Skip to main content

Property Rights for the Poor

Are land titling programs a useful instrument for poverty reduction? Research says they are, but not for the reasons put forth by many academics and policy advocates.

Hernando de Soto argued that providing formal land titles to the poor would allow them to use land as collateral to access credit. In turn, this credit would be invested as capital in productive projects and ultimately boost labor productivity and income. Actually, the empirical evidence finds that titling has little effect on credit and productivity but does work through other channels to improve wellbeing.

In a policy seminar presented at the Inter-American Development Bank (IDB), Ernesto Schargrodsky presented the findings of his research with Sebastian Galiani on a natural experiment in land titling in the suburbs of Buenos Aires, Argentina. A group of squatters occupied land outside of the capital more than twenty years ago. Some of these squatters received titles for the land when Congress passed legislation expropriating these parcels and the former owners accepted the government compensation offered to them. However, 410 of the 672 families who live on this land still lack titles, as the former owners rejected the government’s offer and are pursuing the case in the slow Argentine courts. Years later, the differences between the people with and without titles are striking, but not for the reasons suspected.

The effect on housing investment was notable. The variables measured included good walls, a good roof, surface construction, concrete sidewalks and overall housing quality. In terms of all variables, the homes of the families with titles fared far better. The security that their homes would not be seized and the transferability of their asset likely played a role in their decisions to invest in their homes. An overall housing improvement of 37% was associated with titling.

Land titling also positively affected the size and structure of households. Families in titled homes were smaller than in untitled homes, largely due to the presence of fewer extended family members and lower fertility rates. A possible explanation for this difference lies in insurance motives. Given the use of their housing investment as a savings tool and as secure shelter for their old age, families in titled homes were less likely to depend on relatives as insurance or on children for their future security.

There were almost marked differences in educational outcomes between the two groups. The study looked at both school achievement, which covers differences in school dropout rates, grade repetition and school initiation ages, and school absenteeism. Overall, children in titled homes enjoyed 0.4 more years of education than their counterparts in untitled homes and over a period of five days missed .4 days less of school.

Interestingly, when the study looked at the effects on performance in the credit and labor markets, there was little difference between the two groups. As far as access to credit cards, banking accounts, and non-mortgage formal credit from banks, the government, labor unions or cooperatives, both groups have virtually no access to these types of formal credit. They have a little more access to informal or on-trust credit from relatives, friends and local stores, but the difference in access between the two groups is minimal. Similarly, there were no perceptible differences in labor market outcomes between the two groups. Household head income, total household income, total household income per capita and employment status of the household head were the same for both groups. Families with titled and untitled property were both very poor.

Apparently, real estate possession is a necessary but not sufficient condition for access to credit. In order to sit down with a lender, prospective borrowers need formal employment, decent wages and a minimum amount of time in their jobs. Without these other conditions, titling alone opens few doors in the world of credit.

These results on credit access suggest that land-titling programs are not a one-step panacea to harnessing the capital of the poor. Does this mean the programs have been a waste or that the idea should be abandoned? The answer is, no. Families in titled property ended up living in better homes with fewer, more educated people. In other words, they, and particularly the next generation in those households, were better off. Certainly this is justification enough for any program.


Jump back to top