Measuring the Risk on Housing Investment in the Informal Sector: Theory and Evidence from Pune, India
The authors provide an economic framework to analyze investment in informal housing in developing countries. They consider a simple model of investment in the housing market where investors can choose between two sectors-the formal sector, where ph...
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| Format: | Policy Research Working Paper |
| Language: | English en_US |
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World Bank, Washington, D.C.
2013
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| Online Access: | http://documents.worldbank.org/curated/en/2004/10/5249687/measuring-risk-housing-investment-informal-sector-theory-evidence-pune-india http://hdl.handle.net/10986/14235 |
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okr-10986-142352021-04-23T14:03:21Z Measuring the Risk on Housing Investment in the Informal Sector: Theory and Evidence from Pune, India Kapoor, Mudit le Blanc, David HOUSING MARKET HOUSING FINANCE HOSING SUPPLY INFORMAL SECTOR HOUSING CONSTRUCTION HOUSING CONSTRUCTION PROGRAMS RETURN ON INVESTMENT HOUSING RENT HOUSEHOLD SURVEYS MARKET VALUE RENTAL HOUSING RATE OF RETURN RATES OF RETURN EVICTION The authors provide an economic framework to analyze investment in informal housing in developing countries. They consider a simple model of investment in the housing market where investors can choose between two sectors-the formal sector, where physical investment faces no risk of destruction, and the informal sector, where investment in each period is subjected to an exogenous risk of destruction. Construction costs differ between the two sectors. All households are renters. Renters shop for dwelling attributes and do not care about the sector (formal or informal) itself. The model implies that returns on investment, measured by the rent-to-value ration, will be higher in the informal sector. The authors use a survey conducted by the World Bank in Pune, India in 2002. The sample comprises 2,850 households. This survey had the peculiarity of asking the households, regardless of tenure status, questions about the market rent and value of their dwelling. Thus they can calculate individual rates of return for each unit without facing the typical selection bias problems. Comparing the distributions of returns in the informal and formal sectors, the authors obtain the following results: 1) Rates of return are significantly higher in the informal sector, as predicted by the model. 2) These figures imply a perceived risk on housing investment in the informal sector equivalent to an annual destruction rate ranging between 1 and 2 percent. 3) The two distributions of rates of return present highly idiosyncratic components and are not well explained by variables proxying either the strength of informal property rights or lower perceived risks of eviction. 2013-06-27T16:41:54Z 2013-06-27T16:41:54Z 2004-10-01 http://documents.worldbank.org/curated/en/2004/10/5249687/measuring-risk-housing-investment-informal-sector-theory-evidence-pune-india http://hdl.handle.net/10986/14235 English en_US Policy Research Working Paper;No.3433 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank World Bank, Washington, D.C. Publications & Research :: Policy Research Working Paper Publications & Research South Asia India |
| repository_type |
Digital Repository |
| institution_category |
Foreign Institution |
| institution |
Digital Repositories |
| building |
World Bank Open Knowledge Repository |
| collection |
World Bank |
| language |
English en_US |
| topic |
HOUSING MARKET HOUSING FINANCE HOSING SUPPLY INFORMAL SECTOR HOUSING CONSTRUCTION HOUSING CONSTRUCTION PROGRAMS RETURN ON INVESTMENT HOUSING RENT HOUSEHOLD SURVEYS MARKET VALUE RENTAL HOUSING RATE OF RETURN RATES OF RETURN EVICTION |
| spellingShingle |
HOUSING MARKET HOUSING FINANCE HOSING SUPPLY INFORMAL SECTOR HOUSING CONSTRUCTION HOUSING CONSTRUCTION PROGRAMS RETURN ON INVESTMENT HOUSING RENT HOUSEHOLD SURVEYS MARKET VALUE RENTAL HOUSING RATE OF RETURN RATES OF RETURN EVICTION Kapoor, Mudit le Blanc, David Measuring the Risk on Housing Investment in the Informal Sector: Theory and Evidence from Pune, India |
| geographic_facet |
South Asia India |
| relation |
Policy Research Working Paper;No.3433 |
| description |
The authors provide an economic
framework to analyze investment in informal housing in
developing countries. They consider a simple model of
investment in the housing market where investors can choose
between two sectors-the formal sector, where physical
investment faces no risk of destruction, and the informal
sector, where investment in each period is subjected to an
exogenous risk of destruction. Construction costs differ
between the two sectors. All households are renters. Renters
shop for dwelling attributes and do not care about the
sector (formal or informal) itself. The model implies that
returns on investment, measured by the rent-to-value ration,
will be higher in the informal sector. The authors use a
survey conducted by the World Bank in Pune, India in 2002.
The sample comprises 2,850 households. This survey had the
peculiarity of asking the households, regardless of tenure
status, questions about the market rent and value of their
dwelling. Thus they can calculate individual rates of return
for each unit without facing the typical selection bias
problems. Comparing the distributions of returns in the
informal and formal sectors, the authors obtain the
following results: 1) Rates of return are significantly
higher in the informal sector, as predicted by the model. 2)
These figures imply a perceived risk on housing investment
in the informal sector equivalent to an annual destruction
rate ranging between 1 and 2 percent. 3) The two
distributions of rates of return present highly
idiosyncratic components and are not well explained by
variables proxying either the strength of informal property
rights or lower perceived risks of eviction. |
| format |
Publications & Research :: Policy Research Working Paper |
| author |
Kapoor, Mudit le Blanc, David |
| author_facet |
Kapoor, Mudit le Blanc, David |
| author_sort |
Kapoor, Mudit |
| title |
Measuring the Risk on Housing Investment in the Informal Sector: Theory and Evidence from Pune, India |
| title_short |
Measuring the Risk on Housing Investment in the Informal Sector: Theory and Evidence from Pune, India |
| title_full |
Measuring the Risk on Housing Investment in the Informal Sector: Theory and Evidence from Pune, India |
| title_fullStr |
Measuring the Risk on Housing Investment in the Informal Sector: Theory and Evidence from Pune, India |
| title_full_unstemmed |
Measuring the Risk on Housing Investment in the Informal Sector: Theory and Evidence from Pune, India |
| title_sort |
measuring the risk on housing investment in the informal sector: theory and evidence from pune, india |
| publisher |
World Bank, Washington, D.C. |
| publishDate |
2013 |
| url |
http://documents.worldbank.org/curated/en/2004/10/5249687/measuring-risk-housing-investment-informal-sector-theory-evidence-pune-india http://hdl.handle.net/10986/14235 |
| _version_ |
1764430813155295232 |