Implications of alternate policies on welfare of slum

dwellers: Evidence from Pune, India

Somik V. Lall , Mattias K.A. Lundberg, Zmarak Shalizi

AIM
The paper looks at the impact on poverty-reduction objectives, that is, improving the welfare of the
slum-dweller, of possible interventions to achieve the efficiency objective of maximizing the value of
the land. It examines the residential location decisions of slum dwellers and the impact of relocation
on their welfare.

There is a general notion that slum settlements in the midst of urban centres leads to inefficient
utilisation of land resources. So the paper also analyses the option of resettling the dwellers on the
periphery of the city and how would that effect their livelihood. The main normative goal of this
analysis is to discover the mechanisms through which it is possible to protect or compensate for the
loss of welfare among the poor, as policies and regulations are changed to improve aggregate
efficiency in resource allocation by relocating the dwellers.

AREA OF STUDY
The city of Pune has a population of 2.8 million, of whom close to one million live in slum
settlements distributed throughout the city. The city is located in the state of Maharashtra,
approximately 200 kilometres east of Mumbai.

ASSUMPTION

In our estimation we are assuming that each household takes the ward-specific premiums, as well as
social and demographic characteristics associated with each ward as given and makes rational
residential location choice decisions. For purpose of estimation this assumption translates into a
condition where the idiosyncratic error term is independent of ward characteristics.

METHODOLOGY
. For our survey, 2850 households were randomly selected and they responded to questions
regarding socioeconomic characteristics, quality and quantity of housing, tenure status, and access
to infrastructure services. Our estimation makes use of 2849 of these households

The empirical analysis draws on data from a household survey which was collected between August
and October 2002, and designed to be representative of the Pune Municipal Corporation area.

To ensure that all parts of the city are covered by the sample, we chose sample fractions in each of
the 48 wards.

We explicitly account for a household’s preference for community structure in our estimation
strategy, thereby allowing us to pick up premiums that households are willing to pay for non-
pecuniary factors. These include social and kinship networks in the community or neighbourhood
measured by sharing common language and religion, as well as similarities in wealth and
educational attainment. Because the estimation technique involves a large number of choice-
specific variables, it subsume these characteristics in an index computed by principal components.

The dwelling areas or localities have been categorized in different wards, each ward having
peculiar attributes. The ward characteristics include the share of households in the ward that are
Hindu, scheduled caste, Marathi speakers, and female-headed; whether the household head has
received any formal education, the income (flow) the household receives from its stock of durable
goods, the household size and number.

We classify the dwellings in Pune into four types based on the settlement in which they live.

 Type 1 dwellings are primarily informal settlements (slums),

 Type 2 are in the core city
 Type 3 are in formal developments
 Type 4 are in urban villages.

In the study we focus primarily on type 1 residents.

. In the first experiment, we displace a typical slum dweller from his current location to a peripheral
location. His new house in the new ward shares the characteristics of the mean of that housing type
in the new ward. In the subsequent simulations, we relocate the individual while ensuring that his
new dwelling resembles his old one, we relocate the individual while ensuring that his neighbor’s
dwellings look just as they did in the old location, and finally, we relocate the individual and ask
whether it might be possible to improve his access to water and sanitation sufficiently to
compensate him fully for the welfare losses incurred by the move.

Assuming a credible, enforceable, and transparent system for assignment and transfer of
compensation could be developed, the wealth in the unimproved land could be tapped to fund the
cost of the relocation, including the purchase and development of peripheral land for new
residences, and the relocated households could be compensated many times over for the welfare
loss incurred by the relocation.

Housing Description No. of Share Avg. Living Avg. Price Avg.

Type Households Space Monthly
rent
1 Informal 1137 40 277 175,521 926
Settlement
2 Core City 640 23 341 599,181 2305
Housing
3 Formal 870 31 637 763,566 3325
Developments
4 Urban Village 199 7 542 425,447 1836

Regional Informal Core City Formal Urban Village

Characteristics Settlements Housing Developments
Location
Dissatisfied 10% 4% 3% 5%
Neutral 2% 1% 0% 3%
Satisfied 88% 95% 97% 92%

Infra/Basic
Service
Dissatisfied 30% 15% 12% 43%
Neutral 6% 6% 1% 4%
Satisfied 64% 91% 86% 53%

Will you….?
Upgrade 7% 1% 1% 8%
Move 2% 6% 3% 1%
Do nothing 91% 93% 96% 91%
N 1137 643 870 199

FINDINGS
1) Relocating the household from ward 38 to ward 5. In this exercise we simply move one
typical slum-dwelling household to a new slum dwelling in ward 5. The relocated household
s provided with a slum dwelling that looks exactly like all the other slum dwellings in ward 5.
The impact of this move is to change the dwelling, the neighborhood, the neighbors, and the
distance to the city center. The household’s willingness to pay falls about 5 percent for the
mean household, and 3 percent for the median household. This is the equivalent of Rs. 20–
35 per month in rent (US$ 0.5–0.9), or Rs. 4000–7000 in terms of the purchase price of the
dwelling.
 2) Relocating household to ward 5, while maintaining the original dwelling characteristics. Here
we move the household, but move it into a dwelling that looks exactly like the one that it
was forcibly removed from in ward 38. In this case, WTP declines by about 4 percent for the
mean household, or Rs. 30 per month. This is a small improvement over the first case.
Although dwellings in ward 5 are larger than those in ward 38, other services are less well-
developed than in ward 38.

3) Relocating the household to a neighbourhood in which the other dwellings look like they did
in ward 38. In this case, we move the household, and change the characteristics of the
neighbouring dwellings to resemble its old neighbours. We proxy these characteristics by the
share of neighbouring dwellings with sewer connections, the share with good exteriors, and
the mean number of hours of water each dwelling receives. Here the household is
marginally better off relative to scenario (1) and (2), suggesting that households value the
quality of their neighbours’ dwellings as well as their own. In terms of the purchase price of
the dwelling, this represents a lump-sum improvement of Rs. 2400.

4) Relocating households, with improvements to water and sewer services. Finally, we examine
whether it would be possible to provide the relocated households a combination of water
and sewer services that would adequately compensate them for the welfare loss incurred by
the move. Here we simulate the provision of full-time water (168 hours per week), and
sewer connections, for both the relocated household and its neighbours. In this case, the
welfare loss in terms of willingness to pay falls to about Rs. 3 for the mean household per
month, compared to a mean annual per-capita income of Rs. 13,800 for slum-dwellers in the
ward.

CONCLUSION

Even if no improvement in services or amenities is included, and the household is merely moved to
the peripheral ward, the city may still be able to relocate the slum dwellers, redirect the land to
other uses, and adequately compensate the relocated households within the fiscal space provided
by the additional tax revenue accruing from the vacated land.

In the case of ward 38, the tax-assessed value of unimproved land is about Rs. 5000 per square foot;
and the assessed value of shop and commercial space in ward 38 is more than Rs. 20,000 per square
foot.

This research has focused on the welfare consequences of alternative policies on the welfare of
slum-dwellers. These results suggest significant welfare spill overs from policies that focus on slums
to residents of other settlements, and that the welfare of individual households is partly a function
of the characteristics and circumstances of neighbours.

We do not estimate the general equilibrium effects of alternative uses of vacated slums or of
relocation. Clearly, households—those relocated, those in the destination wards, and those left
behind in the original wards—will respond to changes in neighbourhood composition, as well as
changes in prices and populations