The work of Hernando De Soto (2000) has breathed new life into an idea that has played an important role in the field of economic development, namely, that the issuance of titles to poor families for the urban plots that they are living on could be a powerful policy tool for combating poverty. De Soto argues forcefully that giving poor families title to the parcels on which they have been living for a long time would be an effective way of boosting the rate of capital accumulation for those households, since it would allow them to use those assets as loan collateral. Those credits could, in turn, be used for capital investments that would boost labor productivity and hence the incomes of these people, thereby reducing poverty levels.

Are land titling programs really a powerful poverty-reduction tool, or will the societies that launch such programs simply be letting themselves in for yet another disappointing policy outcome? In other words, what are the causal effects of giving poor urban families title to the land that they are living on? Answering this question is no easy task. It is difficult to determine how a household’s situation would change if its members were given title to the plot on which they are living, as opposed to remaining on that land without having title to it. The main problem is that we cannot observe any one family experiencing both of those situations at the same time. Therefore, an attempt to come up with an answer involves comparing families that have title to their land with families that do not. The credibility of studies using this approach depends crucially on how well the researchers can demonstrate that the two groups of families were very similar to each other before one of the groups received title to their land and that the plots of land that they are living on are also similar.

In Galiani and Schargrodsky (2010), we took advantage of a natural experiment to resolve this comparability problem. More than 20 years ago, a large number of comparable families took over unused land on the outskirts of Buenos Aires, Argentina. The land that they occupied was composed of a number of different plots, each of which was owned by a different person. An expropriation law was then passed under which the land was to be transferred to the State in exchange for monetary compensation. However, only some of the legal owners agreed to cede their land so that legal title to those plots could then be handed over to the families living there. At the time that we carried out that this study, other owners were still challenging the amount of compensation being offered by the government in the slow-moving courts of Argentina. As a result, one group of settlers obtained legal title to the properties where they were living while another group has continued to live on quite similar plots but without having legal title to them.

Do the settlers who hold legal title to their land have greater access to credit than the others? The evidence that we gathered indicates that there is not much difference between the two groups in that respect. In fact, the effect is very small. Furthermore, there is no difference whatsoever between the two groups’ real income levels.

Our study does show, however, that the families that received deeds to their lots between 7 and 14 years ago now have better houses than the families who lack title to their land. Based on an analysis of a series of investment indicators (quality of the roofing, quality of the walls and an overall indicator of housing quality), we conclude that the houses of families that have deeds are approximately 40% better than those of families without deeds. This indicates that the granting of property rights prompted the recipients to invest around 40% more in their homes than the families who do not have land titles. This finding demonstrates the important role that secure property rights play in investment.

Our study also shows that the families that have title to their land are smaller and appear to have invested more in their children’s education and health. In fact, for households that had received legal title to their land 18 years ago, the probability that the children of the head of household would complete their secondary education was approximately 25 percentage points greater than it was for the children of heads of household who do not hold title to the land that they have settled on. This result must be viewed with some reservation, however, since –unlike our findings regarding investment and access to credit– I know of no other study that has yet presented evidence pointing in a similar direction, and it would clearly be desirable to have evidence from more than one study. What is more, this effect is found only in the group of households that adjusted their fertility rate in response to the receipt of title to their land. This should be borne in mind when generalizing our results. Finally, for statistical reasons discussed in our study, some of the robustness tests that we performed for other variables could not be conducted for these variables.

I believe that it can rightly be concluded that land titling has positive effects on the poor households that receive title, but it is far from being a panacea. It clearly acts as an incentive for increased investment in the home, but, while urban land titling may have a poverty-reduction effect over the long term, in the medium term it has not had any detectable effect on the incomes of poor households.

References:

De Soto, Hernando (2000). The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else, New York: Basic Books.

Galiani Sebastian and Ernesto Schargrodsky (2010). “Property Rights for the Poor: Effects of Land Titling”, Journal of Public Economics, vol. 94, Nos. 9-10, pp. 700-729.