Slum Regeneration

It is a common refrain that houses allotted to the urban poor are sold immediately after its allotment, and the allottees then move to another squatter settlement and become applicants for housing again. The presence of rennovated and in some cases fully reconstructed housing units in weaker section housing colonies are cited as a failure of Government policy in preventing such transactions. However, my contention is that such transactions and the consequent renewal are inevitable and even desirable, and therefore ought to be welcomed.

The more strategically located areas in slums like road margins, junctions etc, are especially vulnearble to being sold or leased out. Typically, the buyer converts at least a portion of these houses into shops or small commercial establishments. Often, more than one house is purchased and get amalgamated into a single unit. But the internal lanes of these slums continue to remain more or less the same, and the turn-over rates are marginal.

There are a number of reasons for welcoming such transactions and consequent renewals. Most importantly, they bring in valuable economic multiplier to the local slum economy. Very often these new settlers are responsible for setting up essential commercial establishments like grocery stores, medical shops, and various services. Without these shops, the slum dwellers often have to travel long distances to procure all their daily and other requirements. This can be best explained with the help of the following parable.

Slumland is a poor country, with a predominantly agricultural and mininng economy. It relies on imports to satisfy all its requirements of capital goods and consumer durables. Its communist Government exercised stringent trade controls, and this spawned a flourishing black market. Then, with the collapse of the Soviet Union and the subsequent fall of the communist Government of Slumland, the new Government opened up the economy. Movement of goods, labor and capital was liberalised, and the Government reached out to invite Foreign Direct Investment(FDI) to Slumland. The economic growth soon reached double digits and the country started booming.

Now replace Slumland with any slum and the external investors and FDI with outsiders purchasing houses in these slums, and things fall into place. The investment by outsiders, even if by purchasing the houses allotted to urban poor, is desirable and has many immediate and long-term multiplier effects on the economy. In fact, it is even essential for the development of the slum since such economic activities cannot find local investment from within the slum. And finally, as is the case with FDI coming to Slumland, it is certainly important that certain regulations govern the terms of these housing transactions and its subsequent use.

Apart from the obvious direct benfits from the commercial and other service establishments set up by these outsiders, there are other indirect benfits brought by them. It brings in better schools and hospitals, banks, and other Government and private institutions. It also brings in consumers with higher purchasing power, whose spending power can sustain these services. Just as external investors brings in new and the latest technology and higher economic growth to Slumland, these outsiders purchasing houses in slums bring in economic regeneration and growth to the slum.

This also produces an economically efficient solution by allocating the scarce slum resources more efficiently. These road margins and junctions are the most valuable lands in the slum, and it is only appropriate that these locations be used for those activities that maximize the social utility. The poor, original house allottee gets a good deal, with the sale of the allotted house fetching a value few times more than the actual unit cost of the house. The purchaser gets a valuable piece of real estate with great potential for future growth and which is ideal for his economic use. The slum community gets useful and necessary commercial establishments, which would otherwise not have been established. Nobody is made worse off and it is a win-win situation for all the stakeholders.

Though there is a regulatory solution to this, I have my apprehensions. It involves earmarking such potential locations along road margins and junctions for auctioning off for commercial development. This is something similar to allocating land for Special Economic Zones (SEZs). There are a number of practical problems associated with such solutions. There is also a very serious danger of failing to meet any of the objectives, faced as it is with a set of strong counter-incentives. It may therefore be appropriate that slums develop organically as small open economies, and not as models of development thrust from above.