The Question About Adarsh No One Is Asking

Nikhil Service Station is one of the more popular petrol bunks in South Bangalore. If you wonder why you have never heard of it, however, it is because nobody refers to the petrol bunk by its real name. The bunk is owned by Anitha Kumaraswamy, wife of former Karnataka Chief Minister HD Kumaraswamy and daughter-in-law of former Prime Minister HD Deve Gowda. The service station came into service in the early 2000s. It had been allotted by Indian Oil in the “Kargil martyrs” quota. It is now a landmark in South Bangalore, and popularly known as “Deve Gowda Petrol Bunk”.

The reason I’m bringing up the issue of the petrol bunk is to draw a parallel with the scam-ridden Adarsh Cooperative Housing Society in Mumbai, which was again ostensibly built for “serving and retired army personnel”. The Adarsh scam is in the news once again due to the rejection of the report by the Maharashtra cabinet and the connection with arrested diplomat Devyani Khobragade.

The question about Adarsh that nobody is asking is this – why is it the government’s business to construct housing for “serving and retired army personnel”? Why is it that the government should compensate families of martyrs with petrol bunks and LPG dealerships and not cash? Aren’t these structures designed to be scammed?

Nobody argues that the army must be paid well. Nobody argues, either, that army personnel should be generously insured and compensated, given the hazardous nature of their jobs. My argument, however, is that this insurance and compensation should be universal and standardized. Allotments such as housing and LPG dealerships are discretionary by nature, and that makes them prone to abuse.

Consider for example, a housing society the government constructs for “serving and retired army personnel”. Let us say that the society has 500 apartments. How does the government choose who gets these apartments? And in what way are the 500 such chosen personnel different from those that did not get the allotment? Does this discretionary allotment not leave the system to abuse? Does this not lead to unhealthy competition among the “serving and retired army personnel”? Do we want that in our armed forces?

On a similar note, after each railway accident, we have the railway minister announcing a discretionary compensation for the dead and injured. The question is why this should be discretionary. Cannot the railways simply buy group insurance for all its passengers, which is automatically paid out upon an accident?

The argument I’m making is that some of  the processes we follow are designed to be scammed. In the time of tragedy, either in an accident or in battle, what we need is a standardized and predictable response on behalf of the government agencies. By not putting that in place, the system is prone to abuse.

Floor Space Index

In an extract  from his latest book Triumph of the City Ed Glaeser argues that one way to improve urban living would be to increase the floor space index, and allow higher buildings. In another recent article, Ajay Shah argues that the presence of army land in the middle of cities is again hampering urban growth and development by increasing intra-city distances and reducing space for the common man inside the cities. I was thinking about these two concepts from the point of view of Bangalore.

Floor space index (FSI) is a metric that controls the total supply of residential area within a city. It is defined as the ratio of built-up area of the house to the area of the plot it stands on. Currently, in Bangalore it is capped at 1.5. This means that if I own a site measuring 60′ by 40′, the maximum area of the building I can build on it is 3600 sq ft. Clearly, by capping FSI, the total supply of residential area in a city is capped (assuming cities don’t expand outwards, of course). Currently, a lot of the development going on is of the type of builders acquiring “underutilized property” (old bungalows, say) and then “unlocking the value” by building buildings on it up to the permissible limit.

So I was wondering what were to happen if the government were to tomorrow decide to act on Glaeser’s recommendations and suddenly increase the FSI. For one, it would jack up the value of land – since there is more value in each piece of land that can now be “unlocked”. On the other hand, it would lead to a gradual fall in prices of apartments – since the limit on the supply of “floor space” would go up, that would lead to a fall in prices.

Existing owners of “independent houses” (where they own both the house and the land it’s built on) would be overjoyed – for now the value of the land they own would suddenly go up. Existing owners of apartments wouldn’t – their net worth takes a sudden drop. But all this doesn’t matter since both these groups are highly fragmented and are unlikely to matter politically.

What one needs to consider is how builders and real-estate developers would react to this kind of a move, since they have the ability to influence politics. For one, it would allow them to build additional floors in properties where they already own the land, so they have reason to stay positive. On the other hand, due to the increase in land prices, new development would become much more expensive than it is today, thus making it tough for them to expand. Another thing to note is that increased supply of housing and office space in the city would definitely negatively impact the prices of such holdings on the outskirts, and I’m of the opinion that a large number of real estate companies might actually be “long” housing space on the outskirts and would thus lose out in case the FSI were to be increased.

There are other implications of increasing FSI, of course. One of my biggest nightmares is that density in cities will increase at such a high rate that the sewerages won’t be able to handle the extra “flow”. And then there is the issue of increased traffic – though it can be argued that increased density means that commutes might actually come down. Overall, to my mind at this point of time, the picture is unclear, though given the overall incentives to the powerful real estate community it is unlikely to happen. Though I would definitely welcome any increase in FSI (this has nothing to do with my financial situation; and yes, based on my current holdings I’m “long FSI”).

As for army land, there are vast areas that used to once be on the outskirts which are now inside the city. If the army were to decide to sell them to the city, I’m sure it would be able to make a really large amount of money. But then given that the army is not a profit-oriented institution, it has no need for the money so will not let go of the land. In fact, as I write this, the army in Bangalore has taken up the development of lands around the inner ring road – some townships and football fields have come up. But then, this is not the use that Shah envisaged – for none of this actually integrates enough into the local economy to make an impact. And so for the army to sell the land, the decision would have to come from the central government. And given that increase in in-city floor space is likely to negatively impact the powerful real estate companies, don’t be surprised if they were to lobby against the sale of urban army land.

Tailpiece : A while back there was this issue of Transferable Development Rights. When the BBMP wanted to widen roads it announced that people losing land would be compensated in the form of tradable TDRs. For that to be effective, a necessary condition is that the cost of violating the building code is actually high.