India has made its land market dysfunctional – In conversation with Dr. Shlomo Angel – Part 2

In the second part of this interview, Vishnu Prasad of IFMR Finance Foundation speaks to Dr. Shlomo (Solly) Angel, adjunct professor at NYU and senior research scholar at the NYU Stern Urbanization Project about urban governance challenges in India, and how to create affordable housing in Indian cities. In the previous post, Prof. Angel spoke about the Making Room paradigm and its relevance to Indian cities. In the concluding post, Prof. Angel will share his personal experiences with participatory planning in Bangkok and the enduring legacy of the Oregon experiment.

Q: Staying on the subject of urban governance, there is a growing concern in India- where cities are governed by the state or provincial government- that cities need strong, autonomous and financially independent governments to meet the challenges of urbanization. How important is this reform for countries like India, especially since the efficient governance is an essential counterpart of urban planning? Does research show that stronger Mayors, for instance, are more efficient governors?

A: I think the record on this is mixed. Mayors need to be re-elected and they have a very short planning horizon. The first and easiest thing for a new Mayor to do is to collect garbage efficiently in the city. You can hire a lot of people who come in their lorries to pick-up the trash and in a month, the city is clean. Everybody now praises the Mayor for cleaning-up the city. Mayors often look for such easy-to-do things that can deliver results. But, when we talk about urban expansion, it is a 20-30 year process that involves getting land in advance of the city’s expansion. This kind of a vision requires a Mayor who is obsessed with his legacy or you need bureaucrats who are in the system for a long time. Research from Colombia suggests that when Mayors where given additional powers, such long-term issues suffer. In terms of long-term planning, I believe that the idea of giving mayors more power is a mixed blessing. I’m not suggesting that this is not a good idea- Mayors are more answerable to the people than state governments since they are closer to the people and you are more likely to get policies that are sensitive to the electorate in the cities. But in the case of urban expansion, you are talking about people who are not born yet and therefore, cannot vote for that Mayor. As a result, I’m not sure that the voters who have a lot of immediate problems are the best group of people that can have a realistic vision of what can be done in the future. This is not to say that this is a bad idea but to my mind, it will be a mixed blessing.

Q: One of the critical components of meeting the urbanization challenge will be providing affordable housing to households. Rapidly urbanizing countries like India face a serious housing issue in their cities. You have argued previously for governments to abandon their roles as producers of housing and to enable a market based approach. How should urbanizing countries like India think of solving the housing issue? What should the critical components of housing policy in such countries be?

A: Governments are particularly weak on the supply side of affordable housing. They can help on the demand side by creating more viable mortgage markets, by offering subsidies, loans, and taxation systems that help people improve their position in the housing market. On the supply side, governments are weak in terms of efficient constructions, collecting loan payments, buying and acquiring land for houses, designing them, and in reading the market (in general). Governments have a poor history on public housing and almost all governments have moved out of the public housing business. They have come to rely increasingly on market based mechanisms to provide housing like China and Russia, for example. The only exception to this is Singapore, where 85% of the population lives on public housing but Singapore is an outlier as the structure of the economy is different, and there is no rural-urban migration. Governments can build a few thousand units but this is so little compared to the actual demand for housing in a place like India- such solutions are not scalable. There was a time when governments provided ‘sites and services’, which is to say, providing people serviced sites and letting people build their own houses. This to me is another form of public housing. Governments engage in providing individual sites to individual families and they still do it so slowly. This is also not a scalable solution and has, therefore, failed.

Most houses in the world are created by the markets, both formal and informal, and I don’t see an alternative to this. All that governments can do is to enable markets to provide housing in a more efficient and equitable way. The most important component for creating affordable housing in a country like India is to keep land affordable. What this means is that you need to create enough serviced land that enables access to jobs, allow jobs to decentralise, and create modern, poly-centric cities. Indian cities, particularly Mumbai are slow at creating poly-centric cities. Cities of the same size of Mumbai usually have up to 20 employment centres. Urban decentralisation, which is what I advocate for in the Making Room paradigm, is therefore at the heart of affordable housing. Land markets need to be opened up so that people don’t speculate on land. We need to ensure greater availability of land and build services that make this land accessible to employment centres. Unless urban planners understand that their role is to enlarge the city and make it possible for people to afford land, you will never have affordable housing in India.

Q: There is a lot of scepticism of the market in India and there is concern that market-led models do not lead to a drop in housing prices and leave a lot of people outside the housing market as a result. In countries that have shifted to market mechanisms (like China and Russia), has the experience been that housing markets have become more affordable and equitable?

A: China is an interesting example because the affordable housing is not being created by the government or the developers. Affordable houses in China are built in the urban villages that surround the cities. These areas are not part of the planning regime and yet, they provide market-based affordable housing to millions of people. Villagers are building apartments on their residential plots and renting them out at very affordable rates to the workforce in Chinese cities. These are not slums; these are apartments built out of good material and they provide water and electricity to the residents. This creates an additional source of income for the farmers. It is also interesting that this is done with very little bank finance. Therefore, China has solved the affordable housing problem by turning a blind eye to what villagers surrounding Chinese cities do.

I agree with you that India still mistrusts the market. India has distorted the market for so long that it has become dysfunctional. When you don’t allow land to expand and provide it with good quality infrastructure that enables this expansion, you will have land supply bottlenecks. You cannot ruin something and then complain that it is not functioning. To make the market function and make land affordable, it will take many years because the land market is so distorted. There is no other solution to the problem.

Q: One of the most visible manifestations of this distortion is the preponderance of slums in Indian cities. It is estimated that 20% of all households in urban India and a larger share in the mega-cities (42% in Mumbai) live in slums. Slum evictions and resettlement are favoured responses to this problem. However, there is growing concern that such policies systematically deny the poor of their ‘right to the city’ and policy is slowly changing in India towards in-situ development. You’ve proposed several innovative solutions to this problem including land sharing that was successful in Bangkok. Based on your experience and research, how should countries like India formulate policy responses to this question? Are there similar (to the Bangkok experience) innovative models that we should be emulating?

A: I think that the solution to the problem of slums in India is very simple but that doesn’t mean that it will happen. The problem is really one of paternalism. Namely, if you were to solve the Dharavi problem tomorrow, I would simply say that the land on which this slum is located now belongs to the slum-dwellers. The government gives up the authority on this land and the slum-dwellers are now shareholders in a great economic asset in the middle of one of the most important cities in the world. The issue would then be one of how to derive the maximum benefit for the land-owners by developing this land appropriately. The land shouldn’t be given to developers who take advantage of the slum dwellers or to corrupt politicians who do land deals. The land must belong to the people and in my mind, there is no doubt that if and when this happens, housing conditions in Dharavi will improve rapidly.

Dharavi Slum, Mumbai, India

What the government has been doing for decades is to sustain the uncertainty about the future of the land and this dissuades people from investing in that land. The government should get rid of this uncertainty by allowing people to stay where they are and give them ownership and control over their territory. In neighbouring Pakistan there are examples of this being done, either marginally or totally. If you compare Orangi (in Karachi) to Dharavi, there is a lot more development in the former since the government has given the right of the land to the people and eliminated uncertainty. Indian bureaucrats have always insisted that these slums are temporary, or that they don’t exist, or that according to the law (in say Maharashtra) the land is shown as vacant land and is therefore, not inhabited. India is behind other countries in terms of these policies and bureaucrats have kept these slums in a state of limbo.