Expensive homes, low growth

Expensive homes, low growth

Middle-class Indians living in our megalopolises should be worried that “affordable housing" may soon become an oxymoron. Deepak Parekh, chairman of India’s largest home lender Housing Development Finance Corp., told DNA newspaper last week that his primary business is now coming from the outskirts of Mumbai and Delhi: far-flung places such as Dombivali or Ghaziabad. In Mumbai, the average home loan size is Rs25-30 lakh; the all-India average, excluding Mumbai and Delhi, is Rs12 lakh.

And policymakers should start worrying about what this means for urbanization. Unaffordable housing—adding to bad infrastructure—will only dissuade the middle class from living in the middle of large cities, pushing them out to either the peripheries or other small towns. A new report released by London-based Legatum Institute on Tuesday outlines that this dispersal could impede the kind of middle-class mobility that’s traditionally driven economic growth.

Author Joel Kotkin, a leading urban thinker in the US, has closely looked at three “global cities"—including Mumbai—in this report to show what an expensive, densely packed city could do to the middle class. Before you know it, it’s the super-rich (who can afford it) and the slum-dwelling underclass (who can’t afford anything else) that dominate the heart of Mumbai.

This affects a country’s upward mobility and, as a result, growth and poverty alleviation. Cities have always been centres of middle-class aspiration, both social and cultural—restaurants and theatres—and also economic. Cities form “clusters", spots of accumulated activity where large scale allows for specialization, and then growth. But if financial analysts and lawyers live too far from Mumbai, this city will never become a global financial centre. India will never see very many manufacturing or services clusters.

Since it’s the government that enables such lopsided urbanization, it’s the government that will have to correct it. Kotkin writes how environmental regulations create obstacles for urban development. Parekh points to unclear land titles and never-ending court cases that make land more expensive.

Policymakers will have to loosen these constraints, while they build more capacity at the same time. Right when India’s middle class feels most aspirational, there’s a danger bad or absent policymaking could end up killing this aspiration.

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