Skyscrapers and Slums: What's Driving Mumbai's Housing Crisis?

[Alex] Welcome to Mumbai! With a population of 22 million people it's India's largest city and one of the most populous cities in the world. And it doesn't have a lot of land because it's built on a peninsula. That also makes Mumbai one of the most densely populated cities in the world. Unlike other cities with a lot of people and not a lot of land -- cities like Hong Kong, Shanghai, and Manhattan -- Mumbai is not a skyscraper city. Now there are tall buildings, but the average height is low, and that's surprising because the price of land in Mumbai is high. And when the price of land is high, developers have an incentive to economize on land. That's why around the world, the trend we see is the higher the price of land, the higher the heights of buildings. So why aren't there more tall buildings in Mumbai? And what are the consequences? Those are the economic questions and the puzzles we'll be looking at today.

To help us answer these questions, I spoke with Reuben Abraham and Kshitij Batra from the IDFC Institute -- a think tank based in Mumbai that works on issues of urban infrastructure and governance.

[Kshitij] Mumbai and, in fact, a lot of Indian cities have some of the most restrictive land-use constraints in the world. The main tool in Bombay that is used is the floor space index, which basically limits how much you can build on top of the land that you own, and so it restricts the construction to about 1.3 FSI in most of Bombay.

[Alex] Let's pause here for a second to talk FSI. Cities around the world use a floor space index or ratio to regulate the maximum amount of floor space that can be built on a given plot of land. For example, a floor space index of 1 lets builders build 1 square meter of floor space for every square meter of plot. The builders get to decide whether that means covering the entire plot with say a one-story building, half the plot with a two-story building or one-quarter of the plot with a four-story building, and so on. So the higher the FSI, the more space that can be built on the same plot of land.

When we compare Mumbai's FSI of 1.3 to other densely populated cities, the differences are striking. The FSI in Singapore can be as high as 25. New York, Chicago, and Hong Kong allow FSI's up to 12 or 15. In fact, Mumbai and other Indian cities --they have some of the most restrictive FSI's in the world. The higher allowable FSI in cities like New York has enabled more offices and apartments to be built on the same land. Instead of sprawling outwards, Manhattan has grown up. In fact, by letting buildings grow tall, Manhattan has increased its size by almost two additional Manhattans -- an amazing way of making more land essentially out of thin air.

[Kshitij] So the government is artificially trying to restrict how much builders can construct on the land that is available by using this tool. It's very regressive and it doesn't make sense, and it actually drives up the cost of housing, of commercial real estate, and the cost of living in Bombay. The average of floor space per person is about 48 square feet per person, and just as a comparison, the U.S. Federal Government mandates that you have to have a minimum of 50 square feet per person in prison cells. [Alex] Wow. [Kshitij] And so people are living in more densely populated conditions in Bombay than they are in the prison system in the U.S. Now that this policy has been in place for the last several decades, and the demand is high and has only been increasing,you created basically rent-seeking opportunities for the political system, for the bureaucratic system, to extract rents -- no pun intended -- for being able to sell off additional FSI.

[Alex] So we have a lot of people, not a lot of space. One thing you do see is a lot of slums. It's hard to ignore them when you're in Mumbai. How is this related to low FSI?

[Reuben] You have the Island City with 1.3 FSI, and you've got the suburbs with 1 FSI in probably the densest urban conurbation in the world. So obviously you're going to get some pretty bad outcomes of consequence which primarily consist of driving the poor out of any kind of formal housing. So, in fact, if you go in there, what you basically see is by and large, especially in the Island City is mostly I would say lower-middle-income people to middle-income people who live in slums, and that's because they've been priced out of the housing market.

[Alex] Because of the low FSI?

[Reuben] That's right. The government has now clearly made housing one their key priorities, but that housing is nowhere near the place of employment. So it actually makes it extraordinarily cumbersome for people to commute to work where the slums are actually where work is, as a consequence of which people would rather live in slums rather than move into formal housing that the government actually provided for you. [Alex] Right. So the government sometimes builds housing which is so far away from work that people would prefer to live in the slums. [Reuben] Yes. I mean one way to solve for their problem was to have much more effective public transport. [Alex] Yeah. And in many parts of the world, in order to take advantage of public transportation, you build tall, near a metro station. [Reuben] That's right. [Alex] Right? But that's not happening so much?

[Reuben] Well, the conversation is beginning to happen. So transit-oriented development is actually part of the conversation. So if you look at the Mumbai development plan that was tabled last year, you will see that the FSI along transit corridors is very high. If I remember right, it's closer to 8 near the transit corridor. So that conversation is beginning. But part of the problem is a lot of planners can't seem to tell the difference between density of physical space and people -- it's something that people don't necessarily understand. Let's assume for a second that we double the FSI of Bombay from 1.3 to 2.6. Now the fears that people have that's going to lead to overwhelming density actually requires the population of Bombay to also double. Now that is not going to happen. So, what you're really going to see is you're going to make more space available per capita. People need to get over this conflation problem between density of people, density of space. Because right now when you say you can give high FSI near transit corridors, what's going on through people's mind is, "Oh my goodness. Things are so crowded here already. Things are going to get ten times worse if I give increased FSI." They need to understand the fact that what you're really providing is additional space, not additional people. [Alex] Right. So building up, you're actually in a way creating more land. The way -- Mumbai...[Reuben] That's right. You're effectively reclaiming from the sky.