Flourishing Rental Market Is Key To Achieving Housing For All By 2022

Trying to rent a house is one of the most nerve-wracking experiences one can go through. I have gone through it in three different cities (Mumbai, Pune and Hyderabad). The way the landlords look at you with pity is a scene straight out of the movies. It’s like their way of telling you, “What, you haven’t even been able to buy a house?” You loser, look at me.

Having found a house and then trying to handle the landlord on a regular basis takes your diplomatic skills to another level. (I used to have a landlord once who used to land up every Saturday morning asking for stock tips and then spend a good three hours badgering me for them.)

The interesting thing is that the rental share of urban housing stock has gone down over the decades. As per the 1961 census, it was at 54 percent, and by 2011, it had fallen to 27.5 percent. This explains why finding a house on rent can be such a pain.

The proportion of homes on rent has fallen dramatically over the years. This as urbanisation (or the number of people living in cities) has gone up. As per the 2011 census, 31.2 percent of the population lived in urban areas. This figure is expected to go up in the years to come.

Further, India’s urban rental housing stock is low as per global standard.

The rent control acts lead to a shortage of rental housing in various ways. As the Five Year Plan document points out, it leads to: “Negative effect on investment in housing for rental purposes. • Withdrawal of existing housing stock from the rental market. • Accelerated deterioration of the physical condition of the housing stock.”

In fact, Mumbai has had to bear the brunt of the rent control act. As Sahil Gandhi, Vaidehi Tandel, Shirish Patel, Abhay Pethe, Kabir Agarwal and Sirus J Libeiro point out in a working paper titled Decline of Rental Housing in India: A Case Study of Mumbai,

A new rental law put out by the central government will be the starting point. It will then have to be adopted by the state governments. At least that way some of the locked and unoccupied homes will start hitting the market.

The unoccupied homes are more at the upper end.

Hence, for rental housing at the lower end to take off, the rental yield on homes needs to improve. This will only happen once prices come down to more realistic levels. Currently, the rental yield is around two to three percent (the annual rent as a percentage of market price). Nobody in their right mind is going to build homes for rent with a rental yield like that. For rental yields to go up, the cost of constructing homes needs to fall. For this to happen, first and foremost, the cost of land in and around cities needs to fall.

These will be the first few steps towards Housing For All By 2022.

This article was originally published in Vivek Kaul’s Diary — a newsletter that cuts through the noise and presents actionable views on socio-economic developments in India and the world. He is the author of a trilogy on the history of money and the financial crisis. The series is titled Easy Money.