The Conflict Between Smart Cities And Rent Control Laws

In the New Ashok Nagar locality in east Delhi, just short of the capital city’s border with Noida, the people who keep middle class and affluent homes as well as factories and shops running smoothly live in what are called “chawls”. These are nothing like the Mumabi chawls popularised by Hindi films— where one-room tenements open out into a common balcony and have a window or two. Even the most squalid of those chawls are picturesque compared to the the chawls of New Ashok Nagar.

These are unplastered four-storey buildings, with four windowless 8x10 rooms to a floor. The door to each of these opens on to a common landing. Each landing, accessed by a narrow, risky staircase, has a narrow strip of grill across the centre, which is the only source of natural light for the floor below. The space between the two-feet wide grill and the room is just enough for one adult to stand. If the door to the room is shut, there is no source of light or ventilation. The only source of water is a single common tap on each floor and there is just one bathroom for each floor.

The monthly rent of the maids, drivers, daily wage labourers and factory workers who inhabit these rooms with their families— Rs 2000 and another Rs 1500 for electricity. Yes, Rs 1500 for electricity for one room— as much, if not more, than what many middle class households pay for a two-bedroom flat.

Do these people have a choice to live anywhere else? No. Because they cannot afford the rents charged for even slightly better accommodation. This is not just the story of New Ashok Nagar, but that of low income housing clusters across Delhi.

Who is to blame for this state of affairs? Successive governments at the centre and in Delhi (after it became a state). Here’s why. Rental housing in Delhi is still governed by the Delhi Rent Control Act, 1958. The Act, according to the recently-released Delhi Citizens’ Handbook 2016: Perspectives on Local Governance— published by the Centre for Civil Society— is skewed towards tenant protection, and the freezing of rents under the Act has hit the growth of low-cost housing even as it has contributed to the growth of slums in the capital. Successive attempts to amend the Act have come to nought, with central governments of different political hues chickening out in the face of strong opposition from tenants, many of whom are paying rent of a few hundred rupees for properties valued at crores.

The Act appears to be an extremely complicated piece of legislation, with different rules for properties let out before and after 2 June 1944; and within the latter category, one set of rules for properties where the standard rent was below a certain amount and another for those above that amount; then there is a further distinction between premises constructed between 2 June 1951 and 9 June 1955 and further distinctions within that. The net result, however, is the same— the government, in the form of the Rent Controller, caps rents and decides the extent of increase, what repairs are to be carried out and sets terms for control and eviction of tenants.

The Handbook cites the case of one property owner whose rental income has gone up merely four times in four decades, even as property prices in the area have grown multiple times. Two floors rented out in 1971 fetch a piffling Rs 856 and Rs 482 a month, while a third floor in the same building was rented out in 2008 for Rs 22,000 a month. The Handbook notes that the rental yield— annual rent divided by the market price of the property— is in the range of 2-4 percent, which is not worth the risk of giving the premises out on rent.

Thanks to this and the near impossibility of evicting squatting tenants, property owners are reluctant to rent out houses, even if they are lying vacant. There are, the Handbook says, at least 26,759 vacant houses in Delhi. Nation-wide, there are 11.09 million vacant houses in urban areas, the draft National Urban Rental Housing Policy quotes census data as showing.

But a tenant-friendly law is actually working against the interests of tenants. House owners rarely rent out houses for more than two years at a time and barely have tenants settled down in one house than they have to start hunting for a new one. There’s the added problem of getting addresses on multiple documents changed with each shift.

What does this have to do with unauthorised colonies and slum clusters in which migrant labour lives? Plenty. The reluctance of house owners to give their property out on rent drastically curtails the supply of rental housing. This, the Handbook notes, leads to the ballooning of rents of the remaining available houses in the market. This pushes extremely low income groups to the likes of chawls in New Ashok Nagar, in which they are vulnerable not only in terms of safety and health but also in terms of being homeless at short notice. The Handbook cites studies to show that 95.6 percent of the urban housing shortage in India is for the economically weaker sections (EWS) and low income group (LIG) category. These are the sections which cannot afford to buy houses and need rental housing.

But the problem of rental housing isn’t just about rent control. It is also about the regulatory minefield that developers have to navigate. Low-cost housing, therefore, does not make business sense.

A March 2012 quarterly research note by the Infrastructure Development Finance Corporation’s (IDFC) policy group points out that the Mumbai Metropolitan Regional Development Authority (MMRDA) attempted a rental housing scheme in 2008 to build 5 lakh 160 square foot homes in five years. The objective was to cater to the EWS/LIG sections and make Mumbai slum free. There was initial interest, which petered out.

So, is government intervention and initiative the answer? The IDFC note points out that many developed countries provide incentives for low-cost housing; in some cases, the government takes care of land acquisition and all the clearances. In India, this runs the risk of becoming yet another land grab scam, with builders, politicians and bureaucrats all getting involved.

What, then, is the solution?

Clearly, there has to be a focused attempt to allow the market to function fairly. A first step must be to repeal rent control laws and correct the pro-tenant skew in the new laws. The Ministry of Housing and Urban Poverty Alleviation has drafted a Model Tenancy Act, 2015 for states to adopt. This, according to the Handbook, balances the rights of the tenants and owners.

The central government can start with Delhi, either reviving the Delhi Rent (Repeal) Bill, 2013 which was introduced in the Rajya Sabha in 2013 or bringing in a fresh bill on the lines of the Model Tenancy Act. Other states need to be incentivised to do away with their own rent control laws.

Smart cities are incompatible with New Ashok Nagar chawls. This is something central and state governments need to internalise and find a solution for.