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This Article addresses the recent international trend in development theory and practice towards an “enabling markets” approach in housing policy. This approach delegates to housing markets the responsibility of providing affordable housing and therefore limits the role of government to stimulating the private sector through targeted subsidies. I ask whether an enabling markets policy constitutes an adequate regulatory strategy for the provision of sustainable housing solutions for the urban poor. I explore this question through an in-depth case study of Chile’s housing policy regime, which was a pioneer in the implementation of an enabling markets strategy; for over four decades, successive governments have been able to provide access to housing to a vast portion of low-income residents, in the context of a regulatory framework that favors private real estate development. However, this success story is marred by an important failure. Through its market-based regime, Chile has routinely clustered low-income families on cheap land, usually located at the periphery of the country’s urban centers, and often in areas with poor public and private services. The main argument I present in this Article is that Chile’s commitment towards an enabling markets regulatory regime has helped to reinforce the pattern of urban exclusion, and has prevented the government from experimenting with alternative policy strategies that may be more effective in promoting inclusionary housing. The main limitation of the enabling markets strategy is that it assumes that the delivery of targeted subsidies will generate an adequate supply of affordable housing for the low-income sector. The Chilean experience shows that this assumption is false, because subsidies are rarely sufficient to enable beneficiaries to compete for well-located housing, while private companies have strong incentives to agglomerate low-income housing in the least desirable urban areas. I argue that, in order to promote urban inclusion, governments need to experiment with an alternative policy strategy that I call a “planning housing markets” approach, which involves using land-use governance mechanisms to ensure that low-income housing is fairly distributed within cities.
