Table of Contents:

Property rights for economic development

Case of Brazil:    My take on the "property rights" issue was as follows: There is the need in places like Brazil for people in "favelas" to get property rights. 

If you can find some political solution where people can get real ownership of the places in which they live, then two things should (theoretically happen),

(1) there is an incentive to build and improve upon that which you own, and

(2) people can then take out equity loans from banks that would be backed by home-equity. So, poor people could then raise (small) amounts of money to start businesses, etc.

In my opinion, this is a key area for refinement of the "Washington consensus"....countries like Brazil to tackle the need for property rights reform (in order to unlock massive economic potential that is currently tied up in the "informal" economy)

Slums (favelas) in Brazil

If you look at cities such as Rio,  you find that some of the best and potentially most valuable land for development is occupied by slums, or "favelas" as they are known in Brazil.  Where there should be hotels, condos, restaurants and bars, you find cardboard houses with lacking infrastructure.  But why is it like this?  What can be done to change the situation?

In Recife (a city in the NE of Brazil) there is a neighborhood called "Brasilia teimosa" (translated it means the "stubborn Brasilia").  This neighborhood is located on the southern shores of the main river that cuts though the center of Recife, and meets the ocean near the port of Recife.  This must be the most valuable (potentially) land in all of Recife, but its currently occupied by one of the largest slums, or "favelas".  The land was previously owned by one family that was waiting for the value of the land to go up before doing anything to develop it.  But, then what happened was it was invaded by illegal homeless squatters that tried to take over the land.  They were burned out, but they returned.  They were burned out again, but again they returned.  Finally, the owner of the land gave up, and the slum took over (hence the name "stubborn").  The part of the name "Brasilia" is due to the fact that all of this occurred during the 1950's, about the same time as the boom in Brazilian economy that led corresponded with the building of the capital city "Brasilia".

A potential solution

The problem exists today that the occupants of the land do not hold legal title.  Without title to the land, they can not sell the land, nor work with outside developers.  Where in most other parts of the city you find high-rises, in the favelas you find low-lying single family homes crammed one next to the other.  What is needed is for the people in these regions to be given legal ownership of the land, so that they could sell pieces of the land to developers to put in modern high-rises with electricity, water, etc. 

Why do we accept that the favelas must be horizontal in their nature and not vertical?  I have heard of developers building "vertical favelas":  modern highrises with many small apartments per floor.  This model could easily be replicated in areas of Recife such as "Brasilia teimosa", thereby fitting the same amount of people in only a fraction of the required amount of land, thereby slowing down the urban -sprawl problem that many of Brazil's cities face.

How would the people be compensated?   Most people that own land near the beach do the following:  They agree to sell their land to a development company, who agrees to build the building.  But, in Brazil most of these development companies do not have the cash upfront, so what they do is offer the original owner the opportunity to own 3 or 4 apartments in the building when its finished, which they can live in or sell.  This way, a person that owns a small piece of land can later own 3 or 4 apartments.   

This process should work, but it doesnt because the people that live on the land do not have legal ownership of that land.  Until the Brazilian government finds a way to transfer legal title to these residents (who are never leaving), the most valuable land in Brazil will remain undeveloped.