A case for housing reform

Corruption is a worldwide phenomenon, a tall political leader is said to have rationalised, which seemed to suggest that give-and-take of the domestic variety was generally par for the course and nothing really to be worked up about. That was then, in the sclerotic seventies characterised by intransigent non-reform in policymaking and a panoply of rigidities. Fast-forward to the here and now and the latest WikiLeaks disclosures seem to even point at monetary inducements being readily offered to buy votes in Parliament during the crucial non-confidence vote against the government over the Indo-US nuclear deal. The allegations have been denied outright; the charges are unproven and not provable either, goes the official explanation , as the dispatches of representatives of sovereign states in foreign lands enjoy diplomatic immunity. But such a position is based on mere technicalities.

It cannot be gainsaid that the scope for corruption is widespread here and the degeneration appears all pervasive in public life. And there seems perverse incentive to cut corners and resort to corrupt practices , including reportedly forgery of commercial pilot licences . But to express disgust about malpractices and corruption within and beyond legislative halls would hardly herald change and reform. The way ahead to tackle corruption is to thoroughly reform the root causes for opacity and give-and-take , such as continuing non-reform in the funding of elections by political parties and routine lack of transparency in real estate and housing transactions. We need to plug the institutional lacunae and drawbacks that seem to prevent good governance , including in electoral funding and routine incompliance in the housing market .

Now, when it comes to reform of political funding, the tallest in the land say it requires political consensus (which presumably is absent at present). But we surely do need proactive policy to plan and follow through with reform of the housing sector, to bring about the much-needed transparency in buy-and-sell initiatives across the board. Now, the growing economic power of cities is a worldwide phenomenon. But the point is that the urban housing market here is wholly distorted with glaring rigidities, gross anomalies and sheer anachronisms . The mavens estimates that India is likely to have about 45% of its population living in urban areas within the next two decades -up from just about 30% now -and the projections suggest major shortfalls in access to potable water, affordable housing and public transportation in our cities sans sound policy design in the medium term and beyond. What's required is substantial increase in housing stock and infrastructural services, so as to discourage rent-seeking .

It is notable that the recent High-Powered Expert Committee has been estimating the investment requirement for urban infrastructure services in the next couple of decades . The committee pegs the investment requirement for urban infrastructure services for the next 20 years at Rs 39.2 lakh crore at 2009-10 prices, with the bulk of it - 44% - proposed to be earmarked for urban roads. The expert take is that there is a huge investment backlog in the segment pan-India . Next, infrastructural services like water supply, sewerage and storm water drainage would require another 20% of the funds, or Rs 8 lakh crore. A smaller corpus, Rs 4 lakh crore, is allocated for urban renewal including redevelopment of slums. The figure appears to be a gross underestimate, given that over half the population in Mumbai, for instance, already resides in slum-category housing. Note that funds requirement for sectors like power distribution have been excluded, as they are beyond the very scope of the report.

The expert panel vouches for a switch to a mayoral system in our cities to rev up accountability , and incentivise proactive policy to shore up muchneeded investments. The present system of state government bureaucrats directly in charge of urban renewal seems sub-optimal , the report avers. The objective of policy ought to be to step up funds flow with innovative mechanisms and actualise investment in trunk infrastructure to boost the housing stock and, so, considerably reduce the massive gap in supply. In parallel, what is essential is to liberalise and increase the floor area ratio (FAR) in our cities, and not just in the city centres, to increase supply of affordable housing.

A McKinsey report last year estimated that with reform of FAR norms and attendant policy and governance reform such as a national mortgage guarantee fund, it should be possible to increase the supply of affordable housing 10-fold , or 20 lakh dwelling units ayear. In tandem, the latter report also suggests that 30% of all affordable housing be available to rent. The bottom line is the need to improve transparency in real estate investment and put paid to the high-cost regime in housing, high stamp duties and the like, to purposefully improve living conditions, networks and foster innovation as well.