Thursday, June 14, 2012

Mumbai's living space - worst of all worlds?

This is as much illuminating as is to be expected, 
Mumbai has perhaps the most extreme statistics of any metropolis. Its land mass is small, stuck like a crooked blade into the Arabian Sea. It has poor transport links, so people who work in the city live near it. That in turn means it has the highest population density of any big city. But it is also low-rise. Panama City has a taller skyline.
The result is tiny living spaces of 4.5 square metres (48 square feet) per person, compared with 34 square metres in Shanghai. And prices are high. Mid-town flats cost $1m-3m. The average price of a 1,000-square-foot pad in the city is perhaps $250,000, or 90 times GDP per head. With flats out of reach, the share of people in slums has risen to perhaps 60%, compared with 20% in Rio de Janeiro and Delhi. Of the rest, about half live in rent-controlled digs, sometimes propped up by wooden staves, or flats for public-sector employees.
Two regulatory restraints - floor area ratio (FAR) restrictions and rent control regulation - are the biggest impediments to expanding supply and thereby lowering prices. Given the massive demand, rapidly growing immigration, and virtually depleted shelf of vacant lands, the only way to generate built-up space for accommodation is to go up vertically by redevelopment of existing units. Any other reform has to revolve around these two fundamental changes. Till they are addressed, Mumbai will suffer from the twin-curse of  inadequate and unaffordable residential  space.  

I have already blogged, here and here, about the adverse consquences of the FAR restrictions and how it compares with cities elsewhere in the world. The impact of the Rent Control Act has been no less debilitating. Of Mumbai's approximately 16142 rent-controlled properties, more than 5000 are older than 100 years and only 3% of all the rent-controlled units have been redeveloped so far.

For a variety of reasons, FAR restrictions continue to rule the roost. However there is hope that the old rent control regulations could soon be reformed. The Government of India have mandated that reforms to rent control legislations, in line with a model Residential Tenancy Act 2011, is a precondition for states to access funding under the Rajiv Away Yojana (RAY) project which provides massive central government grants for urban housing an slum redevelopment.

There is the successful precedent of repeal of the Urban Land Ceiling Act in many states as a precondition to receiving funding under the JNNURM. But the populist nature of the debate surrounding any repeal of rent control, in so far as it would impact large numbers of tenants paying paltry rents for decades, will be a formidable obstacle to this reform.   


Sai Prasad said...

u hit the nail on the head. Pardon the colloquialism.

But the issue and the solutions offered are put in very clear terms and the debate needs to more in the direction of how to --- increase FAR and remove rent control regulations.

The rent control regulation is, obviously, a means of achieving welfare at the cost of the home owner. What makes it very repungent is that the cost is borne by a very small section of the citizenry.

ARS Ltd said...

I read your blog so useful and informative i like it .thanks...

Glass Repair

Unknown said...

Buying a residential space in Mumbai is a difficult task. Also the cost of investment would be too high.