In India’s unequal cities, land for low-income housing should be taken off market

In The Open Society and its Enemies, philosopher Karl Popper reminds us that “Man has created new worlds – of language, of music, of poetry, of science; and the most important of these is the world of the moral demands, for equality, for freedom, and for helping the weak.”

The Constitution of India is remarkably forward looking with regard to these moral demands. The demands are in direct conflict with past attitudes. We have behind us millennia of contempt for those below our station, extending at times to active cruelty. Stratifications by caste are easily replaced by stratification by income level.

These old attitudes are hard to overcome. They continue to find expression in the way Indian cities function. How to change this and give India’s poorer citizens in particular happier urban lives is the subject of this article.

Let us accept that we are stuck with capitalism and it is too far-fetched to expect to be able to shift to any other form of economic organisation. Capitalism is based on the principle that money is the overriding driving force in human affairs. Happily, there remain many who believe that the pursuit of money is an insufficient purpose in life.

Markets are central to capitalism. Competition is the operative principle. Competition is expected to lead to higher efficiencies and to innovations that provide higher levels of service at lower and lower costs. This is for items of daily need as well as luxuries or even invented wants.

The World Bank, the cathedral where money is god, is the world leader in its relentless doggedness and blind faith in the belief that free markets are the solution to all problems. The free market extends to land, which is to be treated no differently from any other commodity. Contrary to the World Bank’s view, land markets are very different from commodity markets. All markets need to be regulated, but land markets need to be regulated differently from commodity markets, particularly if the needs of the disadvantaged half of society are to be addressed.

The classical graphs of supply and demand apply to ordinary manufactured commodities. In these graphs, the horizontal axis is quantity and the vertical axis is price. The “demand” curve is then a concave curve facing top right, meaning that as the price falls the quantity purchased increases. The “supply” curve is also concave, but facing top left, meaning that a price increase leads to increased supply in pursuit of profit.

Where the two curves intersect indicates the equilibrium point of stability, which is more or less where the ruling market currently stands in regard to price and production for the commodity being considered. A point to note is that government policies can push the supply curve up or down using tax measures.

There are several reasons why land is not a commodity like other commodities. Obviously, one cannot produce more of it to meet increased demand. That is a fact but it is irrelevant. The real difference is that each piece of land is unique and not substitutable by a different piece, except by another plot in the same locality. The locality’s land is fixed in place. Its value lies in (a) its location, which you cannot change and (b) its permitted use, and permitted intensity of use, both of which government can change. All such changes affect its value in the marketplace.

In a representation on the demand-supply graph, for plots of land, such graphs have to be locality by locality, and each graph is unique for that locality. It is not a collective graph for all plots, as it would be for a single commodity, like say soup or cornflakes. The “supply” line is vertical, because the quantity (the area of the locality) is fixed and cannot be more or less. The “demand” line is horizontal, which can move up and down. This means the price can vary. What that is will be determined by the market. Quite apart from variations in price arising from permitted use and intensity of use, there is now a new force affecting the price. That is individual preferences for this locality or that, and competition between individuals that settles the market price.

From the very different looking supply-demand graphs it is dramatically obvious that land is not a commodity like other commodities. So the land market needs to be managed quite differently from other commodity markets. It calls for its own, very different forms of regulation. Ideally, just as there are different supply-demand graphs for each commodity, each locality needs its own unique demand-supply graph.

There is one other major difference between land and other commodities. This is that land falls into two distinct kinds of ownership. One is government-owned public land. The other is privately owned, by persons or corporations or other agencies. In principle it is only privately-owned land that can be transacted in the marketplace. Publicly-owned land is not part of the tradeable land market. It is in the shared ownership of all citizens, to be used normally for purposes that are in the highest public interest. Land for roads, for example, is owned by the government, shared by all and not for sale.

Similarly land for parks, schools, government offices and even public toilets should be off the market and not for sale. They are shared facilities that serve a common public interest. Their area is not for sale, no matter how high the private market land price in the locality may be.

To function well, markets need to be regulated. One does not want monopolies and cartels. Regulating markets is an essential government function. But governments also use their power and often poke their noses into the market by imposing excise or import duties to influence price levels for political reasons. An example is import duties to protect local farmers. This is, of course, frowned upon by the World Bank because it punctures the ideology that demands that all markets must always be “free”.

As a city grows, demand for land in the older areas almost invariably grows. Unless the locality is neglected and becomes decrepit, land prices are expected to rise. The older owners of property can now resell for a higher price, although they have done nothing whatsoever to bring about the price increase.

If properties are rented, owners can expect to increase their rents. Lower-income occupants are consequently often forced to move out into cheaper lands further away from the original growth centre. Market forces, in a free market for land, create pressures that force the lowest-income groups to move far away into cheaper lands. It increases their travel time. The quality of life of poorer people is adversely affected. Such diminishing is bound to affect the quality of their work. Altogether, city functioning becomes less efficient.

Ideally, for a city to function well, housing for the poor should be spread all over the city. This is where the low-level service jobs are, spread all over. The problem is, how can low-income homes be provide in localities where the land value is high? The answer is glaringly obvious. Take the land for low-income housing off the market. Low-income homes need to be placed close to low-income jobs – in other words, uniformly spread across the city.

Land is provided for roads, parks, schools and other amenities all over the city that is not for sale but reserved for its particular, prescribed use. Land for low-income housing must be similarly taken off the market and reserved for low-income housing. It is not a small area. To properly cater to lower-middle and low-income earners means 80% of those whose incomes fall below the median. That is, 40% of all residential land should be reserved and dedicated for all-time use only to house these income groups. As it happens, slum residents in Mumbai constitute 40% of the city’s population.

Such off-the-market lands are called community land reserves. Just as there are wildlife reserves and forest reserves, each reserved exclusively for its specific particular purpose, community land reserves will function as lands reserved specifically for low-income housing spread across the city, including in its high-value localities.

Government-owned land is particularly suitable for conversion to community land reserves because it happens to be spread across the city, as community land reserves should be.

The important understanding is that these occupants of low-income housing are not free to sell their accommodation. Their land is off the market. Either the premises are on rent, payable to the community land reserve managing their estate, or if the occupants are owners they own only the structures they occupy and not the land beneath it. That belongs to the community land reserves.

On leaving, such residents will fully recover the construction cost they have incurred of the premises they occupy, indexed for inflation, but not the value of the underlying land. The vacating occupant has no choice, by contract, except to sell the construction to the community land reserve. The community land reserve, by some transparent process, selects and allots the construction to a new incoming occupant. Appreciation in land value is not reflected in the rent or the ownership cost charged to the incoming occupant. Thus, the land taken off the market for low-income housing remains for all time as land to be used exclusively for that purpose.

How a community land reserve is organised and how it operates in such a way that land dedicated to low-income housing remains for just that use for all time must be the subject of a separate article. Meanwhile, what has to be first accepted is that the government is not in the same category as a developer, free to profit from ownership of land. Government lands are public lands, held in trust and to be used for what is highest in the public interest. Such lands are not to be held primarily for monetisation. Their preferred primary use must be changed to be for low-income housing or its associated amenities.

In contrast to doing what is highest in the public interest, currently the government does the exact opposite. The 2.4 square kilometres of Dharavi, at present, is home and workplace to perhaps a little over four lakh low- and middle-income residents. Most of the land in Dharavi is publicly-owned. It could be used for continuing public ownership of affordable housing and workplaces for its present residents. Instead, it has been handed over to a developer for a fraction of its market value. A large block of land has been quietly moved from public ownership into the private land market. Market forces will eventually force all lower-income residents out.

Increasingly, the city is becoming segregated by income, with its poor residents living further and further away, or in new slums close to their jobs. Neither of these is as desirable an outcome as having an evenly distributed population that minimises transit demand.

This is the second part in a four-part series on low-income housing. Read the complete series here.

The author is a civil engineer and urban planner, one of the three authors who suggested the idea of Navi Mumbai.