Housing supply in developing country cities has been unresponsive to the growth in population. One of the key drivers of this housing demand-supply gap is regulatory: stringent zoning regulations. As the doubling of the world's urban population by 2050 will be driven almost exclusively by urban growth in developing countries, these regulations can further exacerbate this gap. While put in place to prevent congestion and stress on an already overburdened infrastructure, these regulations adversely affect the housing market. They make the formal housing market unresponsive to the growing demand, resulting in high prices, declining affordability, and the appearance of informal settlements. Can relaxing these regulations lead to the creation of affordable housing?
We leverage Mumbai's easing of FAR in 2018 to understand how such reforms affect the provision of affordable housing supply. Whether easing density regulations allows developers to cater to the growing demand and provide affordable housing depends on the nature of their supply response. We assemble three unique datasets to ascertain how the deregulation affected the housing supply and prices in Mumbai. First, to understand whether developers make use of the relaxed FAR limits and increase housing supply, we obtain administrative data on the universe of permit applications in Mumbai for the period of 2014 to 2022. We geo-reference each of these permit applications and obtain unit-level data on sales prices from transaction records for the projects launched during this time frame. Lastly, to characterize the nature of the housing, we assemble data on the amenities being provided in a subset of these developments.
Our proposed paper will provide empirical evidence that could influence the understanding of zoning regulations in rapidly urbanizing developing country cities. Across the developing world, the pace of urbanization has outstripped the ability of governments to facilitate decent, affordable housing. The results of this project will provide insight into whether governments can use regulatory changes to allow markets to increase housing supply and affordability. Using granular data previously unavailable in a developing country city, our paper will contribute to the literature in urban economics by understanding developer responses to such zoning regulation changes. Understanding the incentives and responses of developers to such deregulation is critical to understanding the nature of the housing generated and the broader welfare implications for the residents of such cities.