Reducing the cost of land titles and simplifying the systems can improve land security and livelihoods of the poor

Land rights are a crucial component of economic development. Property rights have the potential to fundamentally improve resource allocation and increase investment in a given society by limiting expropriation and facilitating market transactions. Moreover, due to its immobility and relative indestructibility (Binswanger and Rosenzweig 1986), land lends itself to being used as wealth and collateral.

De Soto (2000) has argued that giving poor families title to their land would be an effective way of boosting their rate of capital accumulation, as it would allow them to access loans. These loans could, in turn, be used for capital investments to boost labour productivity and incomes, thereby reducing poverty.

Land titling effects: The study

Are land titling programmes really a powerful poverty-reduction tool, or will societies that launch such programmes simply be letting themselves in for yet another disappointing policy outcome? In this column, I attempt to answer this question based on a long-term study I have been involved in.

It is difficult to determine how a household’s situation would change if it had title to its land, as opposed to remaining on that land without having title to it. The challenge is that we cannot observe any one household experiencing both of those situations at the same time. The credibility of such a study would depend on how well the researchers can demonstrate that two households were very similar to each other before one received title to their land, and that the plots of land are also similar.

The case of Argentina

In Galiani and Schargrodsky (2010), my co-author and I took advantage of a natural experiment to resolve this comparability problem. More than 30 years ago, a large number of comparable households took over unused urban 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.

In 2003, at the time that we carried out the main data collection for our 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 continued to live on quite similar plots but without having legal title to them.

The findings

Credit and income

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

Housing quality

Our study does show, however, that the families who received deeds to their lots between seven and 14 years before we carried out our study have better houses than the families who lacked title to their land at the time of our study. Based on an analysis of a series of investment indicators, we conclude that the quality of the houses of families that have deeds is 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 shows the important role that secure property rights play in investment.

Family size, education, and health

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 (see also Galiani and Schargrodsky 2004). In fact, for households that had received legal title to their land about 18 years before we collected these data in 2007, the probability that the children of the head of household would complete their secondary education was much higher than it was for the children of heads of household who do not hold title to the land that they have settled on.

Beliefs

In Di Tella et al. (2007), my co-authors and I find that there were significant differences in the beliefs that squatters with and without land titles declare to hold. The squatters who end up with legal titles report beliefs closer to those that favour the workings of a free market. The effects appear large. The value of a (generated) index of ‘market’ beliefs is 20% higher for titled squatters than for untitled squatters. The effect is sufficiently large so as to make the beliefs of the squatters with legal titles broadly comparable to those of the general Buenos Aires population, in spite of the large differences in the lives they lead.

Land title deregularisation

In spite of these promising results, in a recent follow-up study (Galiani and Schargrodsky 2016) we found that there were a number of cases in which these new owners lost their legal tenure rights, with title to the land then falling into a grey area. This happened following events such as divorce, death of the titleholder, sale of the house, and so on. We refer to this process as ‘deregularisation’.

The incidence of irregular tenure was 28.1% for the sample as a whole, but reached almost 80% when we considered only the households with changes in property ownership. Additionally, the rate of irregular ownership was higher when transfers were within the same family, and was especially high in cases in which the legal owner had died. As for inter-family transfers, only one third of the new occupants decided to regularise their title, in all cases as a consequence of a sale.

The cost of regularising land title

The cost of regularisation relative to the total value of the property informs the decision to regularise – the higher this ratio is, the less likely individuals are to regularise their title to their land. In our view, this variable was an extremely influential one, since the cost of regularisation was indeed very high when compared to the value of the property in the case under study. We asked a local real estate agent and several lawyers in the area to provide us with estimates of the value of these properties and the regularisation costs. The mean value of the properties under study was $11,700, while the cost of regularisation for a property of this value ranges from $2,300 to $3,200, depending on the type of legal procedure involved.

Simplifying titling systems for the poor

Titling systems are generally thought to cover a wide range of contingencies by protecting against expropriation, lowering information asymmetries, facilitating the eviction of defaulting tenants, serving as collateral, and so on. However, our work shows that some of these attributes, especially those related to the credit market, were not relevant for the population under study.

It is then possible that a simplified system would be easier to administer and could yield additional cost savings. Such a system would have a greater capacity to adjust to the needs of the poor. In fact, the Commission on Legal Empowerment of the Poor (CLEP), after studying several cases of targeted interventions, concluded that programmes that use simple processes to grant property rights are a practical and inclusive tool which allows for greater security in land tenure (CLEP 2008).

Photo credit: Frans Lanting/Getty.

References

Binswanger, H and Rosenzweig, M (1986), “Behavioural and Material Determinants of Production Relations in Agriculture”, Journal of Development Studies 22(3): 503-539.

Commission on Legal Empowerment of the Poor (CLEP) (2008), Making The Law Work for Everyone.

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

Di Tella, R, Galiani, S and Schargrodsky, E (2007), “The Formation of Beliefs: Evidence from the Allocation of Land Titles to Squatters”, Quarterly Journal of Economics 122(1): 209 – 241.

Galiani, S and Schargrodsky, E (2004), “Effects of Land Titling on Child Health”, Economics and Human Biology 2(3): 353-372.

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

Galiani, S and Schargrodsky, E (2016), “The deregularization of land titles”, Man and the Economy, Volume 3, pp. 169-188.