Read my article “The Human Cost Of Zoning” on FEE.org. I hope zoning in the third-world gets more attention with essays like this. I am glad that Financial Times, Bryan Caplan, Tyler Cowen, Alex Tabarrok, ACI Scholarly Blog Index, Orange County Register, Freakonometrics, Urbanomics and economist Ajay Shah blogged about this article. Government Of South Australia, Quartz shared it, and NYU Stern School Of Business’ Urbanization Project, Marron Institute, and Brandon Fuller tweeted it. Continue Reading
To borrow an invaluable metaphor from Voltaire, if Alain Bertaud did not exist, it would have been necessary to invent him. When I read about Indian real estate, I almost never come across anything that is good. Alain Bertaud’s work is a rare, honorable exception. If Mumbai were a beautiful, livable city, many great minds would have lived in Mumbai. They would’ve written about Mumbai. Even in such a dense city, there isn’t anyone who can write intelligently about housing and urban policy.
But, I find Alain Bertaud’s position that raising the floor area ratio (FAR) will not raise Mumbai’s population density strange. For beginners, Floor Area Ratio is the ratio between the floor space constructed on a plot to the area of the plot. For example, if the FAR is 2, a 2000 square feet building can be built on a 1000 square feet plot. If the FAR is 3, a 3000 square feet building can be constructed on a 1000 square feet plot. The higher the FAR, taller buildings can be. In Mumbai, the FAR is 1.33, while in some cities, FAR in the city core can be as high as 25. In Hong Kong’s city core, for example, a 100 storey building can be constructed on the plot on which a 4 storey building can be built in much of South Mumbai. In fact, this is the major reason why space is so congested in Mumbai. This is the single biggest reason why housing is so expensive in Mumbai.
To put it shortly, this is Bertaud’s argument, as best as I understand it.
So, density would change only if the amount of land developed changes or if the number of people in the city changes. For reasons unknown to me, Alain Bertaud maintains that changing the FAR does not change either the population in the city or the land developed. Bertaud thinks that if FAR is lowered, people will deal with it by consuming less floor space. Similarly, if FAR is raised, people will, at best, consume more floor space. Bertaud claims that this will not change Mumbai’s population.
But, I suspect people are more likely to move to a city where floor space is abundant, and rents are low. Wouldn’t that happen if FAR is raised in Indian cities? Better amenities attract more people. Spacious houses will have the same effect, right? How on earth can someone believe that this wouldn’t happen? Wouldn’t Mumbai attract more people if it were a more livable city? I have never lived in Mumbai. I would love to live in India’s most cosmopolitan city. But, I have never considered moving there. Why? Having lived in large houses much of my formative years, I won’t be able to adapt to such congested spaces. Delhi is bad enough. I can’t be the only guy who thinks along these lines. Remember: I am a misanthrope who loves density.
When there is more floor space, there will be more job opportunities too. This would, again, have the same effect. I am willing to believe that this is an empirical problem. I am willing to believe that the number of people who wish to migrate to Mumbai has nothing to do with how spacious Mumbai’s houses are. But, I would like to hear why.
Post Script: Tyler cowen thinks that Indian cities are under-crowded. And if they are in fact, under-crowded, wouldn’t more people migrate cities when it is easy to build tall? (Alain Bertaud would say that density and crowding are not the same.) Robin Hanson thinks the same, though I am not sure in what sense he used the word density:
“City density, and hence city size, is mainly limited by the abilities of the conflicting elements that influence local governments to coordinate to enable taller buildings. Remember those futurist images of dense tall cities scraping the skies? The engineers have done their job to make it possible. It is politics that isn’t yet up to the task.”
Bryan Caplan thinks that if real estate markets are deregulated in such cities that would lead to more affordable housing elsewhere. This is perhaps the most interesting view I have come across. But, I’m not sure how easily it can be reconciled with the fact that Mumbai has about the highest disparity between personal incomes and housing prices.
Tyler Cowen has a very interesting post, on why migration to cities is unusually low in India, where financial returns from migration is high:
“Indian migration to the cities is much lower than for China or Indonesia. The explanation that we propose for India’s low mobility is based on a combination of well-functioning rural insurance networks and the absence of formal insurance, which includes government safety nets and private credit. In rural India, informal insurance networks are organized along caste lines. The basic marriage rule in India (which recent genetic evidence indicates has been binding for nearly two thousand years) is that no individual is permitted to marry outside the sub-caste or jati (for expositional convenience, we use the term caste interchangeably with sub-caste). Frequent social interactions and close ties within the caste, which consists of thousands of households clustered in widely dispersed villages, support very connected and exceptionally extensive insurance networks. Households with members who have migrated to the city will have reduced access to rural caste networks.”
I met David Friedman at Starbucks in Connaught Place, the Central Business District of Delhi. Starbucks, which exemplifies the age of aesthetics, tends to maintain consistency in look, feel and attitude across the world. But, its store in Delhi’s premier market reeks of traditionalism, with bare cement interiors, local crafts and furniture. The Connaught Place market, though somewhat dilapidated, is one of the most expensive office spaces in the world. Starbucks, which does not have many outlets in India, bought space here because as per its brand values, it cannot afford to open stores where the catchment area does not justify the investment. The young men and women who listened to Friedman consuming expensive retail space without consuming the expensive coffee epitomize India’s leisurely café culture. It is hardly surprising that Starbucks does not have many outlets in India.
Economist David Friedman is one of the most creative minds of our times. Friedman studied Physics at Harvard and Chicago, and has never taken a course for credit in economics or law. But, the finest of minds vouch that Friedman’s class on legal systems is the best economics course in the world. David Friedman is the son of Milton Friedman, the 1976 winner of Nobel Prize in Economics, and economist Rose Director. Rose Director was the co-author of Milton’s best-selling book, ‘Free to Choose’ and sister of economist Aaron Director who was instrumental in the development of the Chicago School of Economics.
Read the whole interview here.