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Welcome to the IVM Podcast Network.
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Last Sunday, I woke up after a drunken night of debauchery in a strange apartment.
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There was no one there.
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After I remembered who I was, I decided that I'd better get home quickly.
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I left the apartment, went to the lift and found that the lift wasn't working.
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And besides the door to the lift, there was a tent, like an actual tent inside this apartment
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I peeped inside the tent and there was a family of four there.
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What are you guys doing here?
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We are waiting for the lift to start working, the guy said.
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We are going to go watch a movie, but this lift is being repaired.
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So we put up this tent and now we are waiting.
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Why don't you just walk down?
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The whole family started laughing at me.
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The woman said with a sneer.
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Do you know which floor we are on?
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This is the eight hundredth floor of this building.
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We can't walk down eight hundred floors.
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The eight hundredth floor, I said.
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This is Mumbai, the city with a low FSI.
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No building can ever have eight hundred floors here.
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Welcome to the seen and the unseen.
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Our weekly podcast on economics, politics and behavioral science.
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Please welcome your host Amit Varma.
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Welcome to the seen and the unseen.
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My guest on the show today is someone I have been reading for a decade and a half, but
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only got to meet recently.
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Alex Stabarok is a professor of economics at the George Mason University and one half
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of the team that writes Marginal Revolution, which is my favorite blog of all time.
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He happens to be in Mumbai these days as a resident senior fellow at the IDFC Institute.
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Alex, welcome to the seen and the unseen.
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So you've been in Mumbai for a few weeks.
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How are you enjoying it?
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I'm loving it here in Mumbai and also in India in general.
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I must say I have done a lot of the tourist stuff.
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I've been to the Taj Mahal, I've ridden an elephant, I even saw a Indian fake here getting
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the snake out of the basket.
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I've never seen that so well done.
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I guess you have to go where the tourists go.
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But it's also a fascinating place for an economist interested in development issues.
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You really see the importance of economics, the importance of development economics.
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You see the huge differences between the private sphere and the public sphere, so it's a fascinating
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Tell me one significant thing you've noticed about Mumbai in the time that you've been
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How is it different from cities like, say, other Asian cities like Hong Kong, Singapore
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Well, Mumbai is an interesting city in that at first it looks normal, looks like you would
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You do see some tall buildings, some skyscrapers and things like that.
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But then when you think about it, Mumbai is on a peninsula, there is very little land,
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it's a huge city, has a tremendous population, over 20 million people, and it actually looks
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more like LA, more like a spread out city, a sprawling city, than it looks like the skyscraper
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city of Shanghai or New York.
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It doesn't look like New York, and that's actually surprising because all of the economic
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logic says that a city with so many people on such a small piece of land, it ought to
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Well, I think the major reason is there's a huge regulatory burden on building, and
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in particular, there's an extraordinary low floor space index.
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Now, what that means, if I can take a second to explain it, it means if you have a floor
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space index of one, that means that on a 100 square meter piece of land, let's say, you
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can build 100 square meters of floor space.
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Or you could do that with one floor, a 100 square meter floor, or you could build on
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half the land on 50 square meters and have two floors, but you're still restricted to
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100 square meters, or you could do it on a quarter of the land and have, you know, four
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Now, Mumbai has a tremendously low floor space index, only 1.33 in large parts of the city.
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Now, to give you some comparison, New York has got a floor space index of 15, Hong Kong
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is up there at 12, Singapore is anywhere between 12 and 25, so in New York, you can build much
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taller than you can here.
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And because of the restrictions on building really tall buildings, that has a lot of negative
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consequences, I think, for Mumbai.
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So what's the rationale behind having a low FSI?
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Like, why did our regulators decide that, oh, it should only be 1.3?
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I think what happened was Mumbai has gotten into a negative equilibrium.
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It's gotten into the wrong equilibrium, and for the following reasons.
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The initial argument was that if you allow people to build really tall buildings, you'll
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have too much congestion and you'll overwhelm, you know, the sewage system or things, the
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road system, things like that.
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But actually, when you've got so many people in such a small area of land, you want to
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make as much use of that land as possible, right?
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You want to economize on land.
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And the way to economize on land is to build tall.
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And that creates a lot of value.
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When you're able to build tall and you're able to put people in close proximity with
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one another, you put all people in a firm in the same building, you know, you put all
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types of people who interact with one another, you put them close together, you get a lot
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of positive feedback, a lot of externalities, you get a lot of value.
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So in fact, that value could be taxed in order to produce things like the sewage system and
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areas like that, infrastructure like that.
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So unfortunately, however, when you keep everything small, when you keep everything low, then
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what happens is you get sprawl.
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You push the city out, you make it much more difficult for people to talk with one another,
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to communicate with one another, to come together.
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You increase congestion costs.
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As you know, driving in Mumbai could be quite the challenge.
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I'm really, really good at it.
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I think I'm the best driver in Mumbai.
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So what are the unintended effects, therefore, of having a low FSI?
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One, as I said, is that you get sprawl, so you get things are pushed farther and farther
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Which Mumbai doesn't have the space for because it's a north to south city.
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So you don't get the benefits of bringing people together.
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And because you push people out, this means that, well, people have to commute to work.
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And you know, the commuting costs here are tremendous.
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It takes hours to get 10 miles at some times.
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If you're coming on the railways in Mumbai, they don't shut the doors on the railways
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because people are hanging on the outside.
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And I believe the last figures were 10 to 20 people dying every day on the Mumbai railways
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just because so many people are trying to get downtown.
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They're trying to get to where the economic activity is.
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But they can't live downtown because the price of land has been pushed up so high.
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And that's kind of a remarkable thing.
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Mumbai is one of the richest cities in India, but India, of course, is a poor country.
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Despite this fact, the ratio of land prices to incomes in Mumbai is one of the highest
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So the price of land here is one of the highest in the entire world.
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And it makes it impossible for people to live close to where they work.
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I often tell my friends that it's easier for me to buy a home in New Jersey than in Mumbai.
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It's so incredibly expensive.
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But whenever I talk to my friends about FSI, you know, we all have the same complaints about
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scarcity of land and, you know, the prices are so high.
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But the argument I always get for FSI is that, look, already our city services are sort of
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struggling to cope with what is already there in terms of water supply, in terms of electricity,
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in terms of parking space.
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And my argument always is that if you just allow them to grow upwards, all of those will
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There'll be a demand for it.
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There'll be money for it, as you pointed out, if you simply tax a value that is created
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Can you give me a sense of how other metropolises through the ages have evolved to grow upwards
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with these services evolving with them?
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Like, does it have something to do with what stage of economic growth a country is at?
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Yeah, so let me get to that in a sort of a byway, because I want to make an important
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point here is that, you know, Mumbai historically has grown by building land, by reclaiming
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You know, it started out as seven islands, and it has now been produced into a peninsula.
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So Mumbai understands that the way to grow is to build land, to make land.
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But in exactly the same way that filling in land from the sea is reclaiming land from
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the sea, when you build high, you're reclaiming land from the sky.
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So you're building more land.
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People don't seem to understand this.
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It's a pretty simple point.
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I mean, and if you look at New York, for example, because New York has grown tall, it's actually
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as if you have multiplied the size of Manhattan by more than two and a half times.
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So the actual land area which people can inhabit is two and a half times more than two and
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a half times the size of Manhattan Island itself.
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And that's what really counts.
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It's not the square kilometers per person, it's floor space per person.
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And Mumbai actually has one of the lowest floor spaces per person in the world, 2.9
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square meters compared to even a place like Shanghai, where we're talking more like 13
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So the thing that you want to think about when you're building tall, you're actually
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And why Mumbai got into this negative equilibrium, I'm not entirely sure, but one of the reasons
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that it's so difficult to get out of it, as you well know, is that the system has become
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So what are the special interest groups that would be against a higher FSI, who benefits
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So right now, I think the main beneficiaries from a low FSI are actually the bureaucrats
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Because the economic logic is so much in favor of building tall, this means that there's
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a lot of money to be made when you build tall, and that means that the developers are willing
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to pay big bribes, and they are willing to do things to get around the law.
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There's a bunch of fascinating ways in which developers working on the side or on the sly
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with politicians and bureaucrats have managed to get around the law.
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For example, car ports are often not considered part of the FSI.
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So when a plan is built, this is my understanding, you can literally have it where there's an
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elevator which is supposed to take your car to the top.
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You're supposed to have a car port at every floor.
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And of course, nobody actually does this.
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They just have that built into the plan, and then the car port becomes actual living space.
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Balconies are sometimes not included.
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So you call it a balcony, and it becomes part of your floor space.
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So there's a whole bunch of ways in which developers have do manage to squeeze around
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these laws, but they all involve paying a lot of bribes to politicians and bureaucrats
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who benefit, and I think they're the main beneficiaries.
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It's hard to see them giving up this incredible source of revenue.
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So the existing rent seekers obviously will make sure that their revenue is intact.
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Just to go a little further back into history, FSI is not something that always existed as
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I mean, originally you started building land, you could build it as high as you wanted.
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So what is sort of the history behind it?
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How has it evolved in different countries, and what is so unusual about India in that
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Yeah, Mumbai is particularly unusual in this sense in that the FSI actually used to be
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So, and this is one of the problems which Mumbai currently faces, is that a developer
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may have an old building which was built to a higher FSI, and that building may be crumbling,
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it may be dilapidated, it should be in need of being torn down and something else.
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But if they tear it down, the new building will be under the new FSI rules which are
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So, have a crazy situation.
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And I think what happened, though I'm not sure about all of the details, but I think,
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you know, when a country freed itself from colonial rule, I think this made a big difference
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So, for example, the United States freed itself from colonial rule, 1777, at a time when Adam
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Smith's Wealth of Nations had just been published, Hume, these people were all writing, this
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was the era of liberty, right?
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So all of the thinkers at that time were John Locke, Adam Smith, were very pro-liberty.
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So at the time that the United States freed itself from colonial rule, it was natural
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to have go in a pro-liberty direction because that's where all the thinkers were at that
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Now, you come some time later to where a country like India or some of the African countries
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where they freed themselves from colonial rule and now the leading thinkers are socialist
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And it's natural then to rebel against England, maybe you think England means laissez-faire
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or something like that, and you go with the contemporary leading thinkers and they're
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And so you come and say, oh, well, the way to build a modern society is we need to plan
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And city planners are going to say how tall buildings are going to be, they're going to
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say what building should be built where, you know, these should only be residences, these
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should only be factories, they're going to try and plan everything.
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And of course, that has worked out to be a disaster in practice.
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Alex, it was very enlightening talking to you.
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It's been great talking with you.
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The big lesson from my chat with Alex is that for a city of reclamations, we haven't reclaimed
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We need to reach for the sky.
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On that positive note, I'm signing off.
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See you again next Monday.
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I mean, I won't actually see you, but you can listen to me.
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Next week on The Scene and the Unseen, Amit Varma will be talking to Karthik Shashidar
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about future markets in agriculture.
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For more, get his sceneunseen.in.
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If you enjoyed listening to The Scene and the Unseen, check out another great show by
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IVM podcast, Made in India, hosted by my friend May Thomas, where every week she profiles
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up and coming independent Indian bands.
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Hi, this is Amit Doshi.
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And I wanted to thank each and every one of our listeners.
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It's been two years since I founded IVM and it's been an amazing two years.
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Thanks and please keep listening.
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I need some, I need some podcasts, man.
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I haven't had a fix in a week.
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Don't you worry about it.
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I got podcasts all over you, man.
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Just go to ivmpodcast.com.
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I'm going to check it out.
