Unaffordable apartments in a Mumbai slum
Wednesday, 13 February 2008
Dilip D'Souza
MUMBAI: Madhukar Gurav welcomed me to his apartment, airy and bright. It's a 225 square feet flat for a family of four. This modest home is several levels up from where he lived before, on the top floor of the building. Until Gurav scraped together the half-million rupees, or $12,500, to buy this flat two years ago, he lived in a Mumbai slum in a shack made of plywood and tarp.
The new quarters are also in a slum -- the most famous in Mumbai, -- shared by about a million people. In a typically Indian paradox, his neighbourhood of Dharavi, notoriously known as "Asia's largest slum," has turned suddenly desirable. Builders, developers and politicians all eye the square mile of prime land that it occupies and hatch plans to put it to use.
It's no wonder for a city with 16 million people squeezed into 240 square miles. Mumbai remains one of the most densely populated cities in the world. Housing, in perennially short supply, is wildly expensive. By no means rich, my suburban 1,100-square-foot flat was recently appraised at 32.5 million rupees, or about $800,000. I own it only because I inherited it from an uncle; I could not have afforded to buy it when he died in 1998, and I could not afford it today. Like Gurav's apartment, mine is pleasant but not particularly sumptuous. An ordinary Mumbai flat built in the 1970s, it has made me a multi-millionaire.
Because housing is so expensive, about two-thirds of Mumbai's population live in slums or on the streets. This has been true for decades and remains true in ready-for-boom-time India. Indian politicians have concocted countless schemes over the years to "redevelop" slums, which they consider eyesores. For a variety of reasons, they've never managed to deliver on their promises. But one idea that took off decades ago still fuels the construction boom in Dharavi and throughout the dizzying, maddening city of Mumbai.
The concept, called "cross-subsidy," is simple. The government invites developers to build flats to be sold to slum-dwellers at subsidised prices. In return for their participation, the government loosens zoning regulations, usually in the same area, so that the developers can build larger and plusher apartments to sell to middle- and upper-class people at the market rate. The profit that developers make on these sales will pay for the subsidised units -- a nice marriage between government policy and private profit-making. Or so the theory goes.
Take the cross-subsidy principle to its logical conclusion, and you have free housing for slum-dwellers. In 1995, a new government rolled into power in Maharashtra promising just that: free homes for 4 million slum-dwellers in Mumbai, the provices's capital, over its five years in office.
Consider the arithmetic. Divide 4 million by five. That's 800,000 units, assuming five people live in each one. Divide by five once more. That's 160,000 subsidised flats to be built in each year of the government's term. Quick calculations showed that, given construction costs in the 1990s, profits from the market-rate sale of 560 apartments would finance 1,000 free flats for slum-dwellers. So, to give away 160,000 apartments, developers would have to sell almost 90,000 full-price ones. In total, they would have to build 250,000 each year. The numbers have changed since then, but the reasoning hasn't.
The goal is clearly unattainable. As the government report that established this policy noted in 1995, developers were building only 40,000 housing units per year, not including the units for the cross-subsidy deal. Today, that number is up to about 60,000, but it remains well short of the annual demand.
Like everything, the price of housing follows supply and demand. Say builders manage to build 90,000 additional for-profit units in a single year. What will that do to a market already fat on a supply of 40,000? Easy. Prices will go into free-fall. The foundation of the cross-subsidy plan implodes.
Not surprisingly, the scheme was a spectacular failure. By 1997, slum-dwellers should have moved into 320,000 free flats. That year, I asked the Urban Development Department how many apartments had actually been built. The answer: 1,146.
It's a Catch-22 situation. Mumbai's soaring real estate prices made this idea conceivable. The execution made it impossible.
Today, back in Dharavi, the cross-subsidy theory drives the transformation of the neighbourhood's tenements into apartment buildings. Developers are frenetically building middle- and upper-class housing there and across the city, while millions of slum and lower-class residents continue living in ramshackle accommodations.
That's where people such as Gurav enter the picture. In one scenario, a group of slum residents band together and invite a builder to raze their shacks and build new apartments, some to turn over to them and some to sell at the market rate. There are now several such buildings in Dharavi and elsewhere in Mumbai.
The interesting thing about Gurav is that he didn't belong to such a group. He hoarded his money and bought his flat from the original owner, who knew its value and couldn't resist the temptation to sell. The man kept the money from the sale and moved back to a shack, Gurav explained to me. "In that slum over there," his daughter piped up, pointing out the window at an expanse of rooftops like so many matchboxes in the distance.
And that's one more twist in the cross-subsidy tale.
If you build at the rate that the housing crisis -- or an election promise -- demands, the market crashes, making a cross-subsidy unworkable. Therefore, you build slowly, so that housing prices remain high. But when prices remain high, some of the former slum-dwellers will sell their flats and move back to the slum. Sometimes that was their plan all along.
I have a vicarious personal interest in this whole tangle. Among other interesting jobs that he held in the Indian bureaucracy, my late father was Mumbai's municipal commissioner -- the equivalent of a mayor -- from 1969 to 1970. Low-cost housing was always his great interest, and for the last 14 years of his life, he ran a low-cost project in Mumbai's northern suburbs founded on the cross-subsidy principle. It has about 5,000 subsidized flats, plus about 1,100 others and commercial space for sale at market rates.
My father died last September, but the project goes on. Why does it work? Because the subsidy is small, so residents pay close to market rates for their little flats, and because it has taken so long to complete -- nearly 25 years. The slow progress troubled my father and his colleagues greatly. But they understood that in the convoluted world of Mumbai, this remains the only workable way to provide livable, sustainable housing for the poor. And yet the dilemma persists: The worst off can't afford even the subsidised flats.
As I took tea with Gurav and his family in Dharavi, I found myself reflecting on the final, yet perhaps simplest, lesson in all of this. Anyone seeking to solve Mumbai's housing crisis must recognise the enormousness of the problem and proceed accordingly. Ponderously, even. Anything else is a band-aid. Just ask Madhukar Gurav. Two years after he bought it, his flat is worth more than twice what he paid. Naturally, he thinks he might sell and move. Where to? "To another slum," he says and smiles. "Where else?"
(The writer is the author of "The Narmada Dammed: An Inquiry into the Politics of Development" and "Branded by Law: Looking at India's Denotified Tribes." )
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The Washington Post
MUMBAI: Madhukar Gurav welcomed me to his apartment, airy and bright. It's a 225 square feet flat for a family of four. This modest home is several levels up from where he lived before, on the top floor of the building. Until Gurav scraped together the half-million rupees, or $12,500, to buy this flat two years ago, he lived in a Mumbai slum in a shack made of plywood and tarp.
The new quarters are also in a slum -- the most famous in Mumbai, -- shared by about a million people. In a typically Indian paradox, his neighbourhood of Dharavi, notoriously known as "Asia's largest slum," has turned suddenly desirable. Builders, developers and politicians all eye the square mile of prime land that it occupies and hatch plans to put it to use.
It's no wonder for a city with 16 million people squeezed into 240 square miles. Mumbai remains one of the most densely populated cities in the world. Housing, in perennially short supply, is wildly expensive. By no means rich, my suburban 1,100-square-foot flat was recently appraised at 32.5 million rupees, or about $800,000. I own it only because I inherited it from an uncle; I could not have afforded to buy it when he died in 1998, and I could not afford it today. Like Gurav's apartment, mine is pleasant but not particularly sumptuous. An ordinary Mumbai flat built in the 1970s, it has made me a multi-millionaire.
Because housing is so expensive, about two-thirds of Mumbai's population live in slums or on the streets. This has been true for decades and remains true in ready-for-boom-time India. Indian politicians have concocted countless schemes over the years to "redevelop" slums, which they consider eyesores. For a variety of reasons, they've never managed to deliver on their promises. But one idea that took off decades ago still fuels the construction boom in Dharavi and throughout the dizzying, maddening city of Mumbai.
The concept, called "cross-subsidy," is simple. The government invites developers to build flats to be sold to slum-dwellers at subsidised prices. In return for their participation, the government loosens zoning regulations, usually in the same area, so that the developers can build larger and plusher apartments to sell to middle- and upper-class people at the market rate. The profit that developers make on these sales will pay for the subsidised units -- a nice marriage between government policy and private profit-making. Or so the theory goes.
Take the cross-subsidy principle to its logical conclusion, and you have free housing for slum-dwellers. In 1995, a new government rolled into power in Maharashtra promising just that: free homes for 4 million slum-dwellers in Mumbai, the provices's capital, over its five years in office.
Consider the arithmetic. Divide 4 million by five. That's 800,000 units, assuming five people live in each one. Divide by five once more. That's 160,000 subsidised flats to be built in each year of the government's term. Quick calculations showed that, given construction costs in the 1990s, profits from the market-rate sale of 560 apartments would finance 1,000 free flats for slum-dwellers. So, to give away 160,000 apartments, developers would have to sell almost 90,000 full-price ones. In total, they would have to build 250,000 each year. The numbers have changed since then, but the reasoning hasn't.
The goal is clearly unattainable. As the government report that established this policy noted in 1995, developers were building only 40,000 housing units per year, not including the units for the cross-subsidy deal. Today, that number is up to about 60,000, but it remains well short of the annual demand.
Like everything, the price of housing follows supply and demand. Say builders manage to build 90,000 additional for-profit units in a single year. What will that do to a market already fat on a supply of 40,000? Easy. Prices will go into free-fall. The foundation of the cross-subsidy plan implodes.
Not surprisingly, the scheme was a spectacular failure. By 1997, slum-dwellers should have moved into 320,000 free flats. That year, I asked the Urban Development Department how many apartments had actually been built. The answer: 1,146.
It's a Catch-22 situation. Mumbai's soaring real estate prices made this idea conceivable. The execution made it impossible.
Today, back in Dharavi, the cross-subsidy theory drives the transformation of the neighbourhood's tenements into apartment buildings. Developers are frenetically building middle- and upper-class housing there and across the city, while millions of slum and lower-class residents continue living in ramshackle accommodations.
That's where people such as Gurav enter the picture. In one scenario, a group of slum residents band together and invite a builder to raze their shacks and build new apartments, some to turn over to them and some to sell at the market rate. There are now several such buildings in Dharavi and elsewhere in Mumbai.
The interesting thing about Gurav is that he didn't belong to such a group. He hoarded his money and bought his flat from the original owner, who knew its value and couldn't resist the temptation to sell. The man kept the money from the sale and moved back to a shack, Gurav explained to me. "In that slum over there," his daughter piped up, pointing out the window at an expanse of rooftops like so many matchboxes in the distance.
And that's one more twist in the cross-subsidy tale.
If you build at the rate that the housing crisis -- or an election promise -- demands, the market crashes, making a cross-subsidy unworkable. Therefore, you build slowly, so that housing prices remain high. But when prices remain high, some of the former slum-dwellers will sell their flats and move back to the slum. Sometimes that was their plan all along.
I have a vicarious personal interest in this whole tangle. Among other interesting jobs that he held in the Indian bureaucracy, my late father was Mumbai's municipal commissioner -- the equivalent of a mayor -- from 1969 to 1970. Low-cost housing was always his great interest, and for the last 14 years of his life, he ran a low-cost project in Mumbai's northern suburbs founded on the cross-subsidy principle. It has about 5,000 subsidized flats, plus about 1,100 others and commercial space for sale at market rates.
My father died last September, but the project goes on. Why does it work? Because the subsidy is small, so residents pay close to market rates for their little flats, and because it has taken so long to complete -- nearly 25 years. The slow progress troubled my father and his colleagues greatly. But they understood that in the convoluted world of Mumbai, this remains the only workable way to provide livable, sustainable housing for the poor. And yet the dilemma persists: The worst off can't afford even the subsidised flats.
As I took tea with Gurav and his family in Dharavi, I found myself reflecting on the final, yet perhaps simplest, lesson in all of this. Anyone seeking to solve Mumbai's housing crisis must recognise the enormousness of the problem and proceed accordingly. Ponderously, even. Anything else is a band-aid. Just ask Madhukar Gurav. Two years after he bought it, his flat is worth more than twice what he paid. Naturally, he thinks he might sell and move. Where to? "To another slum," he says and smiles. "Where else?"
(The writer is the author of "The Narmada Dammed: An Inquiry into the Politics of Development" and "Branded by Law: Looking at India's Denotified Tribes." )
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The Washington Post