Rent Control in Mumbai

For all you former, current, and future renters out there -- rent these days is too high, right? What if you could pay the same rent your parents, or grandparents, paid back in the day? Sounds pretty good!

Now what if that low rent meant that your home was in such disrepair that it could literally collapse while you were sleeping? That’s one of the unintended consequences of extensive rent control currently playing out in Mumbai, India. Let’s take a look.

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

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

In the long run, however,
extensive rent controls

can cause entire cities to crumble.

You can see that today
in Mumbai, India.

All of the predicted
consequences of rent control

can be seen in Mumbai.

There is a shortage of rental housing.

Very, very little new rental housing
is being constructed,

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

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

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

let alone pay the maintenance
and the upkeep.

Rent controls began in Mumbai in 1949

when rents were frozen at 1940 levels.

And, amazingly, rents
have barely increased since that time

despite tremendous inflation
and increased urbanization.

To learn more,
I spoke with Vaidehi Tandel,

Reuben Abraham and Kshitij Batra

from the IDFC Institute --
a think tank in Mumbai

that works on issues
of urban infrastructure.

[Alex] They froze rents at 1940 levels?

[Kshitij] They did.

We hear of these stories
where families are paying

a few hundred rupees a month

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

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

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

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

for something which is worth 100,000?

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

that are perfectly well-to-do.

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

and they've been living
there for that time.

These are massive properties.

Some of these are massive,
massive apartments.

In India, tenant rights
are very, very strong,

and the court system is very, very slow.

The owner of this building --

which has long been
under rent control --

has long tried to evict the tenants.

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

that was started
by his grandfather 50 years ago.

There's a remarkable sign
from the owners.

Take a look.

"Portions of the said building
are in ruinous condition,

likely to fall,

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

It's falling apart.

It's beginning to crumble.

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

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

[News presenter] Another
deadly building collapsed in India.

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

while people were fast asleep.

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

Rescuers have been digging
for survivors all day long.

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

and you see really bad deterioration
of the buildings

that are under rent controls.

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

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

Assess as a special tax?

Yes, for repairing and maintaining
these very, very dilapidated

and at-risk rent control buildings.

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

to fix the buildings?

I'm not sure, actually.

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

Rent controls encourage landlords
to leave their properties vacant

rather than renting them out
and risking the possibility

of having a tenant that they can't evict

for the next half-century.

It's no surprise that 15%

of the housing stock
in Mumbai lies vacant.

[Kshitij] I think the census in 2011 --

that's a government survey --

found that around 11 million properties

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

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

[Alex] It's clear
that abolishing rent controls

would solve many of these problems.

But are there other ways

to get more affordable housing
on the market?

Can the government build
more homes for the poor?

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

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

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

Any housing that comes
into the market will be captured

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

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

should be on just increasing
the supply of housing.

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

the rich will just keep capturing it.

So, you will see numerous instances
just in Mumbai itself

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

for affordable housing,
where four 1-bedroom apartments

have effectively become
one 4-bedroom apartment.

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

Anytime you have two prices
on the market,

the low price will sell to the high price,

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

to grab the lower price

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

In effect, the slums look like poverty,

when in fact it's actually
a real estate problem

because the cost of housing
is just exorbitant

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

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

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

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

Once you put in place a policy like that,

you do not have
an organized opposition to it.

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

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

why would you allow
increase in rent controls?

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

but people who can't live here.

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

Right, right.

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

Absolutely. That's absolutely right.

Wow.

[Alex] Rent controls
are not the only problem.

The approval process

to build new housing in Mumbai is lengthy.

In part, because builders
are subject to numerous requirements,

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

room sizes, and even parking requirements

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

The single biggest problem
would be approvals.

The approval process --

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

Far longer. Today,
cost of capital in India

is close to 15% if not more.

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

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

I will not be able to build
anything cheaper than that

because it's just pure mathematics.

That's just how it works.

As long as the cost of capital
remains that high

and the approvals process is this long,

you will end up with condos.

Companies that began
with the explicit aim

of building affordable housing --
raised a humungous amount

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

are today building 5 million rupee homes

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

That's the effective consequence
of all these regulations

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

but have obviously --
you know the old line

about the path to hell
being paved with good intentions.

This is a great example of that.

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