Addis Ababa
Addis Ababa
Evidence from a large-scale housing lottery programme in Ethiopia shows that government housing that people want, and thrive in, can work in settings with highly constrained housing supply and when programmes are designed well.
Many governments attempt to solve urban housing shortages by building massive developments on the outskirts of cities, hoping to entice people away from informal settlements—or “slums.” It is important to ask how such programmes affect the households that receive this housing, but I argue there is a more fundamental question we should address first: do slum dwellers actually value these homes more than their cost of construction? In Ethiopia, for instance, the government built more than 200,000 units on the fringes of Addis Ababa, specifically “to improve supply housing to those underserved by the market” (PASGR 2017).
According to economic logic, households living in central slums reveal a preference for location over higher quality but remote housing. Under this efficient markets view, a large housing supply intervention would be inefficient, as households would continue living near jobs and social networks (Barnhardt 2017). Otherwise, private developers would already have built the same type of housing.
Yet this logic fails when legal, financial, or regulatory constraints prevent the private sector from supplying housing at scale. In these constrained markets, there may be families who do want to move out of slums (Marx et al. 2013) but cannot obtain the housing they want. In these cases, a government-led building programme can serve as a second-best solution that addresses unmet demand, even if it yields no other social benefits.
Estimating the demand for and effects of a housing programme in Ethiopia
My research follows a random sample of households who applied to purchase government-built condominiums (Franklin 2025). Winners were chosen by lottery—making it possible to compare them to otherwise similar non-winners—and randomly assigned to various sites around Addis Ababa. Multiple follow-up surveys allow me to track how their housing choices, jobs, and social networks changed over time, up to eight years after they acquired their units. This data allows for a uniquely comprehensive evaluation of housing policy on this scale.
Using a direct “revealed preference” test for demand
A key feature of Ethiopia’s programme is that winners buy the new houses but have the option of renting them out on the open market. This arrangement reveals the market prices, as well as the implicit prices paid by those who choose to occupy their units rather than collect rent, thereby directly revealing (a lower bound of) how much these families value the homes.
I collected extensive rental data—both for government and non-government housing—and combined it with construction-cost estimates from official records and unique land-price data from recent auctions. Even after 200,000 units were built, I found that rents still exceed the costs of construction, if only modestly: my results suggest a simple internal rate of return of about 7%. However, this only provides information about the marginal occupant, who may have stronger preferences for government housing than the average household.
A more representative indicator comes from the lottery applicants themselves, as roughly 70% of households in the city applied for the programme. Winners who move in effectively choose to pay the prevailing rental price (minus some transaction costs) rather than pocketing that rent as landlords.
I find that more than 50% of lottery winners move in when they get the chance, a similar proportion still live there after eight years, while the other half rent them out. Figure 1 shows lottery winners trade location for physical housing quality, without changes in other forms of consumption. I show that these changes are entirely driven by households who move into their units. This trade-off leaves the implied market value of movers’ housing unchanged in the short run; in the longer run, rent growth is higher in government housing than in slums.
Figure 1: Impact of lottery on household outcomes
Impact of lottery on household outcomes
Impact of lottery on household outcomes
Are there unintended effects of moving households to the periphery?
If government-provided housing meets previously unmet demand, it should yield positive (if modest) social returns. Still, relocating people could create unforeseen costs that could undermine that equation (Finkelstein and Hendren 2020). Households may regret the move if commuting or social isolation becomes too burdensome, which would contradict the revealed preference logic above. Negative externalities may erode social returns or increase fiscal costs if households’ labour supply declines, or if new neighbourhoods become bad places for social and human capital (Chyn 2018) as has appeared to have happened in Europe and the US. Conversely, if moving has beneficial effects—such as improving health or children’s education—it could further justify these interventions.
Using the housing lottery for identification, I find no substantial evidence of large positive or negative impacts on jobs, social networks, or children’s schooling outcomes. Most people adjust to longer commutes, either by keeping their existing work or finding employment nearer to their new homes. Over time, early drawbacks—such as weaker social ties—fade out, and the newly built areas evolve into cohesive communities with improved amenities.
The changes in social and neighbourhood outcomes between years three and eight highlight the importance of longer-term evaluation of housing interventions.
Why Ethiopia’s housing programme stands out
My results suggest that government housing can work in settings with highly constrained housing supply and when programmes are designed well. My evidence suggests that several factors may have been crucial to the relative success of Ethiopia’s programme:
Scale and density: The government constructed entire neighbourhoods large enough to support local employment, social networks, and transport services. After eight years, I see that job access looks similar to that of non-moving households. Movers are as likely to work close to home as those who did not win housing.
Flexibility in occupancy: Winners can rent out their apartments instead of occupying them, reducing the risk of a detrimental forced relocation.
Location and transport: Although most sites sit on the periphery, they are not so remote as to be cut off (Belchior et al. 2023). Adequate transport allows residents to stay connected to job markets and urban amenities. Interestingly, when some lottery winners were assigned to pricier housing closer to the city centre, occupation rates decreased, likely because the opportunity cost of giving up rent for these premium units was so high.
Property rights: Those who choose to move become owner-occupiers enjoy secure property rights that are rarely available to slum residents. Owners made substantial private investment in the units—investments that may not occur in a rental-based system.
These factors may explain why other smaller, more narrowly targeted, and tenancy-based programmes have been less popular (Barnhardt 2017)
Policy implications for housing programmes in developing countries
While not all government programmes will replicate the success of this one, my findings suggest that a large share of families living in central slums do, in fact, want better homes if provided at affordable levels. Moving households further from the city centre, while allowing them to do it voluntarily, does not always result in negative outcomes. Governments can foster this demand by removing supply-side and regulatory barriers to encourage the private sector to build, or by directly constructing housing until the market catches up. Allowing people to access quality housing they are willing—and able—to pay for offers important welfare gains for slum residents.
References
Finkelstein, A, and Hendren, N, (2020), "Welfare analysis meets causal inference," Journal of Economic Perspectives, 34(4), 146–167.
Chyn, E, (2018), "Moved to opportunity: The long-run effects of public housing demolition on children," American Economic Review, 108(10), 3028–3056.
Barnhardt, S, Field, E, and Pande, R, (2017), "Moving to opportunity or isolation? Network effects of a randomized housing lottery in urban India," American Economic Journal: Applied Economics, 9(1), 1–32.
Belchior, C, Gonzaga, G, and Ulyssea, G, (2023), "Unpacking neighborhood effects: Experimental evidence from a large-scale housing program in Brazil," Unpublished manuscript.
Franklin, S, (2025), "The demand for and impacts of government housing: Evidence from Ethiopian lotteries," Unpublished manuscript.
Marx, B, Stoker, T, and Suri, T, (2013), "The economics of slums in the developing world," Journal of Economic Perspectives, 27(4), 187–210.
Partnership for African Social & Governance Research (PASGR), (2017), "The Integrated Housing Development Program: Identifying Strengths and Gaps."
Ethiopia RCT housing subsidised housing urbanisation