Abstract
The development of squatter and other informal settlements in Montego Bay (Jamaica) helps individual low-income households (although not the poorest) solve their shelter problem. However, informal settlement also exacts tremendous costs to neighbourhoods and the city as a whole, largely in the form of environmental problems that threaten household health and the region’s main economic base, the tourist trade. These environmental costs come in the form of inadequate or no provision for paved roads, piped water, sanitation, and garbage for a high proportion of those living in informal settlements. When these costs are taken into account, informal settlement is no less expensive than formal-sector development. The paper quantifies the costs of providing infrastructure to unguided informal settlement (squatter upgrading) and shows them as comparable to those for government-produced serviced sites and privately produced moderate-income projects - and the infrastructure is often of poorer quality and with less possibility for cost recovery. The paper ends with a discussion of policies that can help solve this problem. Instead of reacting to land invasions, governments should get ahead of low-income housing demand by guiding the development of informal settlements and by lowering the cost of formalsector production. This strategy promises higher quality housing and infrastructure, lower costs and fewer environmental problems.