The Hindu Business Line : Pedestrian policy on real-estate

The government should reform the real-estate business just as it has done telecommunications and save businessmen from their own short-sightedness. Not long ago, telephones were frightfully expensive. Now, they are available for the asking; and prices have tumbled, says P. V. INDIRESAN.

In all Indian cities and towns, footpaths are few. Even where they are there, they are unusable. Hence, people are forced on to the carriageway, at great risk to themselves and much obstruction to vehicular traffic. Few other countries seem to have this failing in urban design and practise.

Last fortnight, I visited Mozambique, Myanmar and Mauritius. The first two are poorer than India with one-third of India's per capita income. They are also less densely populated. On the other hand, Mauritius has twice India's population density; it is also richer. In spite of this large variation, cities and towns in all the three countries have usable footpaths; pedestrians do not walk on the carriageway the way the people in India do.

Limitations in attitude

These differences in the way footpaths are organised may appear to be a trivial observation. That is not quite correct. Our footpaths indicate interesting limitations in our attitude to, and our logic concerning, urban poverty alleviation. Widening the roads at the expense of pedestrians is irrational. If we truly want to alleviate urban poverty, we should offer the best convenience for the poor pedestrian, and only what is left should be given to the richer vehicle owner. Instead, we widen roads, and narrow down footpaths.

More slums

This kind of social indifference and logical flaw in pedestrian management repeats itself in virtually every aspect of urban organisation. In particular, we force every year hundreds of thousands of families into slums, the same way we force pedestrians on to the carriageway.

Two excuses for the proliferation of slums are not enough money and space. In truth, we are not over-populated: With no more than 0.1 per cent of our territory we can treble the space for every slum family in the country. We are not poor either. If we had been, no one would be buying land at Rs 100,000 per square yard, the way people often do in our cities, at a price significantly higher than in most cities of the US, the richest country in the world.

Thus, we have plenty of land but we are not using it. We have plenty of money but we are wasting it on artificially inflated real estate. Our economists are shouting from the rooftops that the GNP growth rate is as high as 8 per cent a year, and that it may accelerate even to 10 per cent a year. At that rate, in ten years, we will all have, in theory, twice the real income we have today. If so, will even the middle-class have in ten years twice as good a house as they have today? Is not the prospect the exact opposite — as the economy grows richer, slum population will increase?

Real-estate prices

Naturally, there is logic behind this madness: We think that burgeoning land prices make us richer. We think we become five times richer when a house that cost Rs 10 lakh ten years ago, is worth Rs 50 lakh now. We forget the house is the same, not five times better. Actually, we become poorer because, in sympathy with housing prices, other goods and services become more expensive; the money that is left with us buys less.

Real-estate speculators think that this process makes them richer. However, no business makes more profits by shrinking the market. That is exactly what real-estate developers are doing by escalating housing prices faster than incomes. They might appear to be getting richer now, but they would have become still richer if they had kept real-estate prices under check.

The size of the market and, hence, profits from real-estate development, are more when housing is cheap than when prices are high and the real-estate business suffers when people are forced into slums. Real-estate developers have the excuse that they have to go where the customers are — to crowded, expensive cities. Why do the poor crowd into expensive cities, and not stay where there is plenty of space, where land prices are a hundred times less? They do so for two reasons: Congested cities are where jobs are; because they cannot afford to commute long distances.

In other words, customers of housing go wherever employers go; the poor in particular have to be close to the workplace. Therefore, employers are the key: When they move to low-cost areas, they move housing demand too to such places. In addition, thereby, they maximise the disposable income of their employees, helping them to buy more.

Short-sightedness

As a result of that increase in demand, both customers and businessmen gain when workplaces are located where housing is cheap; they suffer a loss when they stay in expensive places. Unfortunately, that gain is indirect, not direct; it is long-term profit, not immediate profit, that is maximised. That is why the government should step in to save businessmen from their own short-sightedness. It should reform the real-estate business the same way it has done to the telecommunications business.

Not long ago, telephones were frightfully expensive; waiting lists were long. It took years to get a connection, that too of a low quality with limited facilities. Now, telephones are available for the asking; prices have tumbled 10-20 times; quality is much better. In well-organised urban systems, enough space is reserved for pedestrians; the carriageway comes as an addition to, and not at the expense of footpaths. A similar rule should apply for housing and habitat development. Reserve residential space first (particularly for the poor), and only then allocate space for business.

Four simple rules will suffice.

Rule one: Any time commercial space is expanded, ten times that space should be used for residential purposes.

Rule two: Space for public purposes — roads, schools, hospitals, gardens, water bodies, waste treatment, places of worship — should be half the total.

Rule three: For every plot above twice the average size, three of one-tenth that size should be developed.

Rule four: If such quality development is not viable close to workplace, employers should meet the full cost of both travel and time their employees incur in commuting daily to work. When the onus is on businessmen to compensate employees on the time and money cost of daily commuting, they would automatically stop expanding in expensive cities; they would shift instead to places where space is cheap. Then, however much business expands, there will be enough space for residences.

Land prices

It is scarcity that causes explosion in land prices. Once the former is checked, land prices will not shoot up the way they do now. Urban quality too will improve. With so much space, local water harvesting would be ample; sanitary facilities easy to implement. The money available even now for real-estate development would then produce ten times as many houses of a superior quality and at a fraction of the current price.

Rules are easy to frame but difficult to enforce. We are also aware that competing businesses work more efficiently than departmental undertakings. Hence, as in the telecom case, the government should (a) transform our urban planning agencies into a Regulatory Commission on the lines of the Telecommunication Regulatory Authority of India, and (b) leave it to commercial competition to design urban expansion. One cannot function effectively by being a supplier and a regulator.

A Regulatory Commission can enforce quality because it is free from the chore of supplying urban services. Please note that all these rules and regulations apply only to future expansion, not to existing structures. That should make these proposals politically acceptable. That urban planners will get a more important role should muffle their opposition too. Hence, these reforms should be doable. The telephone story can repeat in the case of housing too.

(The author is a former Director of IIT Madras. Response may be sent to indiresan@gmail.com)

(This is 171st in the Vision 2020 series. The previous article appeared on March 6.)

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