The Paradox of Progress: When Financing Inclusion Prices Out the Urban Poor
- 34 minutes ago
- 6 min read
By Aadarsh Mathew
Infrastructure expands, investment surges, inequality deepens. In many cities, infrastructure upgrades increase land values, rents and living costs faster than residents’ incomes or protections can keep pace. Redevelopment meant to include the poor is reshaping cities in ways that leave many behind. Worldwide, more than 1.1 billion live in slums or slum-like conditions in urban areas. International funding agencies and local governments have provided billions of dollars in financing for myriad upgrading projects that aim to trigger more inclusive growth. However, a persistent contradiction seems to remain: when redevelopment is not paired with protections against displacement, the people it aims to help can risk being financially left behind. In this article, being ‘priced out’ refers to physical displacement, where residents are forced to relocate, as well as economic displacement, where rising rents and living costs reduce affordability even when residents remain in place.
In cities such as Nairobi, Kenya, the economic process of upgrading, in the form of extending infrastructure, cost-recovery programmes, and titling, contributes to significant increases in property and rental values rather than the intended relief. Evidence from Ibadan, Nigeria, documents that “property values increased by an average of 76 percent” in upgraded areas. Higher property values are often passed on through increased rents, particularly in settlements where most residents are tenants and do not directly benefit from appreciating assets. The core issue is the ability to finance the upgrade; once public-private partnerships, land value capture, and debt instruments or taxes become the necessary prerequisites for an upgrade, social progress begins to mirror private real estate investment. The consequence is a transformed urban skyline, but the exclusion of the communities that redevelopment was meant to help.
Upgrading informal settlements relies on financing models that are constructed around cost-recovery and land-value capture (LVC) rather than entirely grant-based social investment. Though LVC is not inherently exclusionary, problems arise when the value generated by redevelopment primarily benefits landlords, developers, or municipalities without adequate protections for existing residents. A study based in Nairobi remarks that slum-upgrading proposals tie infrastructure improvements to revenue-generating mechanisms such as plot sales and developer contributions. Such mechanisms create a structural framework of facilities being installed, roads being paved, and titles being issued, causing the adjacent land to rise in value. Subsequently, the informal land market behaves like the formal market, meaning location, access, and living-quality improvements cause a spike in pricing.
Additionally, tenants in informal settlements, who often make up the overwhelming majority of residents, are particularly vulnerable to what economists refer to as a “rent surge”. Research in Nairobi reveals that “nearly 85 percent of slum-dwellers are tenants”; their interests differ from those of landlords or homeowners. As redevelopment is financed through public-private partnerships and land-value capture, the governing priorities often shift from social inclusion to financial returns. Developers and municipal officials often prioritise formal housing units and cost-recovery schemes, leaving the original low-income residents exposed to displacement or higher living costs. Thus, the crux of the issue is that the very financial framework that makes upgrading “bankable” simultaneously harms those very same
communities.
An informal settlement known as Hábitat in Mexico City is a revealing example of how infrastructure investment can trigger rental pressures rather than protect the urban poor. Between 2002 and 2010, the Hábitat programme invested substantial resources in randomised interventions across several informal settlements. The funding was used to improve sidewalks and paved roads, in addition to street lighting. The study found that, for every dollar invested, aggregate real estate values rose by roughly two dollars. While this may signal economic growth, it also means that longstanding tenants found themselves in the midst of escalating rents and informal landlords raising occupancy charges in the upgraded districts, with “monthly rents in upgraded neighbourhoods increasing by US$18 on a base rent of US$88”. In tandem, these figures attest to the central paradox of upgrading. Infrastructure investment creates value, yet part of that value is reflected in higher housing costs and affordability pressures for existing residents. The upgrade made the neighbourhood more desirable, causing commercial activity and rental rates to shift, leaving many of the price-sensitive inhabitants facing higher housing cost burdens and reduced affordability. Despite being well-funded, upgrading can consequently help market forces, which in turn harm the original residents.
A case from Mumbai, India, home to one of Asia’s largest slum settlements, Dharavi, shows how redevelopment driven by investment incentives can exclude the residents it should benefit. After the introduction of the Slum Rehabilitation Authority (SRA) framework in 1995, developers were allowed to monetise premiums on freed-up land and gain development rights as long as rehabilitation housing was provided to eligible residents. However, it became evident that the model hinges on profitable real estate returns rather than social inclusion. One key NGO stated that the financial model “did not make financial sense” without significant private sales. Residents across SRA development projects remarked that the new high-rise flats, though given for free, can impose high maintenance charges and are often located farther away from livelihoods. In Dharavi, homes are often integrated with workshops, recycling operations, leatherwork and street-level commerce. As relocation can separate residents from both their housing and sources of income, some occupants have reportedly “rebounded” back to horizontal slums despite receiving formal housing. The utopian notion of slum redevelopment quickly gets shut down by the market-driven imperative of making slum land “usable”, which directly undermines its original purpose of protecting affordability.
Rio de Janeiro demonstrates a different limitation of upgrading programmes, where physical improvements do not translate into economic mobility. The Favela-Bairro Programme of 1995 was established to integrate informal settlements into the surrounding formal city by introducing formal roads, sewerage systems, street lighting, and community facilities throughout 62 favelas, affecting more than 75,000 families. Although the infrastructure improvements were substantial, further evaluation uncovered that “at the average level, the intervention was not translated into appreciation of housing values”. Many residents still lacked formal tenure rights and therefore could not leverage the upgraded homes as collateral or access credit. The programme failed to have an impact on employment and literacy outcomes among residents. Besides this, the maintenance of the new infrastructure also caused friction, with “elevated pavements causing rainwater to flood homes”. Furthermore, the spread of “diseases such as malaria remained unchanged”, and rising rents made the settlement less affordable for residents. Though the neighbourhoods were improved visually, the inhabitants were embedded in informal labour markets with increasing living costs: a commendable physical transformation, yet one with insignificant gains in economic mobility.
However, upgrading informal settlements does not have to reinforce exclusion. When designed with integrated finance and secure tenure, redevelopment can broaden access and guard against displacement. Evidence suggests that cities where land rights are clarified and communities are engaged in planning often have better outcomes. UN-Habitat notes that once inhabitants “feel that they have a right to live there,” they are more likely to invest in their housing and neighbourhood.
The case studies suggest that successful upgrading requires more than just physical investment and injections of government funds. Secure tenure can help residents capture the value created by redevelopment, while tenant protections and affordability measures can reduce displacement pressures. Livelihood-sensitive planning is also essential as relocation can sever residents from informal economic networks. Finally, community land trusts, resident-retention targets and maintenance subsidies can help ensure that the value generated by upgrading remains with existing communities rather than being extracted by outside investment.
The path towards true inclusion and development is often somewhere in between. One where upgrading budgets include rent caps, credit access, and community land trusts for low-income residents. One where developers are required to allocate affordable units, and municipalities track indicators of displacement, such as resident retention rates, rent increases, and increases in informal settlements in the nearby rural areas. This approach prevents redevelopment from slipping into a real estate investment cycle, ensuring that value created stays with residents. The challenge is not creating value; it’s making sure that the value created stays with the communities it was intended to serve. Progress must build equity, not price out those it’s meant to uplift.
Aadarsh Mathew is a London-based student whose work focuses on economics, management and urban redevelopment. He is particularly interested in how finance and policy can shape inequality and opportunity across growing cities.
