The Effects of Property Titling in Langa Township,

May 25, 2006

JOHANNESBURG, SOUTH AFRICA—Can land reforms create a path to prosperity? In Langa Township, South Africa efforts have been underway for well over a decade to provide legal property titles to previously disenfranchised citizens. Today, most homes—though not shacks—have titles. Can this policy serve as an example for others to follow? Has this government policy led to economic growth and poverty alleviation for Langa’s residents?

The South African-based Free Market Foundation (FMF) and the Mercatus Center at George Mason University in Arlington, Virginia, partners in the Enterprise Africa! project, address this and other questions in their new study: The Effects of Property Titling in Langa Township, South Africa.

To better understand the effects of land titling and property reform the researchers—Eustace Davie, Temba Nolutshungu, Jasson Urbach of FMF and Karol Boudreaux and Susan Anderson of the Mercatus Center interviewed homeowners, business owners, and public officials to learn first hand whether or not homeownership is promoting economic growth in the community.

The team found that having a secure title to property does create incentives to improve property and build communities. Secure titles also provide home owners with space for business activities—renting shacks in backyards, opening restaurants, or starting other home-based businesses.  However, the study suggests that is unrealistic to assume that homeowners in the developing world will take that next crucial step and use their titles as collateral for commercial loans that are the key to promoting economic growth.

Home and business owners pointed to the expense and difficulty of formal transfers of property, housing shortages, and regulatory burdens that make it costly to grow and expand small businesses as primary reasons why they viewed using home titles as collateral too risky.

Langa residents say that policy makers can encourage property transfers by making the process easier. The current monopoly on property conveyance must be removed in order to promote more home sales. The government can also encourage entrepreneurial home business owners to grow their businesses in the formal sector by reducing regulatory burdens. Current fee, licensing, and certification systems make it difficult for small business owners to grow and expand in the current business environment.

Formal titling is a step in the right direction toward realizing the benefits of property rights for economic development. However, policymakers need to take these additional steps in property and regulatory reform if South Africa is to realize the full potential for economic growth and poverty alleviation.