Optimising Urban Space Through Vertical Development – Two Models

Abstract

Arguably the biggest obstacle to the realisation of India's urbanisation goals is the acute shortage of affordable housing. On an economy-wide scale, there is also growing evidence of inflated housing prices contributing to social and macro-economic problems.

Since the quantity of land available is fixed, the natural response of cities across the world to this problem has been to raise the Floor Area Ratio (FAR), the ratio of built-up area to the plot size. But restrictive regulations limit vertical development in India - while Singapore and New York allow FSI up to 25 and 15 respectively, Mumbai allows only up to 1.3!

This paper proposes two approaches to raise FAR that combine vertical development with resource raising, and use market forces to determine the level of vertical development. The first is a ‘choose your FAR’ system which dispenses with administratively fixed FAR and replaces it with market-based model where unlimited FAR can be purchased. The second is an FAR trading model where the municipality fixes the permissible additional FAR and periodically auctions them. It combines the two with a series of complementary urban planning reforms.

Keywords: Vertical development, Floor Area Ratio (FAR), purchase FAR, trade FAR, density, affordable housing

JEL Classification: R14, R31, R52, H71, O18