The Effect of Urban Land-Use Regulations on Density

Urban land is crucial to economic productivity and growth in cities, given substantial land intensive economic activity takes place. While land use regulations are needed for inclusive growth and to protect the urban poor, they create distortions in the land market, and become counter-productive. Indian cities are characterized by strong urban land use controls, given its socialistic and planned economy for a long time. Draconian land use regulations that continue to exist in India’s cities are rent control and highly restrictive floor area ratios (FARs). In this chapter, I focus on FARs and rent control to a limited extent. I examine the impact FARs have on population and household density, in the context of the standard urban framework, taking the case of Bengaluru, where ward-level data have been recently put together on FARs. I find in Bengaluru that FARs impact (both population and household) density negatively, consistent with what other studies have found. The Karnataka rent control Act essentially renders the Act ineffective in Bengaluru. In the context of Mumbai, I use anecdotal evidence to examine FAR, where the effects are compounded by the existence of other distortions such as rent control. Based on the findings, the chapter summarizes the policy implications, its caveats, concludes and presents directions for future research.