Emily Mellen 0:06

Welcome to Global Research Bytes. I'm Emily Mellen, and I'm here with Jessica Montgomery, who has just defended her dissertation in UVA's economics department. Welcome Jessica.

Jessica Montgomery 0:15

Hi, thanks. I'm excited to be here.

Emily Mellen 0:17

So, tell us about your CGII research project. You've been researching property rights and residential investment in post-apartheid South Africa. What does that look like?

Jessica Montgomery 0:25

So, South Africa is a very interesting context to start talking about property rights, in the sense that a lot of their property rights systems also come from British common law. So, in that respect, it's very similar to what we would think of as the property rights systems that we have here in the US. And so, a title deed still represents, you know, full ownership of a property. There's sort of a national office that records the title deeds and ownership and everything like that, and enforces it. And then the court systems are designed to enforce, you know, the ownerships in this in the way that we would expect, kind of in the American system. But then the interesting thing about South Africa is that, you know, during apartheid, they there was a huge segment of the population, so all of the non-white population were not permitted ownership of most of their properties. Apartheid was sort of a state sponsored system of racial segregation, and so that drastically affected people's personal and economic lives. And so one of the main pieces of legislation was, like, group areas act where there were planners that basically said, Okay, well, this is the area for the whites and this is the area for the blacks, and this is the area for the coloreds and this is the area for the Indians. And like, they kind of just, like, went around and they blocked off different racially segregated areas. And then if you weren't in one of those areas, you weren't permitted to own property. And then a lot of the properties that even were in those areas, they were actually owned by the local governments. And so, apartheid has sort of severe property rights restrictions on non-whites. And so even though the kind of foundational system is similar to what we had. There were generations where people did not have access to that system, and so apartheid fell in 1994 so even now, over 30 years after apartheid ended, there was no nationally sponsored titling initiative that helped people get ownership to these properties. So I started the project when I got a Fulbright grant through the US State Department, and I started working with a nonprofit that facilitates title deed transfers from local governments to the residents who actually live in the homes, who in some cases, have been living there for generations but never actually had full ownership rights to those properties. So, the nonprofit that I work with is sort of stepping into this gap, and then they use corporate and private donations to pay for these title deed transfers, and they work on getting the residents of these homes full legal ownership of the properties. So, these are fully registered, fully demarcated properties that are on a town plan, but they are still in the ownership of the local government. So, in some cases, like I said, people have been living here for generations, but they only had occupation rights. So, they were allowed to stay there, but they couldn't formally. They couldn't legally sell the property, so if they wanted to move, they were sort of taking that loss with them. And then there were also limitations in other ways too. So you couldn't use it as collateral to access loans and different things like that. And so the idea behind the research project is to see what is the economic impact of if people are getting these title deeds, does it matter, you know, does it matter for their property investment? Does it matter for the education of their children? Does it matter for starting a business? You know, are they able to leverage it, to access formal credit, which we know is usually cheaper than sort of informal money lenders, and the credit that they can get in the informal sector. And so that's essentially the question that we're targeting here.

Emily Mellen 3:52

So, what did you find? Does it make a difference in people's lives to have these title deeds?

Jessica Montgomery 3:57

It's interesting. There's been a lot of titling programs all over the world. This project was interesting in the sense that it's the first one that I know of that looks at residential titling programs in Sub Saharan Africa. And so, it was pretty interesting, I think, for me, to also find that we still see an effect like some of the other titling programs around the world. So, when someone receives a title deed, there is an increase in their property value by at least 6% and so that would indicate that once people get ownership they're making more property investments. And so, because they know they're going to be the ones living there, they know no one can take it away from them, they've got this 10-year security that also from like an economic perspective, that sort of security we should also think of as incentivizing investment, right? Because you know that you're going to receive the return on any investment that you make. And so, it does look that after someone gets ownership, that they are doing home renovation so their property value increases. I can also see that they're using the title deed as collateral for loans, for bank loans. In a lot of cases, it's people who are purchasing the house, and so it's facilitating a real estate market that didn't previously exist, sort of in the legal sphere. So informal sales obviously happened, but it you can think of like an area where you can't legally sell your property that kind of has, like labor misallocation concerns, right? And so, if people are stuck, you know where they are, unless they forfeit their asset or they sell it on the informal market for maybe a lot less than what it's worth. Then in those cases, people can get stuck in these previously racially segregated areas, and then the apartheid legacy can persist in that way, in the sense that it's very costly for people to leave. And so actually putting the title deeds out in the area seems to facilitate these property transactions and help people to make these legal transactions that can help them move toward other job opportunities or other things if they choose to do that.

Emily Mellen 5:59

So, it also is facilitating desegregation?

Jessica Montgomery 6:02

Yes, I think that's going to be the long-term effect. And so just having the title deeds in the area are helping to facilitate these property transactions. And so if someone wants to buy your house and you received a title deed from the nonprofit, then you, as the buyer, can use the title deed as collateral for a mortgage, and so then you can get cheaper, secured credit through a bank, which makes it, I think, easier for people who were not originally beneficiaries, but also helps their housing story. And so, they can now access bank loans to purchase a home, and then the person who's selling it, then can make a legal property sale. They can get more out of what their home is actually worth, because it's kind of an above-board transaction, and then they can use that money to move wherever they would like, either to better employment opportunities or something else. So, I think after the title deeds are sort of in the economy, I think over time, it'll facilitate that desegregation, and people will be able to put this a part time legacy away.

Emily Mellen 7:02

That's amazing. So, how did you get involved in this research? What brought you to South Africa specifically, and what brought you to real estate?

Jessica Montgomery 7:11

Yeah, so I had done a few different study abroads When I was in an undergrad. One of the countries that I had gone to with South Africa for, like, an economic history of South Africa, course. And so, I had learned a lot about apartheid, a lot about diamond and gold mining and different things that you sort of, you know, started the South African economy on the path that it, that it was. And so when it came time to apply for my Fulbright, they were like, you know, you need a country that ideally you've been to before that you have some sort of connection to and then you know that you can propose some sort of interesting research agenda associated with that project. And so when I applied, I applied to South Africa, and I had spoken with the nonprofit, because they were sponsoring my application, and I asked them, you know, what kind of projects they could use an economist to look at, and that would be helpful to them, for me to work on. And they said, you know, we have this titling program that we run, and they run it off of corporate and private donations. They were like, you know, donors always ask us what the impact is like if we've done an impact study, and we've not, we don't have anyone who can do an impact study. And so if you could start looking at that, or, you know, run some surveys, and just ask people, you know, are they keeping, are they making a will, you know, are they keeping up with their utility payments or just different things to help them get descriptive idea of what's going on in these communities after the titling happens, and then try to do some sort of economic impact analysis of like, okay, long term, you know, what kind of effects should we be seeing from this, and how big are they? And so that was the project that I proposed, and then got chosen by the State Department. And so I lived in Johannesburg for a year on my Fulbright and worked with the nonprofit, did some initial field surveys to try to understand how the program worked and how people were interacting with it, and just sort of understand the landscape. And then, when I started my PhD and started working on on research, it was a relationship that I maintained and kept working on, sort of this larger question of, what happens after people get full freehold ownership of their properties?

Emily Mellen 9:19

What are your next steps?

Jessica Montgomery 9:20

So, I'd say I would still be involved in this project, even a few years down the road. So, the preliminary results so far is that, yeah, people are using their title deeds for collateral. It seems the big ones is that it's people who are not the original title beneficiaries, but subsequent owners. But it's hard with the data that I have, because it's just from the deeds registry, so it you can think of it as like a snapshot of if someone is currently using their title deed as collateral, which is not super useful. What would be even better is to have a history of if someone had used their title deed as collateral. And so, I've signed a data sharing agreement with a credit bureau in South Africa to get that kind of data.And so, right now I've got a field survey running. We're gonna do a survey of 1000 households. Some of them are titling program recipients, and then other ones are eligible for the titling program, but because of just sort of the trickling in of funding, they haven't yet received their title deed, and so they're still sort of on the wait list, if you will. And so, we're doing a household survey door to door for 1000 households, and one of the questions that I'm asking is also about informal credit usage. And so, one of the questions that I'm also interested in now is that, as people get a title deed, are they substituting away from very expensive informal credit like through money lenders or loan sharks into sort of the more formal credit sector. And so that's one of the questions that I'm looking at now. And so, the credit bureau data and the field survey data is going to help answer that.

Emily Mellen 10:55

While you were doing your dissertation research, you also researched property rights in Appalachia. Can you tell us a little bit about that and how it compares to the situation in South Africa?

Jessica Montgomery 11:07

Sure. So I guess one of the kind of bundle fundamental economic questions that we deal with are the economic effects of institutions, and so property rights being one of the most important institutions that we usually think of and in the US, I think we generally think that our institutional quality is very high. And so, we think, Okay, we've got a robust legal system, rule of law, we have very secure property rights. But that's not always true in all parts of the US. And so, I grew up in southeastern Kentucky, in part of Appalachia, where it was sort of common knowledge that, depending on the type of title deed system that you were in, maybe you didn't have as secure property rights as what most people would think. And so, in Appalachia, especially in the coal fields of Appalachia, it's very common for there to be two separate owners to the same piece of land. And so, you would have a surface owner that has property rights over the surface and any kind of like structure or agriculture or any type of investment on the surface itself. And then you would have a separate property owner that owns the minerals underneath. And so, when these deeds were signed, underground mining was the dominant form of coal mining. And so, you would dig like a mining shaft down, and then all the coal or minerals would be removed up through the mining shaft. And it was very little damage to the surface property. And so that was kind of the environment under which these deeds were signed. However, when surface mining was introduced, or strip mining, they sort of used heavy machinery to scrape away all of the topsoil and bedrock on top of the coal seam, and that's how they got the coal out, which, as you can imagine, led to a lot of contention between the surface owners and the mineral owners because of the destruction that happened to the surface property. And so, then it was up to the courts to decide how they wanted to enforce these, these property rights. And you know, did the mineral owner have an inherent right to use this new mining technology to access their minerals, or did the surface owner have a right to say, No, you can't use this mining method without my consent. You have to use something else. And so different courts in different states decided it differently. And so, my other project is looking at the long run effects of these differences in the security of property rights for the surface owner on sort of these legacy outcomes. And so, looking at, you know, how much surface mining was actually used in those areas, and then the long run effect on what that's done to residential property values in Appalachia today.

Emily Mellen 13:38

And what did you find?

Jessica Montgomery 13:40

So, I found that for the states that had weaker protections for the surface property owners, so if the mineral owner could come in and use surface mining, even without the surface owners consent, for the states that sort of had those weaker protections for the service property rights, thar there was about three and a half times more surface mining in those states, than just across the border into states that had very similar coal reserves and underlying coal characteristics, but that they did protect the surface owners’ rights in those places. And so, as you can imagine, there was a lot more surface mining. And then even now today, property values in those places that had weaker protections for their service rights are about 31% lower than just across the border in states where those surface rights were protected.

Emily Mellen 14:29

That's fascinating, and clearly created a lot of problems. So, is there a parallel in South Africa where, clearly it's also a place where a lot of mining happens, but I don't know if that happens so much in populated areas, right?

Jessica Montgomery 14:43

So, less so from the mining point of view. But I think the kind of common thread between the projects is that the institutional framework that property rights affects economic decision making, and that depending on the type of institutional system that you're on operating in, it incentivizes different things. And so, you can have these long run Legacy Effects coming from the institutional environment that people were making decisions in. And so, in both cases, I guess they're kind of two sides of the same coin. In the appalach paper, I was looking at the long run effects of a temporary chalk or a weakening of the property rights of the homeowners, whereas in South Africa, I'm looking at the other side, which is, what is the economic impact if people are gaining those property rights, and what do we see kind of falling out from that? And so, I guess the common thread is just the link between institutions and the economic incentives and decisions that people make

Emily Mellen 15:43

That's fantastic. And you told me before we started recording that you also have a new position.

Jessica Montgomery 15:50

Yes, so I'm starting as an assistant professor in finance at the University of Kentucky in the fall.

Emily Mellen 15:56

So, you'll be leaving the University of Virginia but hopefully will come back andtell us how this research goes.

Jessica Montgomery 16:01

Yeah, anytime. Happy to happy to talk about it.

Emily Mellen 16:04

Thank you.