Rent Control in Mumbai Marginal Revolution University English English (auto-generated)

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[Alex] Rent controls are popular with renters all over the world

rent controls are popular with renters all over the world because they appear

because they appear to offer lower prices with few adverse consequences.

to offer lower prices with few adverse

In the long run, however, extensive rent controls

consequences in the long run however extensive rent controls can cause entire

can cause entire cities to crumble.

cities to crumble you can see that today

You can see that today in Mumbai, India.

in Mumbai India all of the predicted

All of the predicted consequences of rent control

consequences of rent control could be

can be seen in Mumbai.

seen in Mumbai there was a shortage of

There is a shortage of rental housing. Very, very little new rental housing is being constructed,

rental housing very very little new rental housing is being constructed and

and the stock of old rental housing is crumbling and falling apart.

the stock of old rental housing is crumbling and falling apart at rents of

At rents of 500 to 600 rupees a month, maybe $10 a month,

500 to 600 rupees a month maybe ten

the landlords can't even afford to pay the taxes,

dollars a month the landlord's can't even afford to pay

let alone pay the maintenance and the upkeep.

the taxes let alone paying the maintenance and the upkeep rent controls

Rent controls began in Mumbai in 1949

began in Mumbai in 1949 when rents were

when rents were frozen at 1940 levels.

frozen at 1940 levels and amazingly

And, amazingly, rents have barely increased since that time

rents have barely increased since that

despite tremendous inflation and increased urbanization.

time despite tremendous inflation and increased urbanization to learn more I

To learn more, I spoke with Vaidehi Tandel,

spoke with via heat and L Reuben Abraham

Reuben Abraham and Kshitij Batra

and cha'dich Batra from the idfc

from the IDFC Institute -- a think tank in Mumbai

Institute a think tank in Mumbai that

that works on issues of urban infrastructure.

works on issues of urban infrastructure

[Alex] They froze rents at 1940 levels?

they froze rents at 1940 levels they did

[Kshitij] They did.

you hear these stories where families

We hear of these stories where families are paying

are paying a few hundred rupees a month

a few hundred rupees a month for a flat that would otherwise cost maybe a lakh of rupees a month.

for a flat that would otherwise cost maybe a lakh of rupees a month so orders

You're going to have to tell us what a lakh is.

gonna have to tell us what a lakh is oh

I'm sorry. So that would be about 100,000 rupees.

I'm sorry it's so that would be is so about a hundred thousand rupees Wow so

Wow! So, they're paying 100 or 200, 300 rupees a month

they're paying a hundred of two hundred

for something which is worth 100,000?

three hundred rupees a month for something which is worth a hundred

Yeah. In this case, you have actually a lot of families

thousand yeah in this case you have

that are perfectly well-to-do.

actually a lot of families that are

But they've just been grandfathered into these rent-controlled flats

perfectly well-to-do whether they've just been sort of grandfathered in into these rent controlled flats and they've

and they've been living there for that time.

been living there you know for that time

These are massive properties.

these are massive property some of these

Some of these are massive, massive apartments.

In India, tenant rights are very, very strong, and the court system is very, very slow.

of apartments in India tenant rights are very very strong and the court system is very very slow the owner of this

The owner of this building --

which has long been under rent control --

which has long been under rent control

has long tried to evict the tenants.

has long tried to evict the tenants in

In fact, the owner of this building has been involved in a lawsuit

fact the owner of this building has been involved in a lawsuit that was started

that was started by his grandfather 50 years ago.

by his grandfather 50 years ago there's

There's a remarkable sign from the owners.

a remarkable sign from the owners take a

Take a look. "Portions of the said building are in ruinous condition,

look portions of the said building are in ruinous condition likely to fall and

likely to fall, and dangerous to any person occupying or passing by the same."

dangerous to any person occupying or passing by the same it's falling apart

It's falling apart. It's beginning to crumble.

it's beginning to crumble now in part

Now, in part, that's a threat to try and get the tenants to leave.

that's a threat to try and get the tenants to leave but it's an all too

But it's an all-too-believable threat.

believable threat another deadly

[News presenter] Another deadly building collapsed in India.

building collapse in India a five-story

A five-story apartment building fell in Mumbai early Friday morning

apartment building fell in Mumbai early

while people were fast asleep.

Friday morning while people or fast

It's unknown exactly how many people are still underneath the rubble.

asleep it's unknown exactly how many people are still underneath the rubble

Rescuers have been digging for survivors all day long.

rescuers have been digging for survivors

[Vaidehi] There's really no incentives for them to maintain the existing stock

all day long there's really no incentives for them to maintain the

and you see really bad deterioration of the buildings

existing stock and you see really bad deviation of the buildings that are

that are under rent controls.

under hand control so the government

So, the government then had to go and create an assessed buildings policy which sort of looks after these buildings and pays for their maintenance.

then had to go and create a test buildings policy which sort of had looks after these buildings and pays for their

Assess as a special tax?

maintenance assess is a special tax yes

Yes, for repairing and maintaining these very, very dilapidated

for for repairing and maintaining these very very dilapidated and at-risk ground

and at-risk rent control buildings.

control buildings and so does the

So, does the government actually use the proceeds of the tax

government actually use the proceeds of

to fix the buildings?

the tags to fix the buildings I am Not

I'm not sure, actually.

[Alex] There's another problem with rent controls in Mumbai.

there's another problem with rent controls in Mumbai rain controls

Rent controls encourage landlords to leave their properties vacant

encourage landlords to leave their properties vacant rather than renting

rather than renting them out and risking the possibility

them out and risking the possibility of

of having a tenant that they can't evict

having a tenant that they can't evict

for the next half-century.

for the next half century it's no

It's no surprise that 15%

surprise that 15% of the housing stock

of the housing stock in Mumbai lies vacant.

in Mumbai lies vacant

[Kshitij] I think the census in 2011 --

I think the census in 2011 that's a

that's a government survey -- found that around 11 million properties

government survey found that around 11

were lying vacant across urban India, which is a huge number,

million properties were lying vacant across urban India which is a huge

given that they themselves estimated that the housing shortfall is 18 million.

number given that they themselves are estimated that the housing shortfall is

[Alex] It's clear that abolishing rent controls

18 million it's clear that abolishing

would solve many of these problems.

ran controls would solve many of these

But are there other ways

problems but are there other ways to get

to get more affordable housing on the market?

more affordable housing on the market

Can the government build more homes for the poor?

can the government build more homes for

[Reuben] I've been working on this particular issue

the poor you know I've been working on

for at least nine years now, and I have moved from calling it

this particular issue for at least nine years now now and I have moved from

"affordable housing" to calling it "making housing affordable."

calling it affordable housing to calling it making housing affordable any housing

Any housing that comes into the market will be captured

that comes into the market will be

by the rich or whoever have the means to capture it.

captured by the rich or whoever have the

So, therefore, I would argue that the real focus now

means to capture it so therefore I would argue that the real focus now should be

should be on just increasing the supply of housing.

on just increasing the supply of housing

Because if you don't increase the supply of housing,

because we don't increase the supply of

the rich will just keep capturing it.

housing the rich will just keep

So, you will see numerous instances just in Mumbai itself

capturing it so you will see numerous instances just in Mumbai itself of you

of you look at an urban plan, and you see these plans

look at an urban plan and you see these

for affordable housing, where four 1-bedroom apartments

plans for affordable housing where for

have effectively become one 4-bedroom apartment.

one-bedroom apartments have effectively become one four-bedroom apartment so

So, you've literally grabbed from the poor and made hot condos for the rich.

you've literally grabbed from the poor and made her condos for the rich anytime

Anytime you have two prices on the market,

you have two prices in the market right

the low price will sell to the high price,

I mean the low price will sell to the

or there will be some market operator that will find a way

high price or there will be some market

to grab the lower price

operator they'll find a way to grab the

because there's a higher price that's actually available on the market.

lower price because there's a higher price that's actually available in the

In effect, the slums look like poverty,

market yeah so in effect the slums look

when in fact it's actually a real estate problem

like poverty when in fact it's actually

because the cost of housing is just exorbitant

a real estate problem because the cost of housing is just exorbitant at a at

at the sort of income levels that you have in a city like Mumbai.

the sort of income levels that you have in a city like Mumbai

So, the slums are really the only free market housing.

so the slums are really the only free

That's right, free-market housing and funnily enough,

market housing that's right free market housing in

also the only form of rental housing that's available.

funnily enough also the only form of

Once you put in place a policy like that,

rental housing that's available once you put in place a policy like that you do

you do not have an organized opposition to it.

not have an organized opposition to it

If you try to increase those rents, you'd have politically a backlash.

if you try to increase those rents you would have politically a backlash and so

So, people would say rent's already so high in Mumbai,

people would say oh you know Ren's already so high in Mumbai you know why

why would you allow increase in rent controls?

would you have why would you allow increase in rent control it's a policy

It's a policy that affects not just people who are living here

that affects not just the people who are

but people who can't live here.

living here but the people who can't

People who don't live here but who want to move here.

live here people who don't live here and

but who want to move here right right so

So, they don't have a political base from which to act.

they don't have a political base for

Absolutely. That's absolutely right.

which to act absolutely

that's absolutely Wow rent controls are

[Alex] Rent controls are not the only problem.

not the only problem the approval

The approval process to build new housing in Mumbai is lengthy. In part, because builders are subject to numerous requirements,

process to build new housing in Mumbai is lengthy in part because builders are subject to numerous requirements not

not just to do with safety issues but also on building heights,

just to do with safety issues but also

room sizes, and even parking requirements

on building heights room sizes and even parking requirements for apartments

for apartments built for people who typically don't own cars. The single biggest problem would be approvals.

built for people who typically don't own cars the single biggest problem would be

The approval process --

approvals the approval process it's

it's longer here than in Europe or the United States?

longer here than in Europe or the United

Far longer. Today, cost of capital in India

States today cost of capital in India is

is close to 15% if not more.

At 15%, if my approvals process takes 24 months,

if not more at 15% if my approvals process takes 24 months don't be

don't be surprised that I will only be able to build condos.

surprised that I will only be able to

I will not be able to build anything cheaper than that

build condos I will not be able to build

because it's just pure mathematics.

anything cheaper than that because it's

That's just how it works.

just you know pure mathematics that's

As long as the cost of capital remains that high

just how it works as long as the cost of

and the approvals process is this long,

capital remains at high and the approvals process is this long you will

you will end up with condos.

end up with condos companies that began

Companies that began with the explicit aim

with the explicit aim of building

of building affordable housing -- raised a humungous amount

affordable housing raised of human less

of private equity planning to build 700,000 rupee homes --

amount of private equity planning to build 700,000 rupee homes are today

are today building 5 million rupee homes

building 5 million rupee homes because

because that's what the entire process of approvals does to them.

that's what approved the entire process

That's the effective consequence of all these regulations

of approvals does to them that that's the effective consequence of all these

which were really put in place in a well-meaning fashion,

regulations which were really put in place in a well-meaning fashion but

but have obviously -- you know the old line

obviously you know the old line about

about the path to hell being paved with good intentions.

the path to hell being paved with good

This is a great example of that.

intentions this is a example of them you're on your way to

[Narrator] You're on your way to mastering economics.

mastering economics make sure this video

Make sure this video sticks by taking a few practice questions.

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