A vertical development action agenda

Zoning regulations, especially limits on vertical development, impose prohibitive costs on urban development. It can be safely said that housing has become priced out of range for all but the richest 0.5% in the metropolitan cities. A striking manifestation of the problem comes from a nice article by Shanu Athiparambath,

In 1984, the average floor space consumption in Shanghai was 3.6 square meters. By allowing tall buildings, Shanghai raised average floor consumption to 34 square meters by 2010. Cities across the world have raised floor space consumption by allowing tall buildings. In 1910, 16 people lived on a typical floor of 920 square feet in Manhattan. In 2010, four people lived on a typical floor, because floor space consumption had risen four times...

In Mumbai... the average person consumes less floor space than an American prisoner... in 2009, the average floor space consumption in Mumbai was merely 48 square feet... Over half the households have only one room. As early as 1978, a draft of the Department of Justice had accepted that prisons in United States should offer single rooms of at least 80 square feet per man.

It is increasingly evident that affordable housing could be the biggest hurdle to India's urban development aspirations. There are only two approaches to alleviating the constraints - vertical development and unlock vacant public lands. While both would be necessary to address the problem in the long-run, it may be prudent to significantly liberalize vertical development before unlocking vacant government lands so as to realize full value from these last remaining vacant spaces in the largest cities. 

Two fundamental reforms to zoning regulations in Indian cities are essential. One, cities should move away from the present system of single Floor Area Ratios (FAR) across the city to a system of graded FAR. Second, there should be a two-tier FAR arrangement, with certain basic FAR which comes with the property right and the rest to be purchased from the local authority and freely tradeable. In many respects, the still-born Mumbai DP 2034 is a very good example that embraces these principles, though the FAR should have been even higher. These reforms should be complemented with at least four critical policy support initiatives.

1. Cities should then revise their Master Plans based on these principles. Certain areas like the central business district, transit corridors, important transit stations, and newer developments should have much higher FARs. In fact, while the basic FAR can be constant, the sellable FAR can gradually increase with time, based on certain objective considerations.

2. FAR should become an instrument to achieve important urban development objectives. For example, the older and blighted areas of cities, as well as any other strategically valuable areas, should be targeted with very high FAR so as to encourage urban renewal and redevelopment. Similarly, affordable housing developments can even be allowed to purchase the additional FAR at concessional rates. 

3. The local authority should simultaneously invest heavily in upgrading infrastructure so as to increase the carrying capacity of the areas undergoing vertical development. It may be useful to consider ring-fencing such areas and use the proceeds from the sales of FAR in infrastructure improvements there. It can be supplemented with various value-capture techniques to mobilize local area resources to finance such investments.

4. Finally, there should be a trading platform with an enabling regulatory framework to support the trade in FARs. This should capture both the mechanisms for transparent and efficient price discovery and trading of FARs. The Government of India could support the States in the establishment of a platform by preparing model legal and other documents as well as the development of requisite IT applications.