This article was originally published in December 2017.
We all know the first and most basic lesson of economics: incentives matter. This is surely why, as a new investigation by The Guardian has revealed, fires in the favelas of Sao Paulo are happening where land values are greater.
It’s true, as the authorities would have us believe, that those urban slums are built largely of wood with a treacherously hotchpotch electrical supply running through them – and it’s no surprise they so readily catch fire. But the underlying problem here isn’t one of unregulated building, it’s the absence of – the non-regulation if you like – property rights. That is why there are more fires where the land is of higher value.
Hernando de Soto has spent decades pointing out that these slum dwellers have perfectly valid de facto property rights to their shacks. What they don’t have is any de jure rights. This means, as de Soto points out, that they have capital but cannot leverage it.
But if you were to allocate those de jure property rights to those who have them de facto then the poor would have capital and would, through the normal workings of markets, end up being very much richer – huzzah! Not only that but once their ownership were formalised, they would also gain access to utilities such as sewerage, clean water and non-life-threatening electricity supply.