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Understanding Slum Rehabilitation

Why do slum-dwellers often resist rehabilitation? It might seem that they are being irrational — but their decisions make complete sense.

As India urbanizes rapidly, affordable housing is a problem. Only 5-6% of the people of Mumbai can afford to buy a home. With a lack of affordable, formal alternatives, there has been a significant increase in the population residing in slums since the time of independence. The government of Maharashtra has tried to address the issue of affordable housing through the implementation of various schemes to rehabilitate people residing in notified slums. However, even with the provision of housing, residents often rent out the houses allotted to them and move back into their original settlements. There seems to exist a gap in the co-understanding of people who currently reside in slums and those who do not, about why many move back to their slums when an improvement to their current housing conditions are available.

The main question that arises concerns why people residing in slums prefer their current situation to the possibility of improved housing. While analyzing this specific context, there are several factors, such as loss aversion theory, that can be attributed to help explain such an outcome. However, the reasoning behind their perceived preferences tend to differ over time periods, i.e., the short run and the long run.  I have tried to rationalize the decision-making process of an individual residing in slums through the use of a short-run and a long-run payoff structure.

Short-Run Payoff Structure

Player A\Player B Move Stay
Move (-,-) (-,+)
Stay (+,-) (+,+)

In the short-run payoff structure, moving refers to individuals relocating into rehabilitated housing, and staying is to settle for their current living conditions. In the short run, individuals gain greater utility if they stay rather than if they leave. Greater utility is derived as a result of the convenience afforded to them from staying put: an individual does not have to bear the burden of relocation and the associated financial and social costs.

The provision of rehabilitated housing by the government is often along the outskirts of the city. Since their current area of work is more often than not in close proximity to their current living conditions, moving to another location will require people to search for new job opportunities resulting in higher opportunity costs. In the short run, instead of incurring all the costs associated with moving, individuals opt to stick to the status quo. We can trace this to individuals being loss averse, as they are more sensitive to perceived losses than gains.

With regard to moving into a completely different environment, the structure of rehabilitated housing is vastly different from what they are accustomed to. As a result, moving out would cause further strain, and this acts as another reason to deter individuals from doing so.

The theory underlying why individuals opt to stick to the status quo at the expense of a higher standard of living can be understood by reading Benartzi and Thaler. They state that individuals do not, at all times, act rationally, and are more sensitive to reductions in their well-being than to increases. Applied directly to this specific context, we can begin to understand why individuals residing in slums are cautious and reluctant in moving out, as they fear that the losses incurred from moving outweigh the gains.

Although there are costs associated with moving, what also deters individuals are the sentimental values associated with leaving. These values arise out of leaving the same space that was shared with the previous generation. The Endowment effect, which states that individuals often demand much more to give up an object than they would be willing to pay to acquire it, needs to be taken into consideration. While creating a utility payoff structure, it is nearly impossible to be able to account for such values.

Long-Run Payoff Structure

Player A\Player B Move Stay
Move (+,+) (+,-)
Stay (-,+) (-,-)

In the long-run payoff structure, individuals derive greater utility if they move rather than if they stay. As they move, they become accustomed to their new surroundings, and given sufficient time, they create a new social network around them that can give them access to employment opportunities and risk-sharing. More importantly, human beings always strive for more than what they currently have. Individuals want to move up Maslow’s hierarchy of needs, and living in rehabilitated housing is seen as an improvement to residing in slums.

Given the passage of time, status in society ascends to one of the key priorities that individuals seek to attain. As a key priority, individuals will only be able to derive utility by moving out of an informal settlement and into a formal one. With this perceived move, individuals not only gain social status but also property and ownership rights enhancing their utility.

As rehabilitated households move up the pyramid, and into formal settlements, they enter the formal economy. Although this does not directly contribute to an individual’s utility, from a social planner’s perspective, it could significantly attenuate targeting and delivery of public goods and services. As a result, there is an increase in utility, albeit indirectly, with the movement of former slum residents into formal housing.

In order to appeal to individuals to move sooner into housing that is provided, the slum rehabilitation authority could address the reasons that deter individuals from moving. Instead of providing them with houses on the outskirts of the city, the SRA could provide alternative locations that slum dwellers are more compatible with. Giving up and searching for an alternate source of income is one of the fundamental reasons why individuals would not want to move. Therefore, one solution would be to establish housing societies close to their current settlements that are built physically according to the prevailing housing blueprints they are accustomed to.

Unless this problem is solved, we condemn ourselves to repeating the same cycle. And to solve it, we have to first understand it.

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About the author

Nikhil George

Nikhil George is working as a Research Assistant at the Department of Economics at Monk Prayogshala, a not-for-profit academic research organization based in Mumbai. His areas of interest lie in Urban Economics, Public Policy and Behavioral Economics.