THE IMPACT OF HOUSE TITLING: Evidence from a natural experiment in Uruguay

Néstor Gandelman Universidad ORT Uruguay

First Discussion Seminar

Titling in Latin America: Effects and Channels

March 30, 2007

Problems

• This is a very preliminary draft.

• There are at least 3 issues were I need feedback from you:

1 . Which should the focus of the paper be?2 . Which are the “better” comparisons?3 . How far to go with the controls?

The Natural Experiment

•In the mid-70s a public institution (INVE) built 13 small neighborhoods (communities).

– In all cases purchase agreements were signed and implicit mortgage contracts were in place.

•The communities were built in land owned by:– INVE (9) – Municipality (3) – Unknown (1)

The Natural Experiment

•In 1977 the INVE was eliminated by law and its goals and property were assigned to the state-owned mortgage bank, (BHU).

– Over the following decade various institutions were officially in charge of their management.

•Finally, on March 1987 the Municipality rejected the last agreement and informed the BHU that it should take care of the communities built in its land.

The Natural Experiment

•In December 1987, the Executive branch of Government designed a task group to study the situation of the communities with representatives of:

– the Ministry of Education, – the Ministry of Labor and Social Security, – the BHU and – the Municipality of Montevideo.

The Natural Experiment

•The conclusions of this task group were:– No institution was really taking care of the

management of the communities.

– It would imply an excessive cost for the BHU to assume it.

– It was in the best interest of the BHU to sell the houses to the actual occupants in whatever price they were able to pay.

The Natural Experiment

•The board of the BHU agreed and

– Set a nominal price of 10U.R. equivalent to approximately $100 for those occupants that could not prove to have made any previous payment.

– Those that made previous payments only had to pay for the titling costs (2U.R approximately $20).

The Natural Experiment

•But the assignment of the formal property rights could be done only in 3 communities.

•Why?

– Because in the others there were no registered plans (area maps with the land division among houses) in the Municipality of Montevideo.

Table 1. Data from the task force report

Name Number

houses

Original owner of the land Area

maps

19 de Abril 98 INVE-BHU No

Ituzaingó 60 Unknown No

Independencia 98 INVE-BHU No

18 de Julio 34 INVE-BHU Yes

Sarandí 130 INVE-BHU No

Rincón 52 INVE-BHU No

Grito de Asencio 65 INVE-BHU No

25 de Agosto 52 INVE-BHU Yes

Las Piedras 36 Municipality of Montevideo No

Misiones 540 Municipality of Montevideo No

Lavalleja 84 INVE-BHU Yes

Guayabos 150 INVE-BHU No

19 de Junio 456 Municipality of Montevideo No

18 de Julio- Independencia

25 Agosto-Las Piedras

Lavalleja

The Treatment Communities

18 de Julio - 34 houses

25 de Agosto - 52 houses

Lavalleja - 84 houses

The Control Communities

Table 2. Controls

Contiguous Non-Contiguous

19 de Abril

Sarandí

Rincón

Same owner as treatment

(BHU)

Independencia (18 de Julio)

Guayabos

Grito de Ascencio

Ituzaingó

Misiones

Different owner (BHU)

Las Piedras (25 de Agosto)

19 de Junio

Census Sample(1/3) Nothing

The survey• Census of the 3 treatments:

18 de Julio - (34)25 de Agosto - (52)

Lavalleja - (84)Total: 170

• Census of 2 controls:Independencia (98) Las Piedras (36)Total: 134

Total 469 houses to be surveyed

• Sample 1/3 of 5 controls19 de Abril (98)Sarandí (130)Rincón (52)Guayabos (150)Grito de Ascencio (65)Total:495 Sample:165

The survey• Census of 3 treatments:

– (done almost no rejection)

• Census of 2 control:– (done almost no rejection)

• Sample of 4 controls:– 1/3 of community size with no “house” replacement in case of

rejection or not finding anybody.

– (80% done)

Comparisons• Exercise 1- Independencia vs 18 de Julio

– (contiguous, same owner, census data)

• Exercise 2 - Las Piedras vs 25 de Agosto– (contiguous, different owner, census data)

• Exercise 3 – All treatments vs 4 controls – (non-contiguous, same owner, sample-census data)

• Exercise 4 – All treatments vs All controls

• Exercise 5 – Treatment and Controls vs Household survey data (city or neighborhood)

The survey

• The survey covers:• basic socio-demographic data• housing conditions• entrepreneurship• credit• happiness• external appearance • health• education• work• income

Table 5. Housing Tenure

  First exercise Second exercise Third exercise  

  Independencia 18Julio LasPied 25Agosto      

  Control Treatm Control Treatment Con Treatm Tot

Assigned by Public Institution 35% 43% 54% 46% 41% 50% 46%

Inherited (from someone assigned) 7% 9% 5% 41% 7% 15% 11%

Bought the house 41% 34% 13% 2% 33% 25% 29%

With Notary participation 5% 9% 10% 2% 7% 15% 11%

Without notary participation 36% 26% 0% 0% 28% 10% 18%

Rent 0% 3% 0% 2% 0% 3% 1%

Occupant with permission 16% 9% 28% 7% 20% 7% 13%

Occupant without permission 0% 3% 0% 0% 0% 1% 0%

Total 100% 100% 100% 100% 100 100% 100

Houses with these problems Houses with these devices

Humidity in the roof Water heater

Leaks Instant water heater

Wall Fissures Refrigerator

Problems in doors or windows TV

Floor Fissures Cable TV

Problems with wall or roof plaster Video

Problems with the ceiling Washing machine

Lack natural light Dishwasher

Lack ventilation Microwave Oven

Floods when rains PC

Risk of collapse Motorcycle

Humidity in the foundation Automobile

Home investment

• The type of effects we are

looking are investments

which may suffer a hold up

problem vs investments that

can be taken if they have to

move.

Entrepreneurship and Credit

• Households in the treatment communities have more access to formal credit than the control communities.

– But ownership documents were not a relevant requisite to access to credit.

– Thus, the channel does not seem to be through the transformation of houses into colletaralized capital.

Entrepreneurship and Credit

• We find that there are more productive activities in the control communities.

– And there is no participation of the formal credit system in the funding of any of them (control + treatment).

– Moreover the larger access to formal credit from the treatment communities does not pass through to productive activities.

Health

• Is there a channel from

housing living

conditions (home

investment) to health

outcomes?

Diseases related to housing conditions  

Asthma  

Tuberculosis  

Sinusitis  

Rheumatism  

Intestine parasites  

Allergies  

Skin infections  

Diseases not or less related to housing conditions

High blood pressure  

Diabetes (insulin-dependent)  

Diabetes (insulin-dependent)  

Psychic disorders  

Sexual transmission illnesses  

Discapacities  

Other illnesses  

Others

• Education• Labor market and Income• Values and happiness

– Nothing clear yet

THANK YOU