Tenure Security and Urban Squatting

While recent studies have shown that up to 35% of the total urban population of the Third World live in squatter settlements, there is a dearth of economic analysis on the phenomenon of squatting. This paper attempts to fill this gap. The equilibrium model argues that the difference in unit housing prices between the non-squatting (formal) sector of a city and its squatting (informal) sector reflects the premium associated with a secure tenure status. The empirical portion of this paper uses hedonic price techniques to derive the average premium on tenure security in a medium-sized Philippine city. Davao. Results show that formal-sector unit dwelling prices are about 18% (renters) to 58% (owners) more than in the informal sector. These equilibrium price differentials were found to be greater for lower income groups, larger household sizes, and households with older heads for renters and younger heads for owners.