Economic with the truth

A friend sent me this interesting article from the Economist about problems with the Mumbai housing markert

What are the problems the Economist highlights?

  • Lots of people live in slums (60% of the population)
  • People’s houses are very small at 4.5 square metres (48 square feet) per person, compared with 34 square metres in Shanghai
  • Houses are expensive with the average price of a 1,000-square-foot pad in the city costing 90 times GDP per head(
  • Corruption is endemic 
  • There is an overriding sense that problems in the housing market might be constraining the city in some way
For me the first two points are by far and away the most important points. However, the Economist dwells much more on the last three. This is itself revealing.
What is the Economists recommedations? Well, firstly, recommendations might be a strong word but there is some discussion on the following topics;
  • Relaxing regulations to allow taller buildings (worth reading this article on good and bad density when considering this recommendation – height by itself is not good enough)
  • Reforming finance so that more people get mortgages (implicitly, I think they are saying that mortgage are currently not used by poor people. This relates to the idea that poor people in India are ‘underbanked‘)
  • Combating corruption so that, um, well, there is less corruption. The article is perhaps not as clear as it could be about why corruption is bad other than hinting that there is a system that is manipulated by a well connected elite to benefit themselves to the detriment of others (presumably this only happens in Mumbai). They do specifically identify regulations on the maximum height of buildings as coming from corruption, which is not entirely convincing. There is an interesting hint that nationalizations might be a way of combating corruption, but this is not explored.
  • Finally, there is some talk that improved transport would improve the situation. Although they don’t come out and say it there clear implication is to build mass transit to move poorer people out of the centre of the city and into new suburban developments.
There recommendations are ok, as far as they go, although I am not sure that they particularly deal with lots of the problems in a particularly systemic way.
In particular, I thought it was interesting that there was little or no discussion on the following ideas;
  • Slum upgrades possibly including giving people deeds to the land they are living on so they can then expand and improve their houses (including through getting credit). This would of course be a transformative policy.
  • Public housing where the government builds new housing for lower income people. This has to be done carefully so that it is actually affordable, is given to people in housing need (and not just given out through patronage) and is built in places near work and transport. This is currently being done a lot in various Chinese cities.
  • Alternative investment vehicles could be created by the government, for example, giving people the chance to invest in infrastructure development. This is important because one of the big things that pushes up the price of formal (ie not slum) housing is people using real estate as an investment vehicle (because there are so few other safe investments).
  • Building the capacity and accountability of state officials as a way of combating corruption. This means paying decent wages and giving proper training to people involved in town planning. It also means building up the ability of other groups  to hold officials to account and prevent ‘winner takes all‘ politics whereby only a wealthy few are able to influence the government. One way of doing this would be through funding for community organizers such as the ones who have set up the Slum Dwellers International

I think these are all realistic policies but also ones that could have a profound impact on all the problems that the Economist highlights. It’s worth thinking about why they are not event discussed in the article.


2 thoughts on “Economic with the truth

  1. This is a very good post, much better than any musings I could have come up with. I was also thinking of doing a blog post on this, but you have shamed me into silence. There were two things I was going to riff on. One is the idea of a city as a bit like a philosopher’s axe in some ways. A city’s population is replaced continuously, both by death or by in-/out-migration. Yet still we think of the city as a whole continuing. So maybe in a rather cruel way, the welfare of a “city” (whatever that means) need not strictly be correlated to the welfare of its inhabitants. That is a troubling thought, but there it is.

    I was also going to try to work in Hernando de Soto’s idea of secure property rights as a driver for development. I think this has been comprehensively disproven, for example in the case of China. And I saw a talk by one political scientist (maddeningly, I have forgotten his name) who even argued that it is the destruction of property rights that drives development.

    Anyway, both these insights are rather airy, and unlike your post they fail produce any tangible policy recommendations. So I doff my hat to you sir.

    • Thanks!

      I like your two points.

      On the first one, there is also something interesting to say about how cities replicate themselves despite population churn and retain certain characteristics, which is quite interesting.

      I hinted at the de Soto stuff when I talked about upgrading slums. I think upgrading is far more preferable than clearances and part of upgrading probably means formalizing ownership but there are lots of risks and de Soto (of course) oversells the idea.

      There is an interesting case study about what happens when you make information on land deeds available online. It was meant to be democraticising but ended up replicating and entrenching inequalities;

      Click to access bhoomi-e-governance.pdf

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