new suburban developments in emerging cities often take place without much consideration of their transport and congestion implications. In addition, these developments are often targeted at rich households willing to live at much lower density and are unlikely to factor in all the social costs of suboptimally low density.

Despite the challenges, urban expansion is a pressing issue. Consider the typical case of cities that grow in population by 2% per year and where households are willing to increase their housing expenditure by 2% per year.<sup>52</sup> To prevent prices from increasing, this 4% annual increase in demand implies a doubling in the amount of developed floor-space of housing every 18 years.

Hence, despite its lack of popularity and the costs highlighted above, urban expansion will nonetheless need to be a big part of accommodating increasing demand for housing. The potential for large increases in housing supply from slum upgrading policies seems limited given extant construction technologies and materials being used.<sup>53</sup> Urban retrofitting may not be much more promising in this respect either as much higher constructions in modernized areas may not do more than offset the much lower share of land devoted to housing (Henderson et al., 2017). As we argue below, slum upgrading and urban retrofitting have some virtues but accommodating massive growth in demand is not one of them.

Besides its limited ability to provide a large increase in housing floor-space, urban retrofitting has other drawbacks. The first is its cost. While candidate neighborhoods for retrofitting offer potentially good accessibility and thus have valuable land, tearing down, redesigning, and rebuilding is arguably much more costly there than for greenfield development. The second main drawback of urban retrofitting is that it entails the relocation (at least temporarily) of large groups of residents. While land in some areas seems so valuable that existing inhabitants could be reaccommodated locally after retrofitting without affecting the economic viability of such project, existing experiences are not always encouraging. For the emblematic case of the Dharavi slum in Mumbai, Iyer et al. (2011) show that a viable re-development project supported by the municipal authorities got derailed as poorly defined property rights led to a much larger number of claimants than expected for the projected new housing. This jeopardized the economics of the project as it was feasible to rehouse existing inhabitants in new developments one square meter for one, but

> 52 Using national accounts for a large cross-section of countries, Dasgupta et al. (2014) show that housing investment as a fraction of GDP per capita is S-shaped and takes off at about $3,000 before tapering off at around $36,000. Low-income countries invest about only half what upper-middle-income countries invest as a fraction of their GDP. Housing is often acknowledged to be a normal good, but it appears to be a luxury good at low levels of development so that a 2% increase per year for housing expenditure at the household level is perhaps a conservative estimate in a poor but growing economy. Then, a 2% per year population growth is above what we have observed in the recent past in Latin America but seems very conservative for large African cities and some parts of Asia, including India.

> 53 The most primitive forms of housing are shacks for which building up is simply not an option. With less extreme poverty, houses made of brick can be raised by several floors without requiring full reconstruction.

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