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[Alex] Rent controls are popular
with renters all over the world

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because they appear to offer lower prices
with few adverse consequences.

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In the long run, however,
extensive rent controls

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can cause entire cities to crumble.

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You can see that today
in Mumbai, India.

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All of the predicted 
consequences of rent control

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can be seen in Mumbai.

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There is a shortage of rental housing.

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Very, very little new rental housing
is being constructed,

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and the stock of old rental housing 
is crumbling and falling apart.

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At rents of 500 to 600 rupees a month,
maybe $10 a month,

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the landlords can't even afford
to pay the taxes,

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let alone pay the maintenance
and the upkeep.

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Rent controls began in Mumbai in 1949

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when rents were frozen at 1940 levels.

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And, amazingly, rents
have barely increased since that time

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despite tremendous inflation
and increased urbanization.

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To learn more, 
I spoke with Vaidehi Tandel,

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Reuben Abraham and Kshitij Batra

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from the IDFC Institute --
a think tank in Mumbai

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that works on issues 
of urban infrastructure.

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[Alex] They froze rents at 1940 levels?

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[Kshitij] They did.

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We hear of these stories 
where families are paying

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a few hundred rupees a month

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for a flat that would otherwise
cost maybe a lakh of rupees a month.

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You're going to have
to tell us what a lakh is.

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I'm sorry. So that would 
be about 100,000 rupees.

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Wow! So, they're paying 
100 or 200, 300 rupees a month

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for something which is worth 100,000?

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Yeah. In this case, you have
actually a lot of families

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that are perfectly well-to-do.

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But they've just been grandfathered 
into these rent-controlled flats

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and they've been living 
there for that time.

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These are massive properties.

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Some of these are massive,
massive apartments.

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In India, tenant rights
are very, very strong,

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and the court system is very, very slow.

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The owner of this building --

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which has long been 
under rent control --

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has long tried to evict the tenants.

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In fact, the owner of this building 
has been involved in a lawsuit

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that was started 
by his grandfather 50 years ago.

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There's a remarkable sign 
from the owners.

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Take a look.

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"Portions of the said building
are in ruinous condition,

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likely to fall,

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and dangerous to any person
occupying or passing by the same."

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It's falling apart.

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It's beginning to crumble.

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Now, in part, that's a threat 
to try and get the tenants to leave.

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But it's an all-too-believable threat.

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[News presenter] Another
deadly building collapsed in India.

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A five-story apartment building
fell in Mumbai early Friday morning

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while people were fast asleep.

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It's unknown exactly how many people
are still underneath the rubble.

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Rescuers have been digging 
for survivors all day long.

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[Vaidehi] There's really no incentives
for them to maintain the existing stock

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and you see really bad deterioration
of the buildings

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that are under rent controls.

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So, the government then had to go
and create an assessed buildings policy

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which sort of looks after these buildings
and pays for their maintenance.

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Assess as a special tax?

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Yes, for repairing and maintaining 
these very, very dilapidated

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and at-risk rent control buildings.

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So, does the government
actually use the proceeds of the tax

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to fix the buildings?

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I'm not sure, actually.

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[Alex] There's another problem
with rent controls in Mumbai.

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Rent controls encourage landlords
to leave their properties vacant

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rather than renting them out
and risking the possibility

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of having a tenant that they can't evict

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for the next half-century.

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It's no surprise that 15%

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of the housing stock 
in Mumbai lies vacant.

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[Kshitij] I think the census in 2011 --

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that's a government survey --

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found that around 11 million properties

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were lying vacant across urban India,
which is a huge number,

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given that they themselves estimated
that the housing shortfall is 18 million.

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[Alex] It's clear 
that abolishing rent controls

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would solve many of these problems.

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But are there other ways

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to get more affordable housing
on the market?

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Can the government build 
more homes for the poor?

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[Reuben] I've been working 
on this particular issue

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for at least nine years now,
and I have moved from calling it

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"affordable housing" to calling it
"making housing affordable."

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Any housing that comes 
into the market will be captured

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by the rich or whoever
have the means to capture it.

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So, therefore, I would argue
that the real focus now

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should be on just increasing 
the supply of housing.

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Because if you don't increase
the supply of housing,

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the rich will just keep capturing it.

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So, you will see numerous instances
just in Mumbai itself

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of you look at an urban plan,
and you see these plans

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for affordable housing,
where four 1-bedroom apartments

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have effectively become 
one 4-bedroom apartment.

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So, you've literally grabbed from the poor
and made hot condos for the rich.

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Anytime you have two prices 
on the market,

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the low price will sell to the high price,

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or there will be some market operator
that will find a way

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to grab the lower price

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because there's a higher price
that's actually available on the market.

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In effect, the slums look like poverty,

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when in fact it's actually
a real estate problem

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because the cost of housing
is just exorbitant

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at the sort of income levels
that you have in a city like Mumbai.

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So, the slums are really 
the only free market housing.

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That's right, free-market housing
and funnily enough,

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also the only form 
of rental housing that's available.

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Once you put in place a policy like that,

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you do not have
an organized opposition to it.

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If you try to increase those rents,
you'd have politically a backlash.

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So, people would say
rent's already so high in Mumbai,

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why would you allow
increase in rent controls?

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It's a policy that affects 
not just people who are living here

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but people who can't live here.

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People who don't live here
but who want to move here.

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Right, right.

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So, they don't have 
a political base from which to act.

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Absolutely. That's absolutely right.

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Wow.

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[Alex] Rent controls
are not the only problem.

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The approval process

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to build new housing in Mumbai is lengthy.

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In part, because builders
are subject to numerous requirements,

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not just to do with safety issues
but also on building heights,

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room sizes, and even parking requirements

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for apartments built for people 
who typically don't own cars.

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The single biggest problem
would be approvals.

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The approval process --

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it's longer here than in Europe
or the United States?

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Far longer. Today,
cost of capital in India

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is close to 15% if not more.

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At 15%, if my approvals process
takes 24 months,

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don't be surprised that I will 
only be able to build condos.

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I will not be able to build
anything cheaper than that

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because it's just pure mathematics.

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That's just how it works.

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As long as the cost of capital
remains that high

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and the approvals process is this long,

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you will end up with condos.

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Companies that began 
with the explicit aim

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of building affordable housing --
raised a humungous amount

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of private equity planning to build
700,000 rupee homes --

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are today building 5 million rupee homes

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because that's what the entire process
of approvals does to them.

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That's the effective consequence
of all these regulations

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which were really put in place
in a well-meaning fashion,

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but have obviously --
you know the old line

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about the path to hell
being paved with good intentions.

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This is a great example of that.

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[Narrator] You're on your way
to mastering economics.

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