Tuesday, July 26, 2016

Land Everywhere and Not a Place to Live

By Alex Tabarrok of Marginal Revolution.
"Land use regulations raise prices, reduce mobility and increase income inequality in the United States. In many parts of the developing world, however, the situation is worse, much worse.
In an excellent piece Shanu Athiparambath writes:
Land is not scarce in Delhi, as I learned in one of those days, when a friend drove me around the city. There is enough land for everybody to live in a mansion. Delhi has nearly 20,000 parks and gardens. Large tracts of land remain idle or underutilized, either because the government owns it, or because property titles are weak. Politicians and senior bureaucrats live in mansions with vast, manicured lawns in the core of the city. Some of these political eminentoes farm on valuable urban land while firms and households move to the periphery or satellite cities where real estate prices are lower. So the average commute is long, roads are too congested, and Delhi is one of the most polluted cities in the world.
Zoning regulations inflict great harm. But it is difficult for Americans to imagine the cost of zoning in Indian cities. Delhi is one of the most crowded cities in the world, and there is great demand for floor space. But real estate developers are not allowed to build tall buildings. In Delhi, for apartment buildings, the regulated Floor Area Ratio (FAR) is usually 2. FAR, an urban planning concept, is the ratio of built-out floor space to the area of the plot.
This means, in Delhi, developers are not allowed to build more than 2,000 square feet of floor space on a 1,000 square feet plot. If a building stands on the whole plot, this would be a two-storey building.
To understand the harm this inflicts on the world’s second-most populous city, remember that in Midtown Manhattan, FAR can go up to 15. In Los Angeles, it can get as high as 13, and in Chicago, up to 12. In Hong Kong’s downtown, the highest FAR is 12, in Bahrain it is 17, and in Singapore it can get as high as 25. Not surprisingly, office space in Delhi’s downtown is among the most expensive in the world. It is impossible to profitably redevelop these crumbling buildings in Delhi’s downtown because they are under rent control.
You might expect the capital city to be especially restrictive, just as is Washington, DC, but in Mumbai, the densest major city in the world, the downtown FAR is an absurdly low 1.33.
Think about it like this: A FAR is like a tax on manufacturing land. Why would you impose prohibitive taxes in places where land is most desperately needed?"

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