A group in the Planning Commission has proposed that cities be allowed to build upwards so as to bring down high real estate prices. Indian cities are among the least built-up in the world, and real-estate prices are unaffordably high. Low-priced housing is largely unavailable, and India is becoming subject to urban sprawl that is economically unviable, stresses transport systems and increases travel costs inefficiently. Cities offer the best return on investment in their infrastructure when they allow for dense living. If a pipeline supplying water is shared by more families, then the per capita cost of laying that pipeline drops. Among the restrictions that have caused this inefficiency is the artificial restraint on floor-space indices, or FSI. The Commission has proposed that these restrictions be lifted, albeit in a “granular” manner, and with carefully worked-out pricing systems in place.
Some reasonable arguments can be made for caution on FSI. India’s record on creating infrastructure to go with increasing urbanisation has been abysmal. To have more dense living, it is critical to have more water, sewerage and road capacity. In India, however, even the record of fighting fires in high-rises is none too good. Of course, you can lay new or bigger water mains but it is costlier to do so in a crowded area than elsewhere. There is an imbalance between public and private costs, therefore, that can only be bridged by well-designed pricing mechanisms. Further, the real estate sector is especially poorly governed. The nexus between builders and politicians is one reason why recent changes in the law have not led to a commensurate rise in the supply of urban land. Built-in safeguards are all too often exposed to manipulation by the politically powerful.
The crucial problem is, therefore, one of pricing and regulation. The Planning Commission report suggests that additional floors be priced at 50 per cent of the circle rate for the area. Yet, given that circle rates are frequently a tiny fraction of the market rate, this may be problematically low. Other approaches, such as that tried in Andhra Pradesh – where an “impact infrastructure cost” is charged – should be considered. Designing the governance for this approach will require a close study of the incentives of the bureaucrats and politicians in a position to affect clearances. The body charging for the additional FSI must be, therefore, closely aligned with the one that is required to budget for the additional infrastructure. This ties in with the need for greater accountability and power for local authorities, and breaking the link between state-level politics and city administration. In the end, nothing can substitute for big-picture, well-planned expansion of India’s urban areas. It is always cheaper to help create new townships than to try and intervene in older, larger cities that are already ill-planned. Large, mixed-use new developments – satellite towns joined to existing cities with high-speed links, for example – should also be on the government’s agenda.
