indianotes

We often compare real estate prices in Mumbai or Delhi with cities like Dubai, London or New York. For owners of Mumbai homes, this may provide an illusion of wealth. However, the reality is that homes in Indian cities are among the least affordable, relative to incomes. Nearly half of Mumbai’s population lives in slums.

The convenient villains are “greedy” developers, speculators or population growth.

But is this really true?

Or is this a result of a multitude of well-meaning, socialist era laws and regulations that have restricted housing supply?

These laws were enacted with good intentions—to protect tenants, prevent land grab, avoid congestion, preserve farmland and so on. Unfortunately, they ended up achieving the opposite.

Take Rent Control. Introduced during World War II and expanded after Independence, these laws protected tenants by freezing rents and making eviction next to impossible. The result? Landlords stopped spending on maintenance, redevelopment became unviable, and thousands of crumbling buildings in cities like Mumbai remain trapped in legal limbo.

Post the 1990s, rental laws were relaxed in many states, and in 2021, a Model Tenancy Act was passed by the Centre. However, adoption by states has been uneven, and huge numbers of old tenancies continue to lock up valuable urban land.

Then came the Urban Land (Ceiling and Regulation) Act (ULCRA). This was enacted (during the emergency) in 1976 to prevent rich individuals or developers from cornering land, and enabled the government to acquire “surplus” land. Instead, acquisitions got stuck in litigation; owners fragmented holdings to avoid the law, and developers could not assemble large land banks – which encouraged small, small, poorly funded, low quality builders. Despite its supposed repeal in 1999, many states still continue with some form of ULCRA.

Another major constraint was India’s historically low Floor Space Index (FSI). For decades, Mumbai allowed only 1-1.33 times the plot area to be built upon. While intended to reduce congestion, low FSI simply meant fewer homes could be built on expensive land, driving up prices and pushing cities to sprawl outward. Lower density made public transport less viable, and slums proliferated because people want to live close to jobs.

And there’s more! High stamp duties encourage under-reporting and corruption. Restrictions on buying or converting agricultural land make urban expansion difficult. Poor land records and fragmented ownership complicate land assembly. Hence large projects usually require the government to acquire land.

And then, even if you do get land – you need a multitude of permissions (environmental, fire, municipal, utilities, traffic, water, sewerage, etc., etc.) to start building. This can add years of delay and significant costs (some of it under the table expenses). These costs are ultimately passed on to homebuyers. Am not suggesting that these checks are not necessary, but they must be made fast and transparent.

This regulatory maze has created a system where formal housing is expensive, and redevelopment is painfully slow. The only gainers are those who can navigate the maze, or deliver permissions and speed up (or delay) the process.

In recent years, governments have realized this, and begun to address some of these issues through higher FSI, digitised land records, redevelopment schemes and tenancy reforms. But progress is slow, and piecemeal – as political opponents (on all sides) invariably criticize these efforts as being anti-poor. A notable example is Mumbai’s ambitious redevelopment effort, especially that of Dharavi.

This is ironic, as these supposedly pro-poor, socialist-era ideas have only worsened the housing crisis, and continue to ensure that millions of Indians are forced to live in slums.

Maybe it’s time we acknowledge that only private capital and entrepreneurship can help solve the problem. And for that we need to throw away or simplify these regulations.

How does it matter if some developers get richer, if we are able to provide homes to millions of Indians?