We are aware of the clamour among developers to increase FSI in the city. Their logic is that increased FSI will increase supply of space, and thereby make homes more affordable. On the face of it, the argument sounds reasonable. However, the line of thinking is too simplistic.
The way the market operates and reacts is very dynamic and depends on a number of other factors. Before I delve into the counter argument, let’s talk infrastructure.
Infrastructure and affordability
Congestion and poor living conditions are common in almost all cities in India. Yet the prices of apartments, independent houses, and commercial establishments are astronomical.
One could actually buy a 4BHK house with a two-car garage and a lawn in the U.S. for the price of an apartment here. Cities in India tend to be clusters of congested locales.
Residents want to live close to areas buzzing with commercial activity. This leads to a rise in property prices. When cities are properly zoned, and have provisions for good infrastructure and excellent connectivity extending to the outskirts, we can increase housing supply and make commuting less stressful. This would make housing affordable and increase supply in the process, without compromising on quality.
Thus, infrastructure is key to housing supply and affordability.
One option is to create commercial hubs on the outskirts and provide connectivity to relieve congestion within the city.
The FSI counterpoint
Increased FSI will not reduce prices in the short, medium or long term. It will only exert pressure on existing infrastructure such as roads, sewerage, water and traffic.
It will aggravate commuting woes and force people to continue living close to the city centre. It will actually lead to higher land prices in these areas. The theory that increasing FSI can make homes more affordable primarily assumes that land prices will remain the same; which is not the case. If housing supply is increased by increased FSI and is not supported by sufficient infrastructure, the market dynamics would lead to higher prices anyway.
This is because the increased congestion, as residents gravitate to the centre of the city, will artificially continue to push up demand in these areas.
The new supply will be unable to keep pace with the surge in demand. The anticipated increased supply will barely dent the rate per square feet of built-up space; instead actually pushing prices up in these spaces in the medium and long term. This is exactly the situation that Indian cities are in today.
Further, housing is sold in terms of price per square feet of built-up area. This will not fall since builders price property after determining the maximum price the customer is willing to pay for a certain location.
This price is based on demand and supply and, since the demand will continue to be high in certain areas, prices will barely be dented.
When does raising FSI work?
Increased FSI is not always a bad thing. However, it must be supported by surrounding infrastructure, which is not the case always. In fact, existing infrastructure in Chennai, for instance, does not even support the existing FSI. High rises are efficient housing for cities and accommodate a large number of people, but more residents in an area requires more roads, buses, sewage, schools, hospitals, markets and police stations. Without this, there will only be increased population density that can assume nightmarish proportions.
Or, planning authorities could consider increasing the permissible height of buildings (within seismic considerations) for bigger plots, without meddling with FSI. This would create more lung spaces in the city.
New nerve centre needed
Most urgent, however, is the need to create new nerve centres and satellite townships. Centres of commerce could move to outer limits, as could government offices. Local governments in Moscow, Hong Kong, and Vancouver are already doing this. The government could sell its assets in the city and generate money to use for the new development.
It would also free up land in the central city areas for increasing infrastructure like roads or parking spaces. Commercial establishments would soon follow suit.
Instead of a piecemeal approach, urban planning authorities need to look 50 years ahead and plan city zones and outer limits with proper allowance for public and private transport, connectivity, parking provisions, walk-zones, cycle paths, sewage and water lines, parks and greenery. Increasing FSI is merely a myopic solution.
The writer is the author of The Real Deal , a book about realty investing.
For more information, visit www.therealdeal.net.in
