Abstract for: Why Formal Housing Alternatives in Developing Countries are Insufficient, Inadequate, and Unaffordable?

In this paper, I present a model of the articulations between the formal and informal mechanisms of housing production with the objective to analyze the causes of the rise and persistence of informal settlements in the developing world. The model is based on System Dynamics, a method of simulation that deals with complex systems characterized by dynamic behavior, and is tested using the case of Bogotá, Colombia, a city known by the prevalence of informal housing markets and its rich experience in the implementation of public policies to address informality. The final results and policy experiments show that informality arises from the inadequacy of a system of infrastructure financing based on tariffs and cross-subsidization and from the unintended consequences of classic interventions to deal with this problem such as settlement up-grading and the provision of public housing. A preventive policy based on dismantling these interventions and increasing the supply of land with urban services through a change in the system of infrastructure funding shifting the source of financing from cross-subsidies to property taxation is proven to be a more cost-effective method to mitigate the negative consequences of informality.