Fascinating study from Argentina on what happens when people own property.
Study: Ownership boosts quality of life
By Matt Moffett
The Wall Street Journal
Published November 13, 2005
BUENOS AIRES -- Mercedes Almada and Valentin Orellana both live in San Francisco Solano, a barrio settled by squatters almost 25 years ago on the fringes of the Argentine capital. They established households on identically sized lots and worked similar blue-collar jobs for comparable wages -- she in sewing, he in a factory. They endured the same hardships, including an effort by Argentina's 1980s military government to bulldoze the settlement.
Today, Almada lives in a neat colonial-style home with a slab roof supported by pillars as solid as oaks. The six members of the Almada household have rooms of their own. A daughter finished high school and one son finished technical school.
Orellana's house is made of rough looking cinder blocks and concrete, with thin posts supporting a corrugated zinc roof. It is so cramped that some of the eight family members have to sleep in the dining room and kitchen. None of the children have made it past seventh grade.
Why are the Almadas moving up in the world while the Orellanas remain stuck behind?
A provocative research project attributes much of the disparity to a single factor: Almada has title to her land; Orellana does not. The San Francisco Solano study, conducted by two Argentine universities and Harvard Business School, hasn't been formally published yet. But international development experts say it is shedding light on a key question for developing economies: Does land "titling" help lift people from poverty?
In Latin America, about one-quarter of urban residents are either squatters or are living in unauthorized housing. In cities throughout the developing world, it is common for squatters to seize land, build houses on it, and then to agitate for the government to grant them titles.
The Argentine study followed 1,800 squatter families who in 1981 occupied a one-square-mile piece of what they assumed was public land. It had once served as a garbage dump. Through a quirk of the legal system, roughly half of the settlers in the heart of the neighborhood gained title to their properties, while the other half didn't. The researchers found that over the course of two decades, the title holders surpassed those without them in a host of key social indicators, ranging from quality of house construction to educational performance to rates of teenage pregnancy.
Households with titles didn't earn more money than those without them and had access to only a modest amount more credit. Nevertheless, they adopted a more entrepreneurial mindset and shucked the fatalism and fear of being tossed off their land that mark the poor throughout the region. They believed hard work would pay off for their families.
"You give people titles and they start to feel they belong to society," says Harvard-trained economist Ernesto Schargrodsky of the Torcuato Di Tella University, who studied the barrio with Sebastian Galiani of University of San Andres and Rafael Di Tella of Harvard Business School.
South America is grasping for lessons from its 20-year experiment with free-market economic policies. The region initially embraced a broad agenda of privatization, trade liberalization and fiscal austerity pushed by the U.S. Property titling was encouraged as an adjunct to these changes. But the lives of most of the region's people did not improve the way advocates had hoped.
When economic crises rocked Argentina and Brazil a few years ago, pragmatic leftist leaders rose as part of a backlash against the changes. Now, many Latin American leaders are taking a cafeteria-style approach to capitalism -- picking and choosing policies that suit them and rejecting those that seem too hard or controversial. Trade liberalization in the region has stalled.
But titling has retained considerable appeal. Brazil, Peru, Panama, Paraguay, El Salvador and some provinces in Argentina maintain titling programs. Such programs offer a politically popular and inexpensive way to provide opportunity for the urban poor to bootstrap themselves out of poverty.
Some skeptics say there is little hard evidence to support claims that land ownership helps the developing world's poor. They cite the economic success of China, which only recently loosened restrictions on private property, as evidence that the value of ownership has been oversold. In parts of Cambodia, titling programs have left the urban poor vulnerable to violence and harassment from speculators who sought their land. The critics argue that scarce development dollars should be invested in projects to build infrastructure and to improve the environment.
In San Francisco Solano, the difference made by land ownership is visible along the muddy streets where boys fish for frogs in the drainage ditches. On a stretch of 816th Street where residents own their lots, the Quevedo family is finishing a brick addition to their sprawling house. Florinda Gonzalez boasts that her older son recently added a second floor to the house, and that her younger son completed a technical-school course to become an electrician. Felicia Cuevas talks with pride of how well her son is doing in the first grade of the private school he attends.
On a part of 893rd Street where residents don't hold titles, there is little evidence of such dynamism. Dominga Abalo has her hands full trying to ride herd over the brood of kids who live in her crumbling brick hut. Ricardo Gonzalez frets about finding money to finish rebuilding his weather-beaten roof, a project that has been stalled for two years. As chickens peck the ground at her feet, Norma Olive worries about a teenage son who dropped out of school.
Interest in titling has been sparked by Peruvian economist Hernando de Soto, whose best-selling books argue that guaranteeing urban property rights is a precondition for alleviating urban poverty. Marginalized people can use land titles as collateral to obtain bank loans and to participate more fully in the economy, he says. De Soto has a host of prominent international supporters, including Bill Clinton, who a few years ago joined the Peruvian in Ghana for the launch of a titling program.
Governments throughout Latin America, as well as in countries like South Africa, Turkey and Thailand, have experimented with de Soto's ideas. Multinational organizations such as the World Bank have loaned hundreds of millions of dollars to support such projects.
The way San Francisco Solano was settled makes it a "natural experiment" for testing titling's effect. "It's a dream kind of empirical study ... a treasure," says Nobel Prize-winning economist Douglass C. North, a specialist in property rights at Washington University in St. Louis.
In November 1981, a group of landless families led by a Roman Catholic priest, Raul Berardo, marched into San Francisco Solano and erected huts of scrap wood, metal, cardboard and plastic sheeting. Eager to someday gain land titles, the squatters carefully followed zoning rules, pacing off standard 30-by-100-foot lots and leaving room for streets. "We wanted to live in a normal neighborhood, not a slum," says Emilio Gondret, an original settler.
Shortly after the squatters arrived, the repressive military government then ruling Argentine sent a bulldozer to flatten the shantytown. When a group of women and their children formed a line in front of the bulldozer, the driver, a civilian, stopped the machine and walked away. Subsequently, the military tried to block delivery of food, fresh water and building materials to the barrio.
In mid-1982, the government collapsed suddenly after it lost the war over the Falkland Islands to the United Kingdom, and official animosity toward San Francisco Solano ended. But the squatters faced another headache: The land they had seized was not public, as they had thought, but had 13 private owners.
Argentina's new civilian government wasn't free to hand out land titles until it reached compensation agreements with the owners. Eight of them accepted government buyout offers, but the five others got into battles with the government over financial terms of the offer in Argentina's slow-moving courts. Between 1989 and 1991, squatters on 419 lots in the center of the neighborhood received land titles from the government. The people on the 410 remaining plots didn't, and still haven't. "After such a hard fight, it was painful to accept that many of us would not own our land," says Raul Salinas, a squatter who hasn't gotten a title.
For the university researchers looking to study the effect of titling, the quirk was fortuitous. "Basically the Argentine court system helped run the experiment for them," says Robert Lucas, a Nobel laureate economist at the University of Chicago.
Lidia Salvi Rojas, a resident who received a land title, said the victory motivated her to transform her hut into a decent house. She and her husband shoveled out a thick layer of muck from the lot, a mix of glass, leather and garbage, and brought in several truckloads of topsoil. Over several years, they replaced the fiberboard walls with brick and the corrugated roof with a slab. They financed the construction with money she saved working as a maid and that her husband earned in a factory.
"I didn't mind the work because it was my own property," she says. Today, she occupies a modern-looking ranch house with a satellite dish on the roof and ornate security grill-work on the doors and windows. A smooth cement sidewalk leads to the tree-shaded front yard. Salvi and her husband laid the walk themselves because the government doesn't do that kind of work in new barrios.
After she had her house, Salvi focused on making sure her children surpassed her own primary-school education level. Her 19-year-old son recently finished high school. Her 15-year-old daughter is taking a special high-school course in chemistry, even though it requires a long bus ride to another part of town. Her 13-year-old is still in primary school.
A few blocks away, Rosa Barbosa, one of the unlucky ones who have not received a property title, has made much less progress. After settling here, she and her husband raised enough money selling flowers and doing odd jobs to replace her fiberboard hut with a squat brick house. "I was waiting for the title before we invested more," she says. "I'm still waiting."
As the years passed, Barbosa gave up on home improvements. Today, electrical wires droop from the living-room ceiling, the plaster is chipped, and the corrugated metal roof leaks. There is no bathroom. Instead of a sidewalk in front of the house, there is a dirt patch that turns to mud when it rains.
Most of the nine children she has raised didn't get much of an education, dropping out before high school. A daughter and a daughter-in-law both got pregnant at 15. "Maybe the grandchildren can make this a decent place to live in," she says.
The study, based on more than 600 interviews conducted by Galiani and Schargrodsky's research team, revealed broad differences between residents who own their land and those who don't. Landowning households averaged about five members, compared with six for the untitled. Only about 8 percent of adolescent girls in titled households got pregnant, compared with more than 20 percent in the untitled households. Children from 5 to 13 years old in titled households had lower rates of school absenteeism and completed about one-half year more of school than their untitled counterparts.
The researchers theorize that a title turns a house into an "insurance and savings tool" that can provide security for owners during old age or bad times. It also may enable landowning households to concentrate more on educating each household member, they say.
The investigators concluded that titles improved access to credit only slightly. Banks appeared to have a deeply ingrained reluctance to lend to the poor, in part because of the cost and difficulty of foreclosing in Argentina's legal system. But even without bank loans, they said, landowning families improved their homes substantially by squirreling away cash and doing the work themselves. Architects affiliated with the study concluded that homes on titled lots had sturdier walls and sounder roofs, were more spacious and had better sidewalks.
An accompanying study, co-authored by Di Tella, detected a difference in the attitude of landowners. They were more materialistic and individualistic, and more inclined to say that money was important to happiness, and that individual initiative leads to success.
The researchers found that landownership status seemed to make no difference in employment or income. But it did seem to affect the way residents spent their money, and their aspirations and expectations. The researchers figure that the children of the landowners could eventually earn significantly more than the children of the untitled.