organization of the sector. These areas of emphasis represent the building blocks of a housing system.

By shifting the debate toward policy instruments and away from targeted intervention, the market approach implied that interventions were not needed beyond getting the policies right. It was also largely silent on the direct problems of housing for the lowest income groups. While the approach may appear abstract and prescriptive in its reforms and views on the role of government, its focus on market processes has highlighted the importance of understanding housing market performance when designing reforms or specific interventions. The policy environment not only influences outcomes but also constrains the scaling up and sustainability of targeted interventions. The debate often appears to be over a singular focus on targeted interventions, on the one hand, and policy, regulatory, and institutional reform, on the other. Yet a mix of both is required.

The World Bank’s recent urban strategy suggests that the market approach was “far too sanguine” about the difficulties of creating well-functioning housing markets with private construction and financial sectors that respond to low-income housing demand. It instead argued for a more pragmatic view that includes interventions through measures such as land readjustment, a return to sites and services, upgrading, and subsidies to the poorest.<sup>2</sup> There is, however, no consensus on the sequencing and content of policies and targeted interventions. One view, recently put forward by the 2009 World Development Report on economic geography, suggests that land use regulatory reforms and targeted interventions should take place at advanced stages of urbanization.<sup>3</sup> Addressing the causes and outcomes of poor housing sector performance at such a late stage is likely to be costly, given the durability of housing. As Martine and McGranahan (2010) warn about Brazil’s poor performance during its urban transition, “the unwillingness to prepare for massive growth has not only made Brazil’s urban transition unnecessarily traumatic but also left a legacy of social and environmental problems that prevent the country from benefiting from all the inherent advantages offered by urbanization.” The housing sector’s performance continues to present challenges, even in middle-income countries that are well past their urban transformation. The debate on housing market performance has been limited by inconsistent data on and definitions of slums that indicate a billion slum households. While one may argue about definitions and quantities, the existing data clearly signal that urban housing markets are under pressure—not only in the least urbanized (but rapidly urbanizing) regions but also in the most urbanized developing country regions. This, however, does not imply that the main response should be to focus solely on “solving” the problem of slums without addressing the policies that influence housing system performance and give rise to slums.

This paper provides an overview of the policy and institutional building blocks that determine housing sector performance, drawing on studies from both developed and developing countries. It focuses on property rights, including tenure choice, housing finance, and subsidies. It also 2