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September 01, 2016

Is a Flourishing Rental Housing Market Key to Housing for All?

India's huge housing deficit, especailly in the lower income bracket, calls for a serious relook at the rental housing regime. This article in Swarjya by Vivek Kaul, talks of the critical need for rental housing reform if India's housing for all by 2022 target is to be fulfilled. Speaking on the rental housing market in Mumbai, the article quotes from the paper 'Decline of Rental Housing in India: A Case Study of Mumbai' by Sahil Gandhi (Consultant, IDFC Institute), Vaidehi Tandel (Senior Associate, IDFC Institute), Shirish Patel, Abhay Pethe, Kabir Agarwal and Sirus J Libeiro.


"There has been near universal consensus that rent controls of the kind seen in Mumbai, known as “first generation rent control”, have a devastating impact on rental markets and, in general, housing and land markets in cities...Rent control in Mumbai has been particularly damaging for the housing market, which is characterised by ownership dwellings constructed mainly for the upper middle class on the one hand and a high incidence of slums housing the majority of the population on the other."


The article further elaborates:


".......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.


These will be the first few steps towards Housing For All By 2022."


Read full text of the article here

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