Got a YouTube account?

New: enable viewer-created translations and captions on your YouTube channel!

English subtitles

← Rent Control in Mumbai

Get Embed Code
6 Languages

Showing Revision 14 created 01/26/2018 by Theresa Ranft.

  1. ♪ [music] ♪
  2. [Alex] Rent controls are popular
    with renters all over the world
  3. because they appear to offer lower prices
    with few adverse consequences.
  4. In the long run, however,
    extensive rent controls
  5. can cause entire cities to crumble.
  6. You can see that today
    in Mumbai, India.
  7. All of the predicted
    consequences of rent control
  8. can be seen in Mumbai.
  9. There is a shortage of rental housing.
  10. Very, very little new rental housing
    is being constructed,
  11. and the stock of old rental housing
    is crumbling and falling apart.
  12. At rents of 500 to 600 rupees a month,
    maybe $10 a month,
  13. the landlords can't even afford
    to pay the taxes,
  14. let alone pay the maintenance
    and the upkeep.
  15. Rent controls began in Mumbai in 1949
  16. when rents were frozen at 1940 levels.
  17. And, amazingly, rents
    have barely increased since that time
  18. despite tremendous inflation
    and increased urbanization.
  19. To learn more,
    I spoke with Vaidehi Tandel,
  20. Reuben Abraham and Kshitij Batra
  21. from the IDFC Institute --
    a think tank in Mumbai
  22. that works on issues
    of urban infrastructure.
  23. [Alex] They froze rents at 1940 levels?
  24. [Kshitij] They did.
  25. We hear of these stories
    where families are paying
  26. a few hundred rupees a month
  27. for a flat that would otherwise
    cost maybe a lakh of rupees a month.
  28. You're going to have
    to tell us what a lakh is.
  29. I'm sorry. So that would
    be about 100,000 rupees.
  30. Wow! So, they're paying
    100 or 200, 300 rupees a month
  31. for something which is worth 100,000?
  32. Yeah. In this case, you have
    actually a lot of families
  33. that are perfectly well-to-do.
  34. But they've just been grandfathered
    into these rent-controlled flats
  35. and they've been living
    there for that time.
  36. These are massive properties.
  37. Some of these are massive,
    massive apartments.
  38. In India, tenant rights
    are very, very strong,
  39. and the court system is very, very slow.
  40. The owner of this building --
  41. which has long been
    under rent control --

  42. has long tried to evict the tenants.
  43. In fact, the owner of this building
    has been involved in a lawsuit
  44. that was started
    by his grandfather 50 years ago.
  45. There's a remarkable sign
    from the owners.
  46. Take a look.
  47. "Portions of the said building
    are in ruinous condition,
  48. likely to fall,
  49. and dangerous to any person
    occupying or passing by the same."
  50. It's falling apart.
  51. It's beginning to crumble.
  52. Now, in part, that's a threat
    to try and get the tenants to leave.
  53. But it's an all-too-believable threat.
  54. [News presenter] Another
    deadly building collapsed in India.
  55. A five-story apartment building
    fell in Mumbai early Friday morning
  56. while people were fast asleep.
  57. It's unknown exactly how many people
    are still underneath the rubble.
  58. Rescuers have been digging
    for survivors all day long.
  59. [Vaidehi] There's really no incentives
    for them to maintain the existing stock
  60. and you see really bad deterioration
    of the buildings
  61. that are under rent controls.
  62. So, the government then had to go
    and create an assessed buildings policy
  63. which sort of looks after these buildings
    and pays for their maintenance.
  64. Assess as a special tax?
  65. Yes, for repairing and maintaining
    these very, very dilapidated
  66. and at-risk rent control buildings.
  67. So, does the government
    actually use the proceeds of the tax
  68. to fix the buildings?
  69. I'm not sure, actually.
  70. [Alex] There's another problem
    with rent controls in Mumbai.
  71. Rent controls encourage landlords
    to leave their properties vacant
  72. rather than renting them out
    and risking the possibility
  73. of having a tenant that they can't evict
  74. for the next half-century.
  75. It's no surprise that 15%
  76. of the housing stock
    in Mumbai lies vacant.
  77. [Kshitij] I think the census in 2011 --
  78. that's a government survey --
  79. found that around 11 million properties
  80. were lying vacant across urban India,
    which is a huge number,
  81. given that they themselves estimated
    that the housing shortfall is 18 million.
  82. [Alex] It's clear
    that abolishing rent controls
  83. would solve many of these problems.
  84. But are there other ways
  85. to get more affordable housing
    on the market?
  86. Can the government build
    more homes for the poor?
  87. [Reuben] I've been working
    on this particular issue
  88. for at least nine years now,
    and I have moved from calling it
  89. "affordable housing" to calling it
    "making housing affordable."
  90. Any housing that comes
    into the market will be captured
  91. by the rich or whoever
    have the means to capture it.
  92. So, therefore, I would argue
    that the real focus now
  93. should be on just increasing
    the supply of housing.
  94. Because if you don't increase
    the supply of housing,
  95. the rich will just keep capturing it.
  96. So, you will see numerous instances
    just in Mumbai itself
  97. of you look at an urban plan,
    and you see these plans
  98. for affordable housing,
    where four 1-bedroom apartments
  99. have effectively become
    one 4-bedroom apartment.
  100. So, you've literally grabbed from the poor
    and made hot condos for the rich.
  101. Anytime you have two prices
    on the market,
  102. the low price will sell to the high price,
  103. or there will be some market operator
    that will find a way
  104. to grab the lower price
  105. because there's a higher price
    that's actually available on the market.
  106. In effect, the slums look like poverty,
  107. when in fact it's actually
    a real estate problem
  108. because the cost of housing
    is just exorbitant
  109. at the sort of income levels
    that you have in a city like Mumbai.
  110. So, the slums are really
    the only free market housing.
  111. That's right, free-market housing
    and funnily enough,
  112. also the only form
    of rental housing that's available.
  113. Once you put in place a policy like that,
  114. you do not have
    an organized opposition to it.
  115. If you try to increase those rents,
    you'd have politically a backlash.
  116. So, people would say
    rent's already so high in Mumbai,
  117. why would you allow
    increase in rent controls?
  118. It's a policy that affects
    not just people who are living here
  119. but people who can't live here.
  120. People who don't live here
    but who want to move here.
  121. Right, right.
  122. So, they don't have
    a political base from which to act.
  123. Absolutely. That's absolutely right.
  124. Wow.
  125. [Alex] Rent controls
    are not the only problem.
  126. The approval process
  127. to build new housing in Mumbai is lengthy.
  128. In part, because builders
    are subject to numerous requirements,
  129. not just to do with safety issues
    but also on building heights,
  130. room sizes, and even parking requirements
  131. for apartments built for people
    who typically don't own cars.
  132. The single biggest problem
    would be approvals.
  133. The approval process --
  134. it's longer here than in Europe
    or the United States?
  135. Far longer. Today,
    cost of capital in India
  136. is close to 15% if not more.
  137. At 15%, if my approvals process
    takes 24 months,
  138. don't be surprised that I will
    only be able to build condos.
  139. I will not be able to build
    anything cheaper than that
  140. because it's just pure mathematics.
  141. That's just how it works.
  142. As long as the cost of capital
    remains that high
  143. and the approvals process is this long,
  144. you will end up with condos.
  145. Companies that began
    with the explicit aim
  146. of building affordable housing --
    raised a humungous amount
  147. of private equity planning to build
    700,000 rupee homes --
  148. are today building 5 million rupee homes
  149. because that's what the entire process
    of approvals does to them.
  150. That's the effective consequence
    of all these regulations
  151. which were really put in place
    in a well-meaning fashion,
  152. but have obviously --
    you know the old line
  153. about the path to hell
    being paved with good intentions.
  154. This is a great example of that.
  155. [Narrator] You're on your way
    to mastering economics.
  156. Make sure this video sticks
    by taking a few practice questions.
  157. Or, if you're ready
    for more development economics,
  158. click on the next video.
  159. Still here?
  160. Check out Marginal Revolution
    University's other popular videos.
  161. ♪ [music] ♪