Simplifying legal and procedural hurdles in completing a housing project and eliminating corruption will do far more to address housing shortage in the city than redeveloping clusters

The Maharashtra government has ‘in principle’ accepted the revised recommendations of a study group on Cluster Development scheme for Mumbai. The scheme envisages redevelopment of old buildings, extending the existing redevelopment policy to all buildings more than 30 years old. The new policy applies to suburbs as well, with a minimum plot size of 10,000 square meters (sq m). Under the new proposal, owner’s consent has also been reduced from 100% to 70%, while the government retains its discretionary power to approve or reject redevelopment projects.
 

"This is being done to encourage housing societies and developers take up bigger plots for development under the scheme. The policy will help create proper infrastructure, wider roads, more parking slots, gardens and open spaces… it will also improve the people's quality of life," Maharashtra chief minister Prithviraj Chavan has reportedly said.
 

What has been left unsaid, however, is that the policy will worsen the shortage of available living space in the city and further raise property prices and flat rentals.
 

Redevelopment of old buildings was first mooted in 1991 and applied only to cessed buildings (pre-1940). Many of these buildings were in dilapidated conditions and the landlords lacked incentives to spend on repairs, thanks to archaic laws that prevented them from earning market-linked rents. Over the period of time, the policy has undergone several changes, and its original objectives have already been lost. The new policy unveiled last week for instance applies to all buildings which are 30 years old or more irrespective of their condition and extends it to suburbs as well. Several large colonies in the suburbs built in the 1970s and 1980s which are in perfectly habitable condition will now be up for grabs en masse by large builders.
 

Why the policy is flawed
 

Firstly, life of a building is far more than 30 years. Housing stock that is in perfectly livable condition constitutes a productive national asset. Destroying a scarce productive asset, even if for rebuilding a new one is therefore a loss to the nation. The economic costs of destroying a building that is fit for living are no different from destroying property in a riot or arson. Redevelopment therefore stands to reason only if the building has reached the end of its useful life and is unfit for living. A policy that promotes destruction of livable buildings on a large scale is completely improper.
 

Secondly, a housing project consumes a large amount of steel, cement and several other natural resources that are scarce and expensive. If these resources are used to construct housing on vacant land, the total availability of living space increases more than it would if an existing living space is redeveloped. Redevelopment of livable apartments is thus a sub-optimal use of precious resources.
 

The argument that there is no vacant land in the Island City, and therefore redevelopment is the only way out is incorrect and is of no consequence. There is enough land available elsewhere in Maharashtra and bringing about a balanced development of the State will have a much higher multiplier effect on the overall public welfare. Redevelopment by individual landlords may stand to reason on the grounds of personal freedom, but a state policy that actively encourages destruction of assets before the end of their economic life is criminal.  

Thirdly, experience shows that completion of even a mid-sized housing project takes anywhere upto 4 - 5 years from the time the project begins to the time the building is occupied. How much time the proposed redevelopment of these clusters will take is anybody’s guess.
 

But what happens in the interim – an ‘interim’ that runs into several years?
 

Existing families who stay in their own homes will have to relocate to rental apartments. This will artificially increase demand for rental accommodation, raise rentals and worsen the demand & supply scenario. The availability of housing stock in the city will fall further; which will have a further upward impact on property prices. In fact, the very possibility of redevelopment causes property prices to rise; as the future value of the property gets discounted in the current flat prices.
 

Construction at a redevelopment site in Malad started five years after its residents vacated the building. Seven years from the start, the proposed “tower” has still not progressed beyond the second floor. Meanwhile, the residents are going through hell, shifting from one apartment to other every 11 months, each time at higher and higher rentals. Many projects get stuck in litigation, as it is almost impossible to get all the residents agree on redevelopment. Rules such as in the current policy mandating consent of only 70% of landlords may be in violation of citizen’s constitutional rights. Forcible evictions may be justified for projects of national importance, but what view courts will take when the purpose of forcible eviction is to build a residential tower is anybody’s guess.
 

Even if one assumes that a project proceeds smoothly, how many such large scale projects can be executed in the heart of the city simultaneously? What will it do to the city’s traffic and pollution situation during the construction phase, which itself will run for several years? Simplifying legal and procedural hurdles in completing a housing project; and eliminating corruption will do far more to address housing shortage in the city than redeveloping clusters.
 

The costs of redevelopment are huge and upfront, but the benefits distant and uncertain
 

Large scale redevelopment is impossible to execute; and demolishing livable housing stock is a criminal waste; to promote it as state policy is completely thoughtless. Redevelopment can never solve Mumbai’s housing problem, the only sustainable solution for which lies in taking development to underdeveloped areas. In this age of advanced telecommunication and information technology, what stops the Chief Minister from operating from Beed or Parbhani?

(Chandragupta Acharya  holds an MBA in Finance and also a degree in Banking from the Indian Institute of Bankers. He has more than 15 years of experience in working with mutual funds, banks and technology companies.)