When Reform Hurts

New research shows that rent deregulation in India can backfire by shrinking migration and jobs, instead of boosting urban growth

- Parth Singh

Conventional wisdom says that relaxing housing laws will encourage housing construction which would lead to reduction in rents and thus open up cities to new arrivals.

But what happens when that wisdom meets India’s uniquely distorted housing markets? In a recent paper "Do Housing Regulations Affect Rural-Urban Migration? Evidence from Rent Control in India", economists Arnab Dutta, Sahil Gandhi and Richard K Green reveal some unexpected truths.

Deregulating rent control in India actually dampens rural-urban migration, particularly among male workers. Using a quasi-experimental setup based on policy reforms in Karnataka and West Bengal between 1998 and 2000, the authors investigate the effects of pro-landlord rent and eviction reforms on migration and labour markets.

Their findings are anything but straightforward. In Karnataka, where landlords were allowed to raise rents without making physical upgrades, rural-to-urban migration dropped by 9% points. Meanwhile, in West Bengal, easing eviction laws paradoxically boosted female migration, but mostly for marriage migrants, not work-related migrants.

More Rent, Fewer Migrants

The study hinges on two types of reform. The first relaxed rent ceilings in Karnataka and the second allowed landlords to evict non-occupying tenants in West Bengal. In Karnataka, the lifting of rent control led to a predictable rise in both formal and informal rents.