Delhi is one of the biggest and fastest growing metropolises, not just in India but in the world. As Delhi approaches its mammoth task of building the Master Plan 2041, we recognize that one of the major challenges before the planners continues to be provision of affordable housing. Housing supply has not kept pace with additional demand created by increasing urbanisation. While India is on a ‘Housing for All’ mission, affordability is a major concern. Large numbers of houses on the rental market remain vacant and there is a simultaneous decline in number of city dwellers living in rented houses. With large migrant populations, in cities like Delhi, a robust rent control policy will significantly increase affordability for short term stays and prevent displacement of working-class tenants, seniors and immigrants. To be able to achieve this, we need to locate housing with reference to employment opportunities, public transport availability, public utilities and service provisioning.

Rental regulation in Delhi

In India, each state can establish its own rules and regulations regarding rental housing. Areas in Delhi’s Central Business District and some of its peripheries come under the Delhi Rent Control (DRC) Act, 1958[1]. The Act was developed in the face of large-scale post-Partition migration to Delhi. It was felt that if landlords were readily allowed to evict tenants; those coming from West Pakistan would never be able to settle. The Act was made such that it provides tenants, especially those from economically weaker sections who could neither afford homes nor apply for loans at that time, with rights that protected them from untimely eviction. Under the Act, the government put a ceiling on rent and set rules to favour the tenants so much so that it created disinterest among investors in buying property in Delhi. To promote real estate activity, the Act was amended in 1988 to exempt properties which commanded rents over 3,500 then.

At present, there are three Acts governing rent leases in Delhi — Transfer of Property Act, 1882, which regulates properties that fetch more than rupees 3,500 in rent; Public Premises (Eviction of Unauthorized Occupants) Act, 1971, to oversee private property fetching rent less than 3,500 housing unauthorised occupants; and the DRC Act, 1958. Till date, the archaic norms of the DRC Act have continued. It has led to landlords in DRC areas showing unwillingness to rent out their property. It has also reduced the quality of housing as owners have no incentive in maintaining the property or improving the quality of amenities. The Act also discriminates against landlords whose properties are under DRC from those landlords whose property falls outside rent control. While some landlords have full control over when and how to increase the rent, others are stuck with no control over their own properties.

Connaught Place, Delhi’s Central Business District, shows up as the seventh most expensive prime office market in the world. But on finding on rentals from 86 cases, it was found that in 83.7% of these properties, the rent is less than 1,000 per month and in 52.3% properties, it was below 350 rupees per month.

General Effectiveness of Rent Control laws

Economists have argued against rent control because they primarily look at it as rent ceiling. If we look at experiences from America, modern day rent control does not freeze rents permanently. Cities in America have moved from rent control to rent stabilization. Rent stabilization allows for reasonable annual increases, reduces rent burden on the tenant and prevents de-facto eviction caused by rapid increase in rents. In this way, rent control can improve economic opportunity for residents, both by allowing them to stay in neighbourhoods that are seeing growth in economic opportunities and by providing savings that can be used for other purposes like supporting local economies. Along with protection of vulnerable tenants, the biggest advantage as a result of rent control is residential stability. Residential stability has been associated with positive long-term physical and mental health outcomes, especially for children (Bures 2003; Gilman et al. 2003). But residential stability in poor neighbourhoods does not offer the same benefits, so location of rent-controlled unit matters (Ross, Reynolds, and Geis 2000).

Critics argue that rent control decreases affordability in the long run, fuels gentrification and creates negative spillovers in surrounding neighbourhoods as there is no way to monitor increase in rents (Diamond, 2018). There is also the probability of landlords selling properties to owner-occupants rather than leasing in rent controlled area so that they may get the market price for their property. And while there is empirical evidence to show that rent control negatively impacts maintenance, its effects on new constructions remains speculative. Rent control alone is not to blame for each of these, as there are many other socio-economic factors that determine rent, local legislations can have an impact on how rent control is framed and implemented and there can be other legislations that exist to regulate the real estate market, like the Real Estate (Regulation and Development) Act (RERA), 2016 in India. More broadly, economic analyses often ignore social benefits associated with neighborhood stability, displacement prevention, and inclusivity in their analysis of rent control. Singapore stands out as a great example of how political commitment and an integrated approach to housing can greatly the city and its residents.

What is the Model Tenancy Act and Who Does it Favour?

In her 2019-20 budget speech, the Finance Minister spoke of the Model Tenancy Act 2019 to help boost rental markets. The aim is to make renting more lucrative for both landlords and tenants. The Act introduces provisions to prevent overstay of tenants, make evictions easy (if the tenant doesn’t pay rent for two or more months) and stop sub-letting by tenants without prior permission of the landlord. Efforts to safeguard the interests of the tenants include putting a cap on security deposit asked by landlords, regulation of rentals, putting the responsibility of structural maintenance on the landlords and setting guidelines for landlord visits to stop intrusion. They are also planning to introduce rent courts/tribunals to seek relief in cases of discontent and a ‘Rent Authority’ that will register rent agreements to plug the gaps in the existing regulations.

Although the Act intends to balance the benefits for landlords and tenants, the effectiveness of the Act can be judged only after complete implementation. There is opposition to the Model Tenancy Act by landlords in Delhi because of talks that it may exclude properties under DRC (or other existing rent control acts in states). Another hurdle in effective implementation is the fact that land is a state subject; hence states are free to accept or reject the policy. RERA faces similar implementation challenges at state level like dilution of clauses and pending notification of rules in many states.

Conclusion

The need to introduce transparency and regulation into the rental housing sector is widely acknowledged. But the exact mechanism is debatable since the developers want a freer market and the tenants want to be protected from evictions. Rent control laws can offer solutions to both parties complains like the Model Tenancy Act aims to do. But the Model Tenancy Act, if implemented, would need to be molded to Delhi’s context. Housing is dynamically different in each of the eight different settlement types found in Delhi[2], and each needs to be accommodated in the framework. Spaces like urban villages need to be considered while revising the rent control act. These spaces, that have for so long been ignored by planners, attract large numbers of students and working-class migrants by offering cheap rentals. The informal housing provided by such spaces, while decreasing the burden on the state to provide affordable housing, create many issues of illegal constructions, lack of fire safety compliance and acquisition by tenants. The policy design should be based on a comprehensive knowledge of the rental markets, the variations in rental relations in different settlements and motivated by the need to offer up more affordable housing in cities.

[1] It was earlier known as the Delhi and Ajmer-Mewara Rent Control Act 1948 and became Delhi Rent Control Act in 1958.

[2] using Gautam Bhan’s classification

The views expressed in this piece are those of the authors, and don’t necessarily reflect the position of CBGA. You can reach Drishti Rastogi at drishti@cbgaindia.org.