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Regulating the private rental market in UK and India #housing
The private rental market is a critical one, from the perspective of citizens being able to access affordable homes. Despite ownership housing being the de facto option that policymakers the world over promote, an increasingly mobile human population and rising property prices have meant that rental housing is popular.
Of course, the issues in India and the UK are very different, but seeing as both nations are taking a re-look at rental housing policy, I thought it might be a good idea to compare, and learn.
In the UK, people can seek rental housing through Housing Associations which are private and not-for-profit bodies that manage a variety of housing stock. They are subject to government regulation. As Housing Councils (focused more on social housing) and Housing Associations were unable to meet demand, the private rental sector stepped in to provide rental homes. Now it represents about 10% of the total housing stock. This sector is also mildly regulated, in the sense that there is regulation that helps landlords recover rent from defaulting tenants, etc.
Today, rising homelessness (stats) and a slow economy are fueling a housing crisis of considerable proportions (1 million homes deficit, 2 million on social housing waiting lists) and a special committee of MPs has made recommendations to boost the private rental housing sector, focusing on simple tenancy agreements, transparency in leasing agent fees, etc.
Critics feel that the recommendations are lukewarm, stopping short of regulated rent increases that would truly help those in need of affordable housing (see here).
Here in India, we have another sort of problem. Over 60% of our affordable urban housing stock is in informal settlements, many of them illegal, many of them officially denoted as slums. Social housing for rent is also found in these areas, which aren’t really regulated in any fashion by building bye laws, leave alone rental laws. On the other land, our middle and high income rental sector has been through its ups and downs. Rent control and other laws have left landlords insecure and many prefer to leave their additional homes empty rather than rent it out, fearing they will be unable to evict tenants. Out of the 18 million new houses built between 2007-2012, owners of over 11 million units in India prefer not to let out the properties. A telling figure! The new rental laws under discussion hope to create watertight regulation so that developers are encouraged to build housing for rental purposes. Like the proposed changes in UK, the committee will address the role of rental management services. It even goes on to try and include provisions to encourage small size dormitory type housing for the poor.
However, I fear the new proposed laws are not looking at the current models by which private rentals in informal settlements work. Unless the proposed laws encourage, rather than ignore or discourage, informal private rentals, the urban poor are still going to be short of rental housing. And that is where the bulk of the housing demand is anyway. Besides private rentals, government agencies can also be mobilized to utilize under-used properties across the city to provide low-cost rentals and this also needs to be addressed as there is currently an unfortunate “free housing” mindset for dormitories as well!
Four factors denote a healthy rental market- longer term tenancies, protections from eviction, higher quality property and regulated rent increases. We need to ask, and so does the UK panel of MPs, whether our proposed laws or solutions achieve this. In addition to whatever Jerry Rao’s committee comes up with, we need in India an additional group working to ensure the above 4 conditions in the informal rentals market as well. Quality of housing especially is a tough one and directly determines the quality of life of tenants. In situations like slums, urban villages and unauthorized colonies, where tenants and landlords live side by side and share amenities, it isn’t just rental laws that will do the trick. In fact, local governments need to be pushed to provide, unconditionally, basic services to all housing. Further, tenure must be improved to allow landlords to access finance and build more and better quality rental units. Plus, technical assistance needs to be provided to ensure quality, in addition to regulations about light, ventilation, structural safety etc that would need to be followed if landlords expect incentives from the government going forward (it is a tricky situation considering most informal settlements evade tax though!).
Essentially, the problems of rental housing are linked to the larger issues in the housing sector. It is myopic to think that only addressing the low hanging fruit will solve the problem. While many middle income families might find it easier to rent, the current policy moves will not solve the issue for the urban poor, many of whom are migrants who need shorter term accommodation. We definitely need to look deeper and broader at who are tenants in the city and what are their housing choices before we create a policy that will truly boost affordable rental housing.
Affordable housing is tricky the world over! Dark clouds and the silver lining- July 25, 2012
Affordable housing in clearly a tough nut to crack. Everywhere.
I was interested to read the following lines in The Global Urbanist’s feature titled ‘Is vertical living a solution for London’s strained housing stock?’, which discusses the possibility of densifying areas of London to cater to the growing demand for housing:
Underpinning the density debate is the politics of compromise. Dollar Bay in Canary Wharf, a 31-storey luxury tower providing 111 high specification apartments, was granted planning permission in part because it contributed 51% of the area of the scheme towards affordable housing. The reason it could achieve this, however, was because it was provided off-site, with the majority of its 59 affordable housing units approximately one mile away. Many schemes don’t even identify a site, simply providing funds towards a local authority’s affordable housing budget; King’s Reach Tower contributed approximately 22 million pounds, for example.
To me, working in the Indian context, this is both a hopeful and a hopeless statement. Hopeful because it offers solutions- asking developers of high-end high-rise housing to provide affordable housing stock or contribute to a fund for the same. Hopeless because it smacks of the same sort of social divide (note, the affordable stock is in another location) and ‘politics of compromise’ as here in India. Of course, the management and execution of a fund for affordable housing in India would in itself be a nightmare, with issues like weak will, corruption and scams being the fate of most well-intentioned public schemes.
Dollar Bay, the 31-storey slim slim tower, is being advertised as a ‘new icon’ for Canary Wharf. It was given planning permission (partly) because it created affordable housing units a mile away.
The other article authored by Dr. Mathew Gebhardt of Portland State University that came to me today via realism.in (a great initiative, doing a super job of creating relevant information) discussed experiences in the United States with mixed financing for affordable housing projects. The piece simply blew my mind. It mirrored so closely what we are trying to do in India that I realized it was critical to study experiences elsewhere very very closely, not just experiences in other so-called developing nations like Brazil, Argentina and Thailand, but also in the developed world, where the struggle to create affordable housing has had a longer history.
The challenges are rarely where you expect them to be. The vast differences in the aspirations and needs of low-income families vi-a-viz middle-income families is true of the US as much as in India. Genhrat writes: There is a tension between the need to design market rate units with high end amenities to meet market demand and lender criteria and affordable units in the most cost effective manner to meet program requirements. As an example, en-suite bathrooms or air conditioning might make sense for market rate units but are unnecessary and unallowable additions for affordable units. We face the exact same type of issues while designing affordable homes here and community inputs are key.
However, even when you have developers who might be willing to come forth and enter this segment, they are challenged by a complex regulatory environment, the access to finance is complicated, incentives are often unavailable because of multiple schemes that rule each other out! We see this in India all the time. Gebhart details the same experiences in the US as well. Complicated programs that make accessing public funds confusing and difficult or mixed finance schemes that are equally or even more risky than competing projects are not likely to attract the number or diversity of developers or lenders that are necessary to address significant affordable housing shortfalls.
Sigh! This is a tough nut indeed… and it is clear we need a lot more experimentation and collaborative thinking. Plus, a comprehensive and intelligent documentation of what has happened and is happening to guide future work.
ramblinginthecity 