Mumbai is commonly referred to as India’s New York City—the country’s commercial, financial, and entertainment capital. The city accommodates more than 20 million residents; it boasts a diverse and perennially growing population, attracting people from bankers to migrant workers. The city that today comprises 2 percent of the nation’s population, contributes more than 25 percent of its industrial output, and pays 33 percent of its taxes.
A land-starved island city with an expensive property market (unlike the rest of the country), Mumbai is among the densest cities on earth—five times denser than London and three times denser than New York City.
Amid this density is the underbelly of Mumbai’s rapid growth: its immense slums. Mumbai has the dubious distinction of being both the economic and the slum capital of India, housing the sixth highest number of billionaires and paradoxically, a tenth of India’s slums.
Urban migration, compounded by lack of affordable housing, has resulted in more and more people squatting on mostly government land over decades. Slums pockmark the entire metropolis, housing more than 9 million residents and covering half its land mass.
After numerous unsuccessful attempts to address this problem—demolition, forced re-settlements, and other measures—successive local governments commenced various slum improvement works, subsequently legitimizing many of these dwellings. These local governments issued soft leases of land to certain slums via a World-Bank-funded, urban development project that also included providing some civic amenities and loans to fund home improvements to slums. But due to poor government implementation, and the ever-increasing housing shortage and population influx, slum density and living conditions have continued to worsen.
A Policy Breakthrough
A breakthrough came about when the state government in 1995 enacted bold market-oriented regulation to mandate rehabilitation using private capital. If developers could commercially monetize a portion of a slum’s expensive tract of land, they could use a portion of the returns to subsidize and fund rehabilitation for the remaining area.
The creation of a powerful regulator called the Slum Rehabilitation Authority (SRA), chaired by the state’s chief minister, played an important role in the monitoring and evolution of the program.
Early Years and Missteps
Critics point to the unsteady teething years following the regulation’s launch. An evolution of any new revolutionary regulation was bound to involve missteps, and the SRA scheme had its fair share. Shoddy execution from developers; flipping of projects, where some developers simply sat on, then sold their approval rights to other developers for a profit; heavy-handedness in dealing with non-consenting minority dwellers; and project delays from cash-strapped developers all caused significant mistrust and diffidence.
In hindsight, although the regulatory framework looked at successful models in South-East Asia and World Bank norms, the economics and execution capabilities had not matured. Market prices in the 2000s simply didn’t support this sort of ambitious subsidization, and developers hadn’t acquired the significant people skills they needed to work effectively with slum dwellers.
But after years of regulatory refinement and guideline tweaking to resolve on-the-ground bottlenecks, a confluence of factors has emerged over the past seven years to significantly drive the effectiveness and success of SRA, including:
- Higher real estate prices, which enable the economics to support full subsidization
- Prudent and standardized regulations and incentives
- The emergence of large and capable developers specializing in redevelopment
Recent results are impressive, with more than 150,000 families already rehabilitated, and a further 300,000 in the pipleine.
How Slum Rehabilitation Works
The process entails slum members first organizing themselves into co-ops. They then vote to award a property developer the mandate to re-house them onsite in “SRA regulated” high-rise buildings approximately half the site they currently occupy—all provided pro bono. The rehabilitation also includes compensation for temporary relocation of about three years, during building construction.
Once completed, each family receives legal title and moves into its stipulated 269-square-foot apartment, including a bathroom with tap water and a kitchenette.
In return for providing this pro-bono rehabilitation, regulations award the developer an incentive subsidy to build and sell commercially an equivalent area on the other half of the land. Both components are demarcated and have independent access. At today’s high property prices, the proceeds from this commercial sale (generally residential condos) more than offset the costs of pro bono slum rehabilitation, also generating a tidy investment return for the developer and investors.
The uniqueness of this approach is hard to underestimate—its democratic nature is the bedrock of its success:
- Unlike the Beijing, China, model, where slum dwellers can be evicted by government fiat and re-settled elsewhere, Mumbai actually re-settles its slum dwellers onsite.
- No authority can mandate a resettlement. Only slum dwellers voting in their own cooperative housing societies are empowered to make that decision. A minimum 70 percent vote is mandatory and binding for all dwellers.
- Years of trial and feedback have refined regulations. For example, the practise of developers flipping their rights is banned and, to prevent residents from flipping, slum dwellers cannot sell or rent their property for at least 10 years. Women of the household are now named first on the title deed and listed as joint-owners so that they have equal rights to the new property. Also, all SRA buildings must comply with a fixed set of specs, streamlining expectations and earlier processes, where individual co-ops negotiated independently with developers.
Apart from the social benefits, the program’s win-win augurs strongly for its sustainability:
- Slum dwellers attain formal ownership rights to property and experience enhanced net worth achieved at zero cost. The far superior standard of living and property title also brings with it social and financial inclusion benefits.
- Government achieves the rehabilitation of slums and encroachment. It also achieves its social objective of low-cost housing at no cost to taxpayers.
- Society at large gains from improved infrastructure and, more importantly, increased housing stock in supply-constrained Mumbai.
- Investors gain access to projects in prime city locations. Moreover, slum rehab projects offer higher returns due to lower capital requirement. The lower land acquisition cost essentially reduces the capital outlay by two-thirds.
The sustainability of the program enthuses city planners and investors alike. They view slum rehabilitation less as an onerous cost and more as a multi-billion dollar social impact-investment opportunity. But its most important contribution may be the lessons it will impart during its evolution. Should this trend continue, Mumbai may well become an effective working model for emerging cities that are dealing with the dynamics of rapid growth and urban migration.