The demand for government housing: Evidence from lotteries for 200,000 homes in Ethiopia
Can the state improve the lives of slum dwellers by supplying formal housing otherwise not provided by the market? Or will state-built housing, priced at the cost of production, be beyond the willingness to pay of poor households or built in the wrong location? To answer these questions, I study a lottery for large-scale government housing in Ethiopia. Winners of the lottery are sold apartments on the outskirts of the city. They then have the choice to move in or rent out these units. By moving in, they pay a high implicit price in forgone rent determined by the market, which I show to exceed the cost to the state of producing the housing. I find that nearly half of lottery winners trade slum housing in the city centre for improved housing on the outskirts of cities. In addition, they make upgrades to their apartments, adding a number of amenities that they did not enjoy in their slum housing. I argue that this reveals unmet demand for improved housing and suggests that informal housing is a sub-optimal outcome for a large proportion of slum-dwellers in this setting. Moving to sites far from the city centre does not negatively affect labour supply or earnings. Although social lives are less vibrant in the new housing estates, lottery winners report significant reductions in conflict with neighbours and increased willingness to contribute to public goods.