Decline of Rental Housing in India

Rental housing in India has witnessed a significant decline over the years. This could be attributed to various reasons including the nature of the rent control laws. The rent control law in Mumbai has created a shortfall in formal, affordable rental housing and, at a broader level, has contributed to the distortions in the land market. The nature of the ‘first generation’ rent control in Mumbai is such that it has led to the deterioration of the existing rental housing stock and virtually halted the construction of new housing for rental for the city. It has also given rise to informal practices such as ‘pagdi’ or key money. This paper assesses the impact of rent control for Mumbai. In particular, it analyzes the spatial concentration and composition of rent controlled tenements in the city. It then proposes reforms that would allow a gradual move towards rationalized rent controls. It argues that second generation controls will help incentivize investments in the rental housing segment and hence reduce the demand pressure on the housing market at large, with implications for prices and affordable housing in particular.

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