The Great Indian Housing Disaster
The last couple of years, I have been very intimate with Bombay. Bombay offers its denizens the best of India, in opportunity, professionalism and liberal attitudes; and the worst of the country, in housing and urban planning. I will talk of the former in this piece.
Bombay proudly claims some of the highest real estate prices in the world and simultaneously also has Dharavi, the largest slum in Asia (and which according to the Economist, has density in excess of a million people per square kilometers in parts).
The commonly attributed reason is Bombay's small spread. As is well known the MCD (and NDMC) in Delhi has two million fewer residents but three times the area of BMC. So obviously housing in Bombay should be more expensive, right? Though I have no statistics for that the FSI* in Bombay is higher nullifying Delhi's space advantage (there are more high rise residential towers in Bombay than in Delhi). There is more to the housing disaster in Bombay, than just area.
Like everything else, urban housing in India has witnessed a massive governmental intervention since independence, and is much worse off for it. After independence, the government India assumed the sole right to develop land in cities. DDA became the only body to develop land in Delhi. I am sure some such a body exists in Bombay as well.
Housing, like everything else follows the laws of demand and supply. When the demand for housing far outstrips its supply (like it does when DDA fails to deliver enough houses - in 1993 against a demand of 100000 dwelling units, DDA delivered only ....5000!!!) then the prices move north. In this process a lot of people get priced out of the market.
These people still need shelter - so in Delhi they end up in illegal housing (the unauthorized colonies) with no amenities and in Bombay where land is scarcer, you get the infamous slums. At the very heart of the housing crisis in urban India is a supply constraint. This constraint is the making of the Indian socialist state.
The solution to slums is pretty straightforward - massively increase housing supply. This isn't as simple as it appears. There are two strong lobbies who stand to lose with an increase in housing supply - existing house owners and builders. Due to high prices, people have invested heavily into buying in the cities. Now if the supply increases rapidly, these people suffer a massive capital loss. Imagine you invested a crore in buying a house in Central Bombay and now due to the mill land development the prices drop to say 80 lakhs. I am sure you wouldn't be too happy about that. Some say it was this lobby which stymied the mill land redevelopment in Bombay for so long.
In addition, there will always be the very well connected builder lobby. An artificial shortage of housing boosts house prices boosting the builder margins in the process. An increase in supply will mean smaller margins and smaller RoIs for builders. Builders will not want to increase housing supply beyond a point and they have enough clout to put a stop to a lot of things.
The Urban housing crisis in many ways is a little like the Palestinian problem - everybody knows the solution, but nobody is able to see it through.
*Floor Space Index i.e. given one square foot of ground, how much space has it been converted into. If on 1000 sq Ft of land you building a three storey building then you have created 3000 sq Ft from 1000 sq Ft leading to an FSI of 3
Bombay proudly claims some of the highest real estate prices in the world and simultaneously also has Dharavi, the largest slum in Asia (and which according to the Economist, has density in excess of a million people per square kilometers in parts).
The commonly attributed reason is Bombay's small spread. As is well known the MCD (and NDMC) in Delhi has two million fewer residents but three times the area of BMC. So obviously housing in Bombay should be more expensive, right? Though I have no statistics for that the FSI* in Bombay is higher nullifying Delhi's space advantage (there are more high rise residential towers in Bombay than in Delhi). There is more to the housing disaster in Bombay, than just area.
Like everything else, urban housing in India has witnessed a massive governmental intervention since independence, and is much worse off for it. After independence, the government India assumed the sole right to develop land in cities. DDA became the only body to develop land in Delhi. I am sure some such a body exists in Bombay as well.
Housing, like everything else follows the laws of demand and supply. When the demand for housing far outstrips its supply (like it does when DDA fails to deliver enough houses - in 1993 against a demand of 100000 dwelling units, DDA delivered only ....5000!!!) then the prices move north. In this process a lot of people get priced out of the market.
These people still need shelter - so in Delhi they end up in illegal housing (the unauthorized colonies) with no amenities and in Bombay where land is scarcer, you get the infamous slums. At the very heart of the housing crisis in urban India is a supply constraint. This constraint is the making of the Indian socialist state.
The solution to slums is pretty straightforward - massively increase housing supply. This isn't as simple as it appears. There are two strong lobbies who stand to lose with an increase in housing supply - existing house owners and builders. Due to high prices, people have invested heavily into buying in the cities. Now if the supply increases rapidly, these people suffer a massive capital loss. Imagine you invested a crore in buying a house in Central Bombay and now due to the mill land development the prices drop to say 80 lakhs. I am sure you wouldn't be too happy about that. Some say it was this lobby which stymied the mill land redevelopment in Bombay for so long.
In addition, there will always be the very well connected builder lobby. An artificial shortage of housing boosts house prices boosting the builder margins in the process. An increase in supply will mean smaller margins and smaller RoIs for builders. Builders will not want to increase housing supply beyond a point and they have enough clout to put a stop to a lot of things.
The Urban housing crisis in many ways is a little like the Palestinian problem - everybody knows the solution, but nobody is able to see it through.
*Floor Space Index i.e. given one square foot of ground, how much space has it been converted into. If on 1000 sq Ft of land you building a three storey building then you have created 3000 sq Ft from 1000 sq Ft leading to an FSI of 3
posted by Dinkar at 5:22 PM
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