India’s Housing Vacancy Paradox

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The United Nations (2018) estimates that, between 2015 to 2050, India will contribute the most (16.5%) to the increase in the urban population in the world — followed by China (11.3%) and Nigeria (8.7%). Given the shortages in housing and a booming urban population, studying vacant housing and creating policies to address it requires urgent attention. Empirical research plays a critical role in informing this policy discourse with data and analysis, but there has been little academic research on India’s vacant housing. This paper aims to fill this lacuna by looking at the reasons for vacant housing in India.

The paper focuses on intentional vacancies in India, i.e., a strategic decision by landlords to keep housing vacant, and provides two potential reasons for this — pro-tenant rent control laws and weak contract enforcement. The negative impact of rent control on housing markets is well documented in the literature (see Arnott 1988, 1995), but there are very few papers (see Gabriel and Nothaft 2001), to our knowledge, documenting its possible impact on housing vacancy. The inefficiency of legal systems in developing countries is potentially an important incentive against renting out but has not been studied in existing research. This paper is among the first that explicitly makes the case that state capacity in the enforcement of contracts matters for rental housing market outcomes. The paper also looks at under-provision of public goods and amenities — hospitals, schools, colleges, electricity connections, and roads, as a possible reason for vacancy rates at city and district levels and finds no relationship between the two.