Excerpts from 3 articles below on how to make our cities world-class

Read India’s Future Is Urban; Our Cities Need Article 370 More Than Kashmir

Read The Conflict Between Smart Cities And Rent Control Laws

Read Flourishing Rental Market Is Key To Achieving Housing For All By 2022

India has no urban sense, no understanding of how cities must be run. This is partly because rural politicians run all urban areas, and they use their political overlordship of cities to make money from real estate. The wealth created by India’s most dynamic economic zones – urban centres – is being siphoned off to rural areas, as we have still not given up the idea that India is largely rural. It isn’t. We need urban city planners.

World-class cities

World-class cities

But a tenant-friendly law is actually working against the interests of tenants. House owners rarely rent out houses for more than two years at a time and barely have tenants settled down in one house than they have to start hunting for a new one. There’s the added problem of getting addresses on multiple documents changed with each shift.

What does this have to do with unauthorised colonies and slum clusters in which migrant labour lives? Plenty. The reluctance of house owners to give their property out on rent drastically curtails the supply of rental housing. This, the Handbook notes, leads to the ballooning of rents of the remaining available houses in the market.

The interesting thing is that the rental share of urban housing stock has gone down over the decades. As per the 1961 census, it was at 54 percent, and by 2011, it had fallen to 27.5 percent. This explains why finding a house on rent can be such a pain.

The fall in rental housing stock is a worrying trend. A major reason for this has been the rent control acts which are in operation in various cities across India. As KPMG points out in a research note titled Decoding housing for all by 2022

The rent control acts lead to a shortage of rental housing in various ways. As the Five Year Plan document points out, it leads to: “Negative effect on investment in housing for rental purposes. • Withdrawal of existing housing stock from the rental market. • Accelerated deterioration of the physical condition of the housing stock.”

Another impact of rent control is to give Indian cities a shabbier look in comparison to cities in other developing countries. With the tenants living under rent control, the landlord has no incentive in renovating the buildings

Hence, for rental housing at the lower end to take off, the rental yield on homes needs to improve. This will only happen once prices come down to more realistic levels. Currently, the rental yield is around two to three percent (the annual rent as a percentage of market price). Nobody in their right mind is going to build homes for rent with a rental yield like that. For rental yields to go up, the cost of constructing homes needs to fall. For this to happen, first and foremost, the cost of land in and around cities needs to fall.

For the cost of land to fall, the government needs to increase supply. This can be done by increasing the floor space index (FSI) allowed on buildings. Further, the government needs to increase the supply of land by trying to sell some of the land that it owns in and around cities, land that it inherited from the British colonial administration.

Tushar Kansal
Tushar Kansal has served in senior positions in Corporate Finance at Deloitte Touche Tohmatsu, Brand Capital (ToI), Aircel & was Head (Debt Management) at MTS India. He is promoter of KansalTancy.com & SengeKhabab.com, prior to which he served as CFO of DLI India, owned by Guggenheim; a US PE Fund.

He is a B.Tech (Textiles), MBA (Financial Management) from University of Delhi.

He is a Columnist @ Business World, Indian Defence News, Indian Economist, Digital Market Asia, Business & Economy, Swarajya, OpIndia & Growing India.

Tushar blogs at tusharkansal.com, tweets @TusharKansal & publishes inside news on the right-wing Facebook page @IndusChurning