Need to support private informal rental market urgently

Policy makers are making noises about a rental housing policy for India, which currently does not have one in place save for some anti-eviction and rent-protection laws in certain States. The renewed interest in rentals has been triggered by a report that finds 11 million out of the 18 million units built between 2007-2012 lie vacant, ostensibly because owners are hesitant to lease them out to renters who they fear will be hard to evict when they need to. A 19-member panel set up by the Ministry of Housing and Urban Poverty Alleviation (HUPA) headed by Jaithirth Rao, Chairman, Value and Budget Housing Corporation Private Limited is now looking at ways to encourage developers to construct rental housing units.

Historically, housing policy worldwide and in India as well has had an inordinate emphasis on home ownership. In India’s growing urban centres, rental housing is highly in demand owing to mobility patterns and also as a result of high land prices and high cost of home ownership. Highly distorted land markets mean housing affordability will continue to be an issue; it is not merely a demand-supply game for sure. A policy that will put more rental housing on the market, protect the landlord but more importantly protect tenants too against arbitrary rent increases is welcome.

However, policy makers seem to have missed entirely the huge amount of rental housing already being provided by small landlords in the informal areas of our cities. Walk through slums, unauthorized colonies and urban villages in any city and you will see homeowners adding floors to accommodate tenants (sometimes they call them relatives, but this is also a form of tenancy after all). In Gurgaon, my research as part of the Future Institute Fellowship Program shows large-scale construction of rental units by small and mid-size landlords in urban villages located close to employment centres. These erstwhile farmers have been meeting the housing needs of low- to middle-income for years successfully even as the government continues to mull over affordable housing as a problem.

This sort of rental construction is right under the noses of the authorities, yet they seem to feign ignorance about it. Local councillors tell me that villagers do not allow census enumerators to enter their homes and do not divulge the presence of tenants as far as possible, fearing interference with their business of rental housing. Landlords remain unclear about the legality of rentals, fear they may have to pay service tax. To refrain from showing rental units, they do not construct kitchens in the housing they provide, and also give minimum amenities like toilets and bathrooms. Yet, no one will be fooled that these tenement homes are for any other purpose but rentals!Image

We find ourselves in a strange conundrum with this sort of rental market. Like we refuse to see slums and accept them as part of our reality, we do not wish to really know where maids, cleaners, security guards, drivers, cooks, retail assistants and even BPO workers live. Within the same city, people are interdependent yet ignorant of each others’ lives.

From a policy perspective, it is a huge challenge indeed. We do need to legalize the informal rental market so that we can regulate the safety of the buildings that house migrant workers and so that landlords are encouraged to offer decent amenities- water, sanitation, etc. Yet, we want to ensure that these rental rooms remain affordable to the poor, which probably means offering some sort of incentives. From what I know, these landlords do not really make money off the rentals. They rent partly to keep their property from remaining vacant and being grabbed by political goons, and to keep busy after having lost their land in the process of urbanization. It is a delicate balancing act, but it needs to be addressed.

It is my appeal to Mr Rao and the HUPA to include the informal rental market in your considerations while formulating a rental policy. If needed, HUPA can set up a parallel panel of experts to look into this. Supporting and engaging with the informal rentals market will being down the pressure on the government to provide affordable home ownership options, especially in cities that are experiencing high rates of rural-urban migration. It would protect the poor, who often have to face arbitrary rent increases and are powerless before their landlords who are ‘locals’. It would also offer better business models to landlords, who will find ways to improve their offerings and expand their business without fear of the law.

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6 thoughts on “Need to support private informal rental market urgently

  1. Formalizing rental policies is probably one of the key game changers in Indian cities. If it is done correctly, not only would one see more housing options being available to more citizens, but also potentially a reduction in the growth of informal/illegal settlements. Incentives for urban village land owners to build safer/livable units can be customized locally if local municipalities and decision making authorities would bee allowed too negotiate independently with village panchayats. These could lead to co-operatives agencies that could help attract PPP service/infrastructure investments.

    • Exactly. Thanks for articulating well. Local govts barely seem to understand what’s going on. On the other hand councillors benefit from the lack of clarity and oppose any sort of process. Lots of consensus building needed.

  2. well researched work and good perspective. It’s implementation will pave the way in solving the problem faced in cities like Mumbai, Delhi, Pune, Gurgaon and several others. I think it will also save us from destruction of ecology and greenery. Plus, the corrupt builders need to be regulated and high time to do away with mafia-builders nexus. What to you think? My perspective is largely that of a layman on the issue:)

    • Hmmm. Thanks. The research is ongoing, problems complex, corruption and abide of power rampant but housing is a matter of choice and its always good to promote all options. This is a great solution to house the urban poor.

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