Neha Gupta on Creating Affordable Housing

Shruti Rajagopalan talks with Neha Gupta about housing supply, effects of policy reforms and more

This episode is the seventh in a miniseries of weekly short episodes featuring young scholars entering the academic job market who discuss their latest research. In this episode, Shruti speaks with Neha Gupta about her job market paper, “Homeownership, Renting and Market Failures: Evidence from Indian Slums. They discuss government policies to increase affordable housing, how nonstate actors affect slum and nonslum housing, the Swiss housing market and much more. Gupta has a Ph.D. in economics and finance from the University of St. Gallen, Switzerland. Her research interests include applied economics, causal econometrics, empirical macroeconomics, and urban and development economics.

SHRUTI RAJAGOPALAN: Welcome to Ideas of India, a podcast where we examine academic ideas that can propel India forward. My name is Shruti Rajagopalan, and this is the 2021 job market series where I speak with young scholars entering the academic job market about their latest research on India. I spoke with Dr. Neha Gupta, who is a post-doctoral researcher at University of St. Gallen, Switzerland. She recently completed her Ph.D. in economics and finance also from the University of St. Gallen. And she has a B.A. in Economics from Delhi University and an M.A. in economics from the Paris School of Economics.

We discussed her paper titled Homeownership, Renting and Market Failures: Evidence from Indian Slums. We talked about the housing market in India, especially in urban slums, the impact of affordable housing schemes such as the Urban Renewal Mission, factors that limit the supply of housing, and much more.

For a full transcript of this conversation, including helpful links of all the references mentioned, click the link in the show notes or visit

Hi, Neha. Welcome to the show. It’s a pleasure to have you here.

NEHA GUPTA: It’s very nice to be on the show, Shruti.

Did India’s Housing Subsidy Scheme Work?

RAJAGOPALAN: I want to get straight to your research. This is, of course, about housing, which is this massive policy problem in India. Also, it’s one of the most fundamental, basic things. It is trapping people in rural areas because we don’t have sensible urban housing, it is trapping people in poverty, it is marginalizing urban workers. Now you see people during the pandemic—we saw during the lockdown people walking hundreds of kilometers just to get back home because they couldn’t quite see themselves fitting in a sensible and secure urban housing landscape. We’ve seen a lot of this happening recently.

Now, you look at the impact of a very specific central government scheme, which is the JNNURM, Indian housing subsidy scheme. That had multiple parts to the scheme. One, it amends the rent control laws; it gives a housing subsidy or a very specific benefit to female-led households, to encourage more women into homeownership and titles. It also gives some additional benefits to marginalized groups in terms of the stake that they have in the ownership: It reduces it to 10% for Dalits, Adivasis and so on. It also imposed a cost ceiling on how much it should cost to build the houses that come under this scheme. It’s an interesting compound scheme, which includes all these different things under the umbrella.

What you find is that the scheme actually does work on certain margins. There’s an increase of female-led households owning these homes after the program; it’s about 2.5% almost. On the other hand, you also find that the real rents increased by 18.2%. That’s a big increase in rents, which is the opposite impact of what you would expect from an affordable housing scheme. Can you just walk us through the program, what you studied and all the results that you found?

GUPTA: Yes, here it is. Let me give you just a very brief overview of why I do this, before what I do in it. What is it? I just completed my Ph.D. this year from the University of St. Gallen in Switzerland. I started researching on housing markets in general. Then the idea to research slums came from this book called “Shantaram” by Gregory Roberts. This was a book that I read around five to seven years before, and the way it described life in slums, that really touched me.

This was something I really wanted to study, the intersection of housing in slums. Because housing, specifically, in the universe of human life, is not just an economic asset. We as economists do study housing as an economic asset, from a financial investment point of view. Housing really—where more research is needed, where it is less researched in the literature is because it’s an inalienable human right. It’s also part of psychological and emotional well-being, apart from just being an economic resource. And it’s a scarce economic resource, apart from a good financial asset.

Because of the housing crisis in the U.S. in 2008, there has been a lot of research on housing. What really motivated me to study it was because housing in India—India is highly urbanized; 33% of the country is urbanized according to the last census, and we’ll have a new one soon.

RAJAGOPALAN: But it’s more.

GUPTA: It’s more. Out of those 33%, one-quarter of your urban dwellers are slum residents. In India, informal housing is a major part of urbanization compared to formal housing. Also, what we know about India is very specifically that it has very opaque housing markets. The highest probability of corruption or the black economy—because it is a super global economy, an emerging power, as we see in the papers, but there’s another side of India that’s desperate poverty, that’s desperate hunger.

The informal part of the economy is quite a bit larger than the formal part of the economy. Housing is quite a large part. Most of our black economy, or the shadow economy, comes from two components, which are gold and housing. If we really want to make India not just an emerging country, but a more equalized society as well, we really need to first understand the setup of the housing markets before catering any solutions to it.

Housing Policy Reforms and Their Effects

GUPTA: This is where I started researching more. I came across this very, very well-thought, very cleverly planned and very well-detailed policy that was launched by our former prime minister, Dr. Manmohan Singh. What the policy actually did was to—this policy was a part of a larger policy of the Urban Renewal Mission. That mission was basically to make more responsible, responsive, efficient and equitable cities.

Another part of the policy was to not just provide economic infrastructure for cities, but also to level the society by providing a good amount of social infrastructure. Another part of the overall policy was to eliminate any legal, institutional and financial constraints within the society. When we talk about urbanization, there were a couple of things that the policy did. Part of the policy was to provide affordable housing solutions. It was actually separated into two categories.

One part was given to the 65 mission areas, which were the big cities of high economic importance. The other part was given to 887 cities, which were small cities, towns, urban areas, anything which is remotely more than a village. This was the part of the policy that—both the policies did aim at promoting urban poor welfare. This part of the policy, what it did—which in my view is also very clever, and I think only an economist can think about it is—because often in the slums, what we study when we talk about formalizing the informal housing is, there are a lot of nonstate actors that play. There are slum landlords; then there are mafias; there are politicians.

There’s a lot of intersection where even if the government, at any kind of an administrative and political level, wants to handle and formalize a policy to cater a solution, the other economic factors take precedence. The cleverest part of the policy or the most interesting part of this policy, which also formed a natural experiment for my paper, was that it connected all the levels of the administrative and political tiers.

So, 80% of the funds were given by the central government and 20% by the state and the municipalities. For the policy to take place, the state government and the municipalities would have to work together to provide a detailed report to the central government. The parts of the slums, the parts of the city which were to be upgraded were to be decided by the state government, but they had to form a proper plan, follow the general financial rules which were passed at that time and sign a memorandum of agreement with the central government in order to access part of the funds.

When those parts of the duties of the central government and these municipalities would be fulfilled, then they would get the rest of the funds. This policy, what it did was to link all of India’s political and administrative levels in one thread, all the tiers in one thread, which was something that really was one attempt to handle any kind of a leakage which you would have in developing the urban housing for the poor people. Another interesting thing that the policy did was—apart from the fact that it did provide housing subsidies to new locations or even to upgrade the existing slums—another important thing was that one of the main clauses, the compulsory clause, was to give land security, tenure security, and that in the name of female.

In economics and in general life and in our society, which is very patriarchal, what we see is that women have a lot less bargaining power in a household. From the conclusions that I derive in the paper, it’s not necessarily that they have a qualitative bargaining power after the reform, but quantitatively, we do see a difference. And this is exactly the thing that leads to, I would say, the success of the intent of the policy—even if it’s not the overall success, but it’s the success of the intent of the policy.

Another thing—because to make housing more transparent, which I think worked partially and didn’t work partially—was because in order to access funds from the central government under this policy, there were certain mandatory and optional reforms that every state had to pass in the land area—and housing is a very state-related subject in India—and one was to repeal The Urban Land (Ceiling and Regulation) Act.

One of the mandatory reforms was the rent control schemes. Because we have the generation of rent control schemes, the law that is being processed in India at this time is the third model rent control legislation. To correct for the market conditions, that’s what the policy did, was to let the market take its role other than controlling the rents. What I do state in the conclusion was that it did lead to an increase in the market rents, but one has to be cautious here because what I study in my scheme is just the slum dataset.

Another interesting part of the study, which to me was also an eye-opener, was the availability of the slum dataset. Because there’s two main problems in the slum studies in the literature, which has always been the existence of the slum landlords and the nonstate actors, which prohibit the formalization of the state actors. And slums are a transitory phenomenon. Even though it’s a poverty trap, they’re a transitory phenomenon, so it’s very difficult to track them in a country which is as big as India. And you have so many slums there, so to have a dataset at the household level was something eye-opening for me.

Everything in this paper happened by accident. I was going through the surveys of NSSO, of housing and living conditions, and in that particular survey, they have a question which does state if this household belongs to a slum area or a non-slum area. This is a survey that’s coming from 1950s, but to me, what I found most interesting was the survey from 2002, because it was at the district level and was also available instantly at that time.

Just by extracting those households which are in the slum areas, which means these are the slum areas that are actually notified by the government. These are the formal slums by the official definition. I could get so much data, even though there’s a lot of missing data there. But still, to be able to put one dataset together of slum housing, which is one of the most difficult things in the literature, was something which is a very key, important study in this paper.

What I did find was that in the districts where the policy was implemented and the houses were built, and at least 50% of the houses were taken up by the dwellers—what I found was that there was an increase in the female-led households by 2.4 percentage points. And then the real rents also increased by around 18.2 percentage points. The house ownership did increase by 16.7% so—

RAJAGOPALAN: Percentage points.

GUPTA: Yes, percentage points, not percent. That’s a big number. The policy did work. Certain parameters, certain infrastructural parameters of the dwellings which were a part of the policy, did see an increase within the range of 1.9 to 10.7 percentage points. In a lot of ways, the policy did work. It delivered what it intended to.

Changes to the Housing Market

RAJAGOPALAN: Here this is the interesting thing. We have two effects. On the one hand, the stock of housing increases, and it is more formal. As you would imagine, all else held equal, if the supply of housing increases, then the rent or the price should go down. On the other hand, we have had such a contrived and distorted market in the past because of terrible rent control laws that any past market rents were never rationalized.

The moment you also have a simultaneous opening up of the housing market, so to speak, by amending these rent control laws, you’re going to see rents rise to the market level because now the law allows them to increase. What you actually see is an increase in real rents. But that is, in a way, a good thing almost because there is an increase in housing stock, and now your rents are more rationalized to what it actually means in the market. Is that a good way of thinking about the results in the paper?

GUPTA: It is a good way to think about the results in the paper, in a way, yes, because it does what the policy intended to do. But if we talk about catering the real solution to the housing markets—because earlier what we had was a completely, let’s say, government-controlled scheme where the rents were controlled beyond a certain economic price. But now what we have is more like a liberalized capitalistic setup where the rents are left to the market dynamics.

In this push-and-pull factor, there is still a distortion in the market. What I study here is not the nonslum housing, it is the slum housing. We are talking of the strata of the society which is very poor, with no formal incomes, with no accounted incomes, but still, their market rents are going higher in the slums. It’s very difficult to say if it’s good. Could be good for some slums like Dharavi, where they have their own business enterprises as well, but not for other slums. What I think in this case is—also what we need is not just a pure government-controlled setup or a more capitalist setup, because we are talking about a market which is not studied, which is not transparent.

We need a middle ground to be able to provide real affordable housing. We just don’t want to provide affordable housing by giving houses to people, but also to be able to sustain it within your economic setup in the future. That’s also what we are seeing that, within this policy, the market rents were altered according to the market conditions. But these days, if we see the long-term effects after the policy, the market rents have shot up, so renting has become unaffordable.

Factors That Limit the Supply of Housing

RAJAGOPALAN: See now that market rents are rationalized to the market, there are not shortages, and they’re not contrived. Now that they really reveal the scarcity value of what’s going on in the housing market in a given area, a given city, one important thing is it’s very clear that rents are unaffordable because the housing supply hasn’t kept up with housing demand.

You need to build a stock of affordable housing at low cost, and so on, but on the other hand, there are really no substitutes for increasing stock of housing. The biggest impediment to increasing the stock of housing is all the housing regulation. You have enormous amount of regulation on something as simple as floor space index, which is how much can the built-up area be in a particular piece of land, how quickly can someone build, what kind of permits do they need, how badly does it get stuck in litigation, in cities like Bombay, where a lot of new projects get stuck endlessly in litigation.

In places like Noida, the supreme court just shuts down an existing stock of housing that’s already in the process of being built. There are many factors that actually prevent the increase in stock of housing. Most of these factors are basically bad government policies and interventions, that—it is very complicated to just say that housing is unaffordable because the market price is high, and then the market has made a mess of this problem, if you know what I mean.

GUPTA: Here, what I would say is a couple of things, because I did a little bit of research on housing markets in Switzerland as well, which really impressed me. India has a lot of liquid rental markets, but the problem is the housing supply is rigid owing to government factors. What I would say is here to make housing more affordable by not just increasing the stock; to pass regulation which actually deals with the people’s daily lives. For example, what we have in Switzerland is your rent of your house should not be more than one-third of your income. So this is something which is really nice.

It gives you a multidimensional effect. In a sense, it helps to account for people’s standard of living, it gives them more space, it makes their life more affordable—and not just the house, it gives more transparency to the housing markets. And then you can have one section of the regulation which talks about making your rent one-third of your income, but you still leave housing to the market economic conditions. Whatever the economic conditions are, your salaries are according to that, and your rent is still one-third of it. This is one very good solution to it.

Another thing that I’ve always talked about on various platforms is, India needs a central database for house prices, and this is what is missing. Unless we really do have a spectrum where I, as an individual consumer, or as a researcher, or even as a policymaker can track housing markets—because what we have is a lot of middlemen. There’s a huge difference between the market prices and the circle rates that we have. The transaction prices we do not have.

RAJAGOPALAN: That’s also because of we have very high stamp duty and registration fees and things like that. There’s a huge incentive to actually hide the true value of the house, which is very perverse. Normally, people want to inflate the value of their home. In India, you actually want to deflate or reduce the value of your home, at least, what is on paper versus what is there in reality. Again, this goes back to some very strange incentives caused by some very strange policies, in my opinion.

GUPTA: Yes, of course, it’s a policy-driven hindrance, but how do we even break these policies, until we really have a database where—

RAJAGOPALAN: Some better information and data. I’m a little skeptical about things like one-third rent. I understand the sort of romance of that, especially in developed countries like Switzerland.

But on the other hand, in a place like Mumbai, for instance, people are willing to pay a much larger proportion of their salary in rent because it would reduce transportation costs; it would reduce school fees because dense areas tend to have cheaper, better schools for their kids; and so many other things. There are a lot of people who live in slums at extraordinary rents, because it makes the rest of their life easier. I am actually very skeptical about these kinds of limits. I like to leave these things to individuals, but I see your larger point of needing some metrics for affordability.

GUPTA: We do need to have. Even if it’s not something that is implemented nationwide, we can try to see it implemented in a phased manner—try to see an experiment. But there has to be some sort of metric where it needs to be experimented to see—apart from the normal economics of demand and supply and policy regulations—where actually housing can be more affordable.

RAJAGOPALAN: Yes. I would actually say that we still need, in addition to all the things you’re talking about, just a big push to increase housing stock. I mean, this starts with the government owning prime pieces of land where they don’t allow private housing, to these FSI kind of rules, to the kinds of permits that are required by buildings. I mean, the whole thing is a ghastly mess in India. Some kind of serious reform that is required in the urban landscape to increase housing stock.

Other Research Projects

RAJAGOPALAN: What are some of the other projects that you’re working on?

GUPTA: I just finished my Ph.D. so I will talk about the papers I wrote. Another part of the project, which actually came out of this paper, was also how urbanization is increasing slumization in the country. Given that we are urbanizing, but we are increasing slums more than the formal organization—it is still a very fresh, preliminary and ongoing project.

One major project that I had was about the Swiss monetary policy in housing markets. Given the subprime crisis and the monetary policy rates that went really low—and for some countries, it’s even negative, below zero—so does it really increase homeownership rate in the country, because you have mortgages which are more affordable? But Switzerland has a very special setup. First, it’s a country which is very small in terms of land elasticity, less housing stock, but on the affordable housing side, there’s something called imputed rent taxation.

That’s an additional taxation in Switzerland. It constitutes a very major part of the user cost of monthly renting and homeownership. That’s what I find in my paper over there, that even though we have a monetary policy which is quite low, and you have a market which protects the renters more, there’s an increase in the homeownership rate because of the low monetary policy rate. But it’s only people at the margin that are able to afford more houses, and specifically, the wealthiest Swiss people. Another very important thing to study this—

RAJAGOPALAN: You find that there are not too many people who are going for second and third homes the way you would expect in countries.

GUPTA: Even the first home.

RAJAGOPALAN: Yes, even the first home. It [crosstalk] compares to places like the U.S., when interest rates reduce, you see this boom in second and third homeownership, also because of various other tax incentives.

GUPTA: Because Switzerland is a very wealthy country, it has the highest salaries in the world, so you would expect the homeownership to be quite high. On the contrary, Swiss homeownership is the lowest in Europe. It’s around 44% compared to what it is even in U.S., around 68%. That’s a very important setup of the housing markets, very important study to assess where the housing markets are heading in Switzerland. That was one of my projects.

Studying Elites

GUPTA: Another project that I’m actually working on right now is to build an Elite Quality Index in India. We always study equality, poverty, economic resources, but this is a part of the upcoming literature that I’m part of the team right now at University of St. Gallen. This is a future project that we are involved in to make an Elite Quality Index for India at this state level, and to see how the elites—like where the elites of India are, how they have progressed over time, and to make a comprehensive index of the quality—if the elites are contributors to the society or they are extractors from the society.

I’m a part of this world project. It’s a big multi-country project of Elite Quality Index. We recently launched the Elite Quality Index 2021, where we measure what sort of elites are existing in a country over a period of time, were there more contributors to the economic resources or extractors of the economic resources, and has it changed over time?

We did this over a panel of 151 countries, and I plan to continue the study to India at the finest spatial level—right now it’s the state, but maybe at the district level—and to look at the finest level. I think this is quite important for a country like India where you have a lot of billionaires, millionaires, self-made billionaires, a lot of women power, but to see how can you link it to the performance of the society today.

RAJAGOPALAN: Yes. I think this is also coming to sharp focus during COVID because you have a tiny percentage of the top. The top 20% consume almost 50%, which means they really impact the economy when consumption dries up because of lockdowns and pandemics and so on. There is a very clear role, not just from the point of view of inequality, but also how society functions as a whole, revolving around elite consumption and elite production.

GUPTA: Exactly. When we talk about this debate around inequality, it is important to study the lowest quantiles, but it’s also important to study the—

RAJAGOPALAN: Study the highest.

GUPTA: —topmost.

RAJAGOPALAN: Absolutely.

GUPTA: It’s not just a bottom-top approach, but it’s a two-way approach to see where and how we can level things up.

Pandemic Activities

RAJAGOPALAN: What have you been up to during the pandemic? I know you finished your Ph.D. dissertation, so congratulations on that. That’s a big one. What else have you been up to?

GUPTA: When the pandemic started last March, the lockdown happened in Switzerland, and I had to submit my thesis in July. For me, that was a very big blessing in disguise. I was just writing my thesis around that time, and then I went through my defense phase and polishing my Ph.D. research. But then I graduated in February. I mean, to me, lockdown has been specifically very nice, except for focusing on my research and binge-watching some stuff. I think I haven’t done much, but that is also very nice.

RAJAGOPALAN: This now brings me to the most important question. What have you been binge-watching?

GUPTA: I watched a lot of series on Netflix. I stayed with a couple of friends during lockdown. Just random stuff we used to watch. Recently I got hooked to a very good series, it’s called “Good Witch.” I’m more fascinated by this—that’s another one of my hobbies, the supernatural world. This is something that really fascinated me.


GUPTA: I’m not too much of an action-oriented or dark movies or a dark humor kind of a person. I’m more on the lighter side, so something that cheers you up.

RAJAGOPALAN: That’s what we need during the pandemic.

GUPTA: Specifically after writing a heavy Ph.D. dissertation, you really need something to lighten yourself up.

RAJAGOPALAN: I know, housing in India can depress anyone, right? Whether you are on the demand side, supply side or the expert analyst side. Thank you so much for coming on the show. This was such a pleasure speaking with you.

GUPTA: Thank you.

About Ideas of India

Host Shruti Rajagopalan examines the academic ideas that can propel India forward. Subscribe in your favorite podcast app