Housing market dynamics in the metropolitan area: A case study of the informal housing markets in the metropolitan Jabotabek, Indonesia

Iskandar Saleh, University of Pennsylvania


This study investigates the workings of the informal housing market and the ways house building is facilitated and financing obtained among lower-income households in a metropolitan area experiencing exploding population growth and decentralization. In capturing the dynamics of informal housing development, the study examines market operations in relation to the practice of location-permitting intended to facilitate access to land for formal housing development. Also studied is the inaccessibility of formal housing finance by households acquiring homes in the informal-sector. The study creates its own operational definition of informal housing market and segments the total market into submarkets useful for analysis. Using a multi-clustered stratified sampling technique, data for this study were randomly collected through an in-depth interview with households residing in selected informal settlements in the Botabek area on the fringe of Jakarta. The study findings indicate that: (1) the increasing amount of scattered informal land development in Botabek is at least partially a consequence of location-permit regulation which has forced a correspondingly large proportion of households to construct homes illegally; (2) the majority of households who participate in the informal market do so in order to avoid cumbersome and costly land titling registration and building permit processes; (3) mortgage loans are inaccessible to the majority of informal-sector households due to rigid requirements towards loan collateral and employment status of informal-sector households. The findings also indicate that: (1) The building cost of staged-construction (where the notions of self-help housing and saving while building are articulated) is much more affordable than that of conventional construction in either the informal market or the formal market; (2) Dwelling units in the informal market built using either staged construction or conventional construction, whether in areas under location-permit or not under location-permit, are generally of acceptable quality. However, the informal market will never provide total housing packages because informal settlements are generally built without adequate public services, such as drinking water, and sanitation and sewage facilities. Lack of tenure security for the majority of dwelling units in informal settlements makes it difficult for these settlements to obtain public services. The study concludes that to provide affordable houses for the majority of informal-sector households, the land titling procedure and regulatory permits governing formal housing markets should be reformed and informal-sector households' constraints to access formal housing finance must be lifted. For households using staged construction, all of these changes should be done in concert with the provision of new financing arrangements, possibly in the form of a line of credit, where a loan is drawn as a supplement to household savings from living in incomplete houses.

Subject Area

Urban planning|Area planning & development|Geography|Economics

Recommended Citation

Saleh, Iskandar, "Housing market dynamics in the metropolitan area: A case study of the informal housing markets in the metropolitan Jabotabek, Indonesia" (1999). Dissertations available from ProQuest. AAI9926191.