Smart Cities and Blind Policy

• The term ‘Smart city’ conjures up visions of self-driving cars, touch-sensitive interfaces, and adaptive energy systems. What drives this vision is the possibility that ‘Big Data’ and the integration of ‘Information and Communication Technologies’ (ICTs) could transform urban governance, making urban infrastructure more responsive and effective in meeting the needs of citizens. The catch, however, is that your city can only be as smart as the data it has access to. The idea of Smart cities rests upon the notion of live and continuous data collection, but this only works if every single citizen is registered on the database.
• The problem in most developing country cities, or cities of the ‘Global South’, is incompleteness of data, and the poor quality of existing datasets. The National Census is the most complete household level dataset available in India, but this is collected every ten years, and given the rapid urban growth we are witnessing (17% between 2001 and 2011 according to National Census figures), the data is obsolete by the time it becomes available. Further, both the Census and the National Sample Survey data is collated by district, which means that teasing out urban data reflective of metropolitan regions is a tricky process. Data collected by metropolitan authorities is heterogeneous in quality. Even if we could trust the data, there is a deeper issue, of what government authorities consider relevant in the data collection process, and what or who gets left out. An excellent illustration of this is the mis-characterisation of the need for ‘affordable housing’ and the consequent inappropriateness of the policy response.
• The Report of the Technical Group on Urban Housing Shortage (2012-17) identifies a shortage of 18.78 million houses. About 95% of this shortage pertains to households with a monthly income of less than Rs.10,000. What the report fails to recognise is that a majority of these households are unlikely to be able to afford to buy a home at prevailing prices. In 2012, the ISB-CEMS report on affordable housing, estimated that only those with a monthly income of above Rs.7,500 could afford to buy the most inexpensive affordable home on the market at the time. This is under the assumption that they would be able to access a home loan from a bank, which presents a host of problems those living and working outside the formal sector. According to the latest round of the National Sample Survey (2012) one in four households in cities across India lives in rented accommodation without a written contract. This means that they have no formal documentation of residence, and therefore limited access to formal systems of finance.

Current housing policy rests on two problematic assumptions:

• 1)Demand for housing in cities translates into demand for homeownership.
• 2)The private sector can meet the demand for affordable housing given the right incentives.
• Let us examine the first of these. There is little doubt that owning a home is associated with stability and social status in the Indian context, and that it is an aspiration shared by the majority. This is by no means universal by the way, in Germany and Switzerland a majority of households continue to rent residential space (OECD). While homeownership may be a common aspiration, the majority of migrants into cities seek rentals when they arrive. This is particularly true of seasonal migrants who come into the city at times when the demand for casual labour in rural areas drops. It is also true of poor migrant households who seek to find a foothold in the city, lacking the resources and sometimes the desire to invest immediately in a home. A policy that is directed at creating real estate for purchase is blind to the need for flexibility and affordability.
• In 2008, the Monitor Inclusive Markets Group came out with a report highlighting the huge potential in the affordable housing sector, and suggesting innovative business models to cater to this segment. In the aftermath of the global financial crisis, many real estate developers began to explore the possibility of a ‘recession proof’ vertical that could leverage the huge demand at the bottom of the pyramid for first homes. Many quickly realised that the economics of delivering low-cost homes to the ‘affordable segment’ was unfeasible. The real estate industry in India works on high margins, with developers routinely profiting from the appreciation of home value between the inception the project and completion, which typically takes upwards of 18 months. The only workable model for delivery of low-cost homes is one that relies on scale and low margins, where profit per unit is kept low, and revenue is generated through the production of a large number of units. The volatility of input prices such as cement, sand and bricks creates additional problems. A key issue is, of course, the availability of cheap land, but even if the state were to provide access to subsidised land, prevalent construction technologies and modes of operation are unsuited to providing low-cost homes at scale. Some affordable housing developers such as Value Budget Housing Corporation based out of Bengaluru have employed a cross-subsidization model, but even the cheapest of their homes remain out of reach for the majority.
• There have been a spate of housing programmes launched by national and state governments under the Jawaharlal Nehru National Urban Renewal Mission (JNNURM) and the Rajiv Awas Yojana (RAY), but the record remains dismal. These policies have remained blind to the reality that the poor often choose to live in squalor in order to access the employment opportunities and social networks in and around central city slums, rather than be moved to sanitised and disconnected projects on the outskirts. The promise of owning a home may not in many cases compensate for the loss of livelihood. The fact that only a small proportion of funds from JNNURM and RAY have been utilised for slum upgrading programmes underlines this myopic attitude.
• The vision of the smart city while alluring is unlikely to serve the needs of the majority of urban dwellers. And as India prepares for its urban awakening (in the words of the authors of the 2010 McKinsey Report) it may be time for the government to stop dreaming.