) (0.0914266) Garbage 0.6094121*** 0.6069732*** (0.0908452) (0.0907679) 15 Concrete 1 -0.1103336 -0.1132428 (0.3253643) (0.3253656) 2 0.2474106 0.2440264 (0.2850787) (0.285182) 3 0.2342222 0.2268999 (0.3371701) (0.3379083) Rooms 0.1015281*** 0.1039747*** (0.0268235) (0.0267762) Sublet 0.0496233*** 0.049599*** (0.0192307) (0.019228) Roof_area 0.0010619** 0.0010597** (0.000469) (0.0004688) KM_cbd -0.0224876*** -0.022666*** (0.0057033) (0.0057151) Irregular -0.3022623*** -0.2996378*** (0.1189494) (0.1187649) _cons 16.45721*** 16.47024*** (0.3583518) (0.3572082) Observations 786 786 R2 0.18094586 0.18104797 Notes: Robust Standard Errors are in Parenthesis. Given that the regression employs a log-linear equation, the coefficients can be interpreted as the percentage increase in rent for a one unit change in the variable of interest, controlling for all other variables in the equation. For a dummy variable, the estimates reflect the percentage increase in rent associated with having that amenity, all other things being equal. *** Significance at the 1% level ** Significance at the 5% level * Significance at the 10% level Conclusions and implications The case for land titling is often made in terms of the benefits that would accrue to titled households, given the expectation that formal property is more secure and less costly to transact than informal property. In this paper, we have argued that this is too simplistic to usefully describe the situation in contexts where formal land market institutions are incomplete and informal markets are widespread, such as in much of Sub-Saharan African cities. We demonstrate this by drawing on data from Dar es Salaam, which shows that formal and informal property is remarkably similar, and households with formal property rights do not value their houses higher than those without, all other things being equal. The findings point to the need to better account for local institutional context in the design and assessment of titling projects. Specifically, in contexts such as Dar es Salaam where the individual benefits of titles are low, it is unlikely that formalization would result in property value appreciation and hence that households would be willing to pay for titling efforts. As such, it may not be reasonable to anticipate that households will voluntarily engage in titling projects or willingly pay for formal property documents without further efforts to understand, measure, and communicate the potential value of title to them. 16 It is important to note that these results do not mean that there are no benefits to formalization: titling projects have public as well as individual benefits, and property registration may be a key step in consolidating the land market in cities like Dar es Salaam. As discussed above, formalization is vital for the development of an accurate cadastre, which in turn is associated with a wide range of benefits such as improved public land management, infrastructure planning, the collection of property tax, and urban disaster risk management. These benefits, however, do not accrue directly to titled households. As such, financial buy-in from informal households is unlikely to provide a sustainable means to support the costs of the projects. The findings thus point to two potential complementary policy initiatives to encourage participation in formalization initiatives in Dar es Salaam and in other cities where informal rights are widespread and confidence in formal processes is weak. First, there is scope to explore alternative financing measures for titling initiatives. Since land registration systems have public good characteristics and can yield important benefits for the city as a whole, it may be appropriate to finance projects from city-wide funds rather than user fees. Second, complementary measures to strengthen the benefits of titling for individuals could improve individual willingness to participate in formalization. Reforming institutions is a long- term challenge, but measures to improve and build confidence in the formal systems would likely increase demand for titles over time. In Dar es Salaam, this could include efforts to reduce costs of property registration, eliminate double allocation of plots, strengthen dispute resolution processes, and build confidence in eminent domain procedures. The creation of a reliable and publicly accessible record of property transactions could also yield significant benefits to individual owners. The Government of Tanzania has already started working in this direction with support from the World Bank. Efforts to strengthen the land administration systems include actions to upgrade and upscale the country’s Integrated Land Management Information System in urban areas, building capacity in land management and dispute resolution systems, and to exploring new approaches to reduce tenure regularization costs for households. 17 Annex 1: Logistic Regression – Probability of being formal In the following annex we explore the probability that a house will be classified as formal using a logistic regression. The objective is to further describe the differences between formal and informal housing, following Friedman, Jimenez, and Mayo (1988) and Kim (2004). In addition to the tenure, housing, and locational variables described above, the regression also includes characteristics of the household, as detailed in Table 5. Property ages are also grouped by quartiles, for ease of interpretation. The results are displayed in Table 6. Overall, they fail to show a conditional relationship between insecurity of tenure and formality of property documentation. They further fail to show that there is a relationship between access to services, location of property, or the characteristics of the household head and formality of tenure. The odds of the oldest properties (17 to 65 years old) having formal titles are 2.3 times those of the newest properties (built within the last 6 years). Most notably, the odds of having formal documents of tenure are almost four times higher for households that pay property tax than those who do not. Table 4: Definition of Variables Variable Definition Ob Mea S.D. Min Max. s. n . tax Dummy that takes the value of 1 if the 811 0.38 0.49 0 1 household pays property tax hhh_age Age of the household head 809 47.75 13.11 18 97 hhh_ed Categorical variable indicating highest 796 1.41 0.69 0 3 uc level of educational attainment for the household head 0. Illiterate; 1. Kinder; 2. Secondary; 3. University/ other tertiary) migrant Dummy that takes the value of 1 if the 760 0.73 0.45 0 1 household head was not born in Dar es Salaam poor Dummy variable that takes on the 808 0.45 0.50 0 1 value of 1 if household is in the bottom 40% of consumption for Dar es Salaam Table 5: Logistic Regression Exploring probability of having formal documents of tenure Odds Ratio insecure 0.9047079 (0.2134156) house 0.8402039 (0.2107545) prop_age 18 7-10 yrs 0.8527564 (0.236657) 11-17 yrs 1.219941 (0.3334772) 17-65 2.334952** (0.8120265) mains 1.105552 (0.2309919) elec_utility 0.9446373 (0.2308578) garbage 0.9748929 (0.1998531) concrete 1 0.2517176 (0.2321272) 2 0.4197382 (0.3514119) 3 0.365176 (0.3482937) s5_norooms 0.9662757 (0.0631292) sublet 1.012638 (0.0473973) roof_area 0.9996634 (0.0009476) km_cbd 1.008497 (0.0155273) irregular 1.031658 (0.2849169) tax 3.911661*** (0.8316452) hhh_age 0.9962331 (0.0085525) hhh_educ Kinder/primary 1.861398 (0.8908429) Secondary 1.888239 (0.9875846) Uni 1.662546 (0.9826468) migrant 1.059565 (0.2351793) poor 0.8126094 19 (0.1722616) _cons 0.6423398 (0.7426409) Prob > chi2 0.000 Notes: Robust Standard Errors are in Parenthesis *** Significance at the 1% level ** Significance at the 5% level * Significance at the 10% level 20 Annex 2: Robustness checks Hedonic price regressions can suffer from issues of multicollinearity. The choice of variables included in the hedonic model is guided by the hedonic price literature; the age of a property, its size, and location are all central tenets of housing values across the world, and thus important to include in the analysis. Yet covariance amongst these variables will affect both the size and significance of the coefficients, and thus complicate interpretation of the results. Table 7 presents the variance inflation factor (VIF) among the independent variables included in the model. The VIF provides an indicator of how much the standard error is inflated by multicollinearity. The VIF of 1.07 for the formal tenure variable thus indicates that that the standard error is only 7 percent larger a result of multicollinearity. Indeed, as a general rule of thumb, a VIF of less than 5 is considered moderate and inconsequential to the interpretation of the results (Xiao 2017). The VIF may also reflect multicollinearity within a given variable, as is likely the case of ‘concrete’, which is a categorical variable with four categories. Equally, the high VIF for the two property age variables is a reflection of their close collinearity with each other. Table 6: Variance Inflation Factors Variable VIF Formal 1.07 Insecure 1.06 House 1.23 Prop_age 9.7 Prop_age2 8.43 Mains 1.18 Electric 1.33 Garbage 1.34 Concrete 1 3.44 2 5.58 3 3.27 Rooms 1.15 Sublet 1.31 Roof_area 1.09 km_cbd 1.55 Slum_area 1.54 Mean VIF 2.77 In Table 8 we present a number of additional specifications of the hedonic price regression presented in the main body of this chapter. Column one reports the results of the robust hedonic price regression with only the physical characteristics of the property and its location. Columns 2 and 3 then show the results when formality of tenure and insecurity of tenure are included, respectively. The specification in column 4 is our preferred specification, which is 21 reported in the main body of the text. The table shows that contrary to what we may anticipate from the theoretical link between title and tenure security, yet in keeping with the observation that informal households in Dar es Salaam report high levels of tenure security, the inclusion of tenure security in the model has only a very small effect on the size of the coefficient for formal documents of tenure. Moreover, the effect associated with formality of tenure is not significant in either specification. Columns 5 and 6 report two fixed effects models which look at variation within geographical locations. Column 5 can be interpreted as reporting the variation observed within enumeration areas, while column 6 reports variation grouped by the identity of the enumerator that collected the survey data. The coefficient for the value of formal title is small and insignificant in both specifications. In the Enumeration Area FE model (column 5), the coefficient is negative; yet in further analysis which treats irregular enumeration areas as a submarket (not shown), the coefficient for formal documents also remains small, positive, and insignificant. Table 7: Additional Specifications of the Hedonic Price Regression 1 2 3 4 5 6 (Ln)Value (Ln)Value (Ln)Value (Ln)Value (Ln)Value (Ln)Value Formal 0.0854519 0.0600615 -0.0317766 0.0249744 0.0827306 0.0819881 0.0902065 0.1510966 Insecure -0.51427*** -0.5114768*** -0.26905*** 0.0162075 0.0972559 0.0974709 0.1047922 0.2171694 House -0.0753319 -0.0670055 -0.1088084 -0.103271 -0.1441975 -0.3023965 0.1184344 0.118818 0.1172755 0.1176632 0.1451695 0.2146344 Prop age 0.0233109 0.022915* 0.0211561* 0.0209549* 0.0026683 -0.0076431 0.0119601 0.0119835 0.0118507 0.0118724 0.0113528 0.0207717 Prop age2 -0.0002567 -0.0002607 -0.0002096 -0.0002136 0.0001351 0.0003445 0.0002474 0.0002477 0.0002451 0.0002454 0.0002278 0.0004239 Mains 0.3221835*** 0.322883*** 0.2825035*** 0.2840554*** 0.0825368 0.1051832 0.0881716 0.0883628 0.0877735 0.0879394 0.1090811 0.1776864 Electricity 0.334108 *** 0.3292001*** 0.2977629*** 0.2947525*** 0.1485314 0.5178767*** 0.0912784 0.0915777 0.0906659 0.0909353 0.0903573 0.1643735 Garbage 0.6234907*** 0.6242275*** 0.6081144*** 0.6094121*** -0.0959197 0.1658914 0.0915959 0.0917217 0.090719 0.0908452 0.140652 0.1945221 Concrete 1 0.004007 -0.0029684 -0.1056874 -0.1103336 -0.2553994 0.379316 0.3283197 0.3287079 0.3249878 0.3253643 0.1852113 0.5542427 2 0.3563165 0.3492479 0.2520029 0.2474106 -0.1170945 0.5149418 0.2876964 0.2879978 0.2847873 0.2850787 0.1795566 0.4897001 3 0.3649486 0.3581858 0.2386314 0.2342222 0.0212489 0.7441722 0.3401838 0.340636 0.3367303 0.3371701 0.3276574 0.5825883 Rooms 0.104612*** 0.1002141*** 0.1059721*** 0.1015281*** 0.0884429** 0.0746507 0.0270231 0.0270968 0.0267526 0.0268235 0.0367827 0.0500432 Sublet 0.0532538*** 0.0518199*** 0.0507768*** 0.0496233*** 0.0381313 0.0184469 0.0193944 0.0194167 0.0192096 0.0192307 0.0285678 0.0330923 Roof area 0.0012762*** 0.0012816*** 0.001061** 0.0010619** -0.0000539 0.0006778 22 0.0004717 0.0004723 0.0004686 0.000469 0.0005464 0.0008429 KM_CBD - - - -0.0224876*** - -0.0065983 0.0187403*** 0.0189456*** 0.0224235*** 0.1095859** 0.005724 0.0057299 0.0056977 0.0057033 0.0497816 0.0114796 Irregular - -0.2446353** - -0.3022623*** 0.0473414 0.2413942** 0.3008489*** 0.1195095 0.1197881 0.1187007 0.1189494 0.2215942 _cons 16.06778*** 16.06205*** 16.46074 *** 16.45721*** 18.62395*** 15.92023*** 0.3558972 0.3570588 0.3570145 0.3583518 0.6677822 0.6368074 Obs 786 786 786 786 786 786 R2 0.16443601 0.16525301 0.18133491 0.18094586 EA FE no no no no yes no Inter- no no no no no yes viewer FE Notes: Robust Standard Errors are in Parenthesis. *** Significance at the 1% level ** Significance at the 5% level * Significance at the 10% level 23 References Ali, Daniel Ayalew, Klaus Deininger, Matthew Collin, Stefan Dercon, Justin Sanderfur, and Andrew Zeitlin. 2014. “The Price of Empowerment Experimental Evidence on Land Titling in Tanzania.” 6908. 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