Apartments and mixed zoning

So, as Udupa put it, I went to Barcelona “on a study trip like a corporator”, came back and wrote one piece on urban planning in Barcelona and what India can learn about it. The piece is in Pragati. An excerpt:

That said, there are important lessons to be learnt for India from E’ixample. Most current models for urban development take after the sprawl-heavy automobile-intensive US model. What is important to make the new “smart cities” effective is to move away from this model to a more dense public transport focussed “European model”. And from this perspective, the new cities could do worse than looking to Barcelona’s E’ixample for inspiration.

Read the whole thing. Anyway, so I talk about two features of E’ixample (the district in Barcelona where the wife lives, and hence where I spent most time during my trip last October) in the Pragati piece, and mention that they’re useful concepts that India should adapt for its “smart cities” program – mixed zoning and apartments.

The former, I argue, ensures that there are “eyes on the street” at different points in time. This helps keep the crime rate low (deserted streets and lack of pedestrian movement usually make it more conducive for criminals), and provides a safe atmosphere. The latter ensures good efficient land use and allows for provision for large roads and open spaces without compromising on total density. And as I realised this evening, the two concepts (apartments and mixed zoning) are not independent.

One of the reasons that people offer for strict zoning (keeping residential and business areas disjoint) is that they don’t want random people hanging out in front of their residences. Random people hanging out in front of your house makes you feel unsafe, and a bit weird, and if there is a shop or a restaurant next door, the chances of this happening are rather high. For example, recently the Bangalore Mirror wrote about a “controversy” regarding the opening of a cafe in a residential area in Koramangala. Neighbours don’t like such cafes as it will lead to people hanging out in front of their homes, and that gives a sense of violation of space.

So what makes apartments and mixed zoning go together? When you live “high up” in a mid or high-rise building which you share with many other people, your sense of ownership of the space in front of your house is lower. If someone is “loitering” in front of your house, you are less concerned because 1. you are farther away from the “action” and 2. you don’t feel a sense of violation of your space. Thus, being in an apartment makes it more palatable for you that there are shops and restaurants and offices close to your house.

Now, everyone likes shops and restaurants close to home, but in case of single-unit homes, people are likely to adopt a “NIMFY” (not in my front yard) attitude towards these – for they might violate your space. Apartments help address this conflict!

Hence apartments and mixed zoning go hand in hand, and both need to be encouraged. Note, however, that I’m not proposing Brigade Gateway as the ideal model for urban development!

Bangalore airport has become horrible

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Flying domestic after a really long time. The last time I did was back in august. And the Bangalore airport seems to have become horrible in the meantime.

Check out the picture. Gates so close together and hardly any seats for passengers to wait on. Now it’s well known that most domestic flights have 150-180 seats. How hard is it to design waiting areas to seat so many people per flight?

And the Bangalore airport has just been expanded and it’s so congested. Talk about continuing to underestimate growth!

The only hope is that this is a temporary arrangement and once the expansion is complete we’ll have better waiting space.

Red bus

No, not that red bus. I’m talking about the red BMTC buses in Bangalore. They used to be red till 1998 or 1999, and then the government of the day decided that the buses were due an image change (red being danger and all that). This coincided with the spinning off of the BMTC from the erstwhile BTS (which was part of the Karnataka State Road Transport Corporation). The buses were all painted blue.

Over the years, new kinds of services have been launched. There was the Pushpak – coloured beige. Then there was the slightly premium Suvarna, coloured a very light purple. And then there were the pass-only green buses, women only pink buses (yes, really) and the red Volvos. For some reason, red buses have started making a comeback to mainline BMTC routes, though I don’t quite know the reason for the reintroduction of the colour, or if they are any different from the blue and white buses.

So for the first time in fifteen years or so, I rode a “normal” red BMTC bus today (in the intervening period I either rode “normal” blue and white buses or premium Volvo red buses). Some pertinent observations from this rather momentous (!!) journey.

I was close to Shivajinagar, and had to come home to Jayanagar. Considering that it’s a pain haggling with auto rickshaw drivers in that area, I decided to take a bus (especially since I was coming from a place really close to the bus stand). I quickly walked up to the Shivajinagar TTMC (“travel and transit management centre” or something). The footpath on the St Marks Road extension on which I walked was quite poor – I hope the TenderSure project that is rebuilding roads and footpaths in the middle of the city reaches there soon.

Even navigation within the TTMC is quite bad – it’s badly designed in the sense that there’s no space to walk where you have no chance of being hit by one of the hundreds of buses there. A helpful official told me where I would get the bus to Jayanagar, but to get there (walking fast) was quite a challenge. Finally I got there and found a red 27E (going to JP Nagar) and hopped on.

The BMTC is definitely not cheap – the journey set me back by 19 rupees (to put that in context, I had traveled there in the morning by auto rickshaw and paid Rs 86). It’s definitely been a long time since I’ve traveled by bus as I handed the conductor a ten rupee note and looked expectedly for change. I had to shell out another ten bucks.

I didn’t get a seat but found a comfortable place for myself to stand (right at the back of the bus). The concept of having the door in the middle of the bus rather than at the fag end is a good one – it allows you to go deep into the bus and find good places to stand. Also, you are looking ahead while standing and can look out for any shuffling in the seats which might potentially get empty!

What I noticed during my journey (which took 25 minutes which is not bad at all for that time of the day) is that each of these longish distance buses actually serve several small markets – if we can figure out a metric for how many times the passengers in the bus “churn”  (it’s not too hard, just feeling lazy right now) it might help us plan routes better in terms of multiple short routes rather than a few long routes (that can help cut down uncertainty in timings, etc.).

So the bus for example completely emptied itself out at the Shantinagar TTMC (which is a very good TTMC IMHO, since no buses terminate there), and then got refilled a couple of stops later in Wilson Garden. Earlier, there had been massive churn near Richmond Circle. And so on.

This is perhaps related to the cost but there seemed to be a very different demographic that populated the bus (based on looks – I’m being judgmental and all that, I know) compared to the type 15 years back. In terms of social strata the bus seemed much less diverse today than 15 years back, and it worked both ways. It seemed like most bus travellers today could be broadly defined as being lower middle class – I hardly saw any labourer types (might be a function of the route also) or too many upper middle class types in the bus. It is interesting how these things change!

The Crow’s Designs

As I had mentioned in my blog post yesterday, I just finished reading Sanjeev Sanyal’s Land of seven rivers yesterday afternoon. And later in the evening I started reading Nassim Nicholas Taleb’s Anti-fragile. And before you wonder, let me tell you that yesterday was a working day for me. Just that I had a long process running which gave me the flexibility to catch up on my reading.

So one topic that was mentioned both towards the end of Sanyal’s book and in the prologue of Taleb’s book was the issue of urban planning. And interestingly, the two agreed. In the prologue of Anti-fragile, Taleb has listed out a series of “fragile”, “robust” and “anti-fragile” systems. He has classified it by subject, and in each subject he gives us examples of the three systems. Being halfway through the first chapter, I understand that he is going to elaborate on each member of the list later on in his book, but I’m yet to reach the chapter (I’m still in chapter one, I told you) where he talks about urban planning. Yet, what he has written in that table in the preface on this chapter caught my eye. More so, given that it agreed with what Sanyal had written in his book. In the row on “urbanism”, Taleb has simply written “Le Corbusier” in the Fragile column and “Jane Jacobs” in the Anti-fragile column (the preface of the book is available on Taleb’s website. The relevant section of the table is on page 27).

In the last chapter of Land of seven rivers Sanyal talks about post-independence events that has affected the geography of India. One topic that he delves into is urban planning, where he contrasts the sterility of Le Corbusier’s Chandigarh with the dynamism of unplanned Gurgaon. He mentions that despite careful planning, little economic value has been created in the city of Chandigarh itself, and one reason why it is supposedly clean is because there exist no space for the poor within the city! The city’s rigid master plan is actually a hindrance to economic activity as it allows for little space for entrepreneurial activity to take place. So whatever growth and innovation Chandigarh has seen, says Sanyal, has actually happened in its suburb of Mohali, which is in the state of Punjab.

Urban planning is a topic that I’ve been thinking about quite a bit in recent times, as I’m trying to figure out where to buy a house and “settle down”. Having examined several of Bangalore’s neighbourhoods, I’ve found a strong contrast between planned and unplanned neighbourhoods. The former (eg. Jayanagar) usually have wide roads, pavements, access to markets at frequent intervals (one thing where planning has failed, and for the good I think, is zoning. I wouldn’t want to walk to the main market for every one of my needs) and auto rickshaws. More importantly, they have people walking around on the streets all the time, which makes the neighbourhood safe. Unplanned neighbourhoods (eg. Sarjapur Road) usually have large condominiums, few shopping options and no auto rickshaws. You have either highways or small village roads and not too many people walk around. This makes the streets unsafe and makes you reliant on private transport, which in my opinion is not a good thing. Nevertheless, one must admit that given the massive influx into Bangalore in the last 10-12 years (on account of the IT boom), it is the unplanned neighbourhoods that have taken the lion’s share of housing the incoming population.

So the question is how much planning a city needs. Too much planning (as in Chandigarh and Delhi) can make the cities static, and not provide enough for potential immigration – which is necessary for increased economic activity. On the other hand, unplanned areas are inherently unsafe and don’t provide for a great urban quality of life (as far as I’m concerned one of the primary indicators of urbanism is public transport). Is there a middle ground of “light touch regulation” which derives the best of both worlds? How should urban planners approach this issue? How can we make our cities both dynamic and safe? As of now, I don’t have the answers.

PS: The title of this post is in reference to the name “Le Corbusier” which is French for “The Crow”.

The Problem with Smaller States

I’m a fan of smaller states. I think our states are currently way too large and we could do with more states since that could lead to greater administrative efficiency and federalism. So yes, I’m fully in support of the Telangana movement – only because I think AP is too huge and unwieldy a state (42 parliamentary constituencies) to be managed from one place.

I have one concern, however. I was thinking of the case of Karnataka and the possible demand by areas of North Karnataka for a separate state. While I support this demand (Karnataka again I think is too huge and unwieldy to be managed from Bangalore which is in a corner of the state) I was suddenly worried about power supply.

From what I last remember, Karnataka’s biggest source of power is the Raichur Thermal Power Station in Shaktinagar. Assuming that it breaks away from “Mysore” as part of a new “north Karnataka” state, what will happen to the energy security of Mysore (the smaller southern portion)? I guess there might be some agreements and long term power supply contracts put in place, yet the loss of this massive captive power source would significantly hurt Mysore.

My concern is that if the demand for a separate North Karnataka grows, the government of undivided Karnataka would be loathe to invest much in any area that may fall under a part of the state that wants to “break away”. And this could lead to concentration of investment in areas that are close to the seat of power, and further skew the development of different parts of the state. Power supply is just one example that I took here – it could be any other massive government investment – say SEZs or large industrial plants and so forth.

There is another issue with smaller states but I think this is a problem for which a solution has been found and is under implementation. The problem with having too many states is that we will end up with too many inter-state boundaries and thus too many “checkposts”. However, the proposed Goods and Service Tax regime (if/when it were to get implemented) will ensure that India would become a common market and inter-state commerce would become more seamless. Nevertheless it is important to get the GST regime in place before we get too many more new states – for it also means less stakeholders to deal with!

The Problem with Unbundled Air Fares

Normally I would welcome a move like the recent one by the Directorate General of Civil Aviation (DGCA) that allows airlines to decrease baggage limit and allows them to charge for seat allocation. While I’m a fan of checking in early and getting in a seat towards the front of the flight (I usually don’t carry much luggage on my business trips), under normal circumstances I wouldn’t mind the extra charge as I would believe it would be offset by a corresponding decrease in the base fare.

However, I have a problem. I don’t pay for most of my flights – I charge them to my client. And this is true of all business travelers – who charge it to either their own or to some other company. And when you want to charge your air fare to someone else, one nice bundled fare makes sense. For example (especially since I charge my flights to my client) I would be embarrassed to add line items in my invoice to ask for reimbursements of the Rs. 200 I paid for an aisle seat, or the Rs. 160 I paid for the sandwich. A nice bundled fare would spare me of all such embarrassment.

Which probably explains why most airlines that primarily depend on business travelers for their business don’t unbundle their fares – that their baggage allocations remain high, that they give free food on board and they don’t charge you extra for lounge access (instead using your loyalty tier to give that to you). Business travelers, as I explained above, don’t like unbundled fares.

Which makes it intriguing that Jet Airways, which prides itself as being a “full service carrier” has decided to cut baggage limits and charge for seat allocation (they continue to not charge for food, though). Perhaps they have recognized that a large number of business travelers have already migrated to the so-called low-cost Indigo (it’s impossible for Indigo to have a 30% market share if they don’t get any business travelers at all), because of which Indian business travelers may not actually mind the unbundling.

Currently, Indigo flights have a “corporate program”, where the price of your sandwich and drink is bundled into the price of the ticket. I normally book my tickets on Cleartrip, so have never been eligible for this, but I can see why this program is popular – it prevents corporates from adding petty line items such as sandwiches to their invoices. On a similar note, I predict that soon all airlines will have a “corporate program” where the price of the allocated seat and a certain amount of baggage (over and above the standard 15kg) will be  bundled into the base price of the ticket. Now that I charge my flights to a client, I hope this happens soon.

The problem with real estate taxation

I spent a year working in an India-focused high frequency trading hedge fund. I used to trade stocks and equity derivatives there. We were primarily an arbitrage hedge fund, and our aim was to make money by trading on assets that were mispriced, in order to make riskless profits. For example, if the price of a certain stock at a certain instant was Rs 100 on the BSE and Rs. 99 on the NSE, we would buy the stock at the NSE and sell it at the BSE, simultaneously, thus making riskless profits. Contrary to what some of the “99%ers” say, we saw social value in what we did. We were making prices fairer for the rest of the market, and removing anomalies.

There was one big problem though, this beast called “securities transaction tax”. Every transaction in securities in India attracts this tax. While it seems to be a fairly small number, when you are trading large volumes and looking to arbitrage out wafer-thin margins, it ends up being significant. This tax, we figured, was a big hindrance in true arbitrage-free pricing of securities in India. The tax meant that assets could be mis-priced up to a certain limit, because wiping out that mispricing through a trade was unprofitable thanks to this tax. This “flow tax”, thus, makes financial markets inefficient.

The problem is bigger when it comes to real estate. Historically, property taxes have been really low, but property transaction taxes have been high. There is a good reason for this. Back in the old days where record-keeping was inefficient and incomplete, it was impossible for the government to map out who owned which piece of land. Instead, they figured that they would have a record on all property transactions, and thus put a tax on that. This is a worldwide phenomenon.

It has led to two big problems in India. First is the market inefficiency that I spoke about with my equities example. High transaction taxes means that property markets are illiquid, and this prevents more people from entering and investing in the market. This also means that any price changes in the broad market are not reflected easily enough across a vast majority of property. Secondly, the high transaction taxes means there is massive under-reporting of the actual prices at which transactions take place. Both the buyer and the seller have an incentive to do so, and deprive the government of tax money. This leads to creation of massive amounts of black money in real estate. The problem is similar to the creation of all those Swiss bank accounts back in the days of 99% marginal tax rates.

There is a side-effect also, one that our socialist-minded government and the National Advisory Council (NAC) might be sympathetic to. Low reported prices of land transactions also implies lower realization for farmers and other villagers when land is forcibly acquired by the government. Though compensation might be declared as multiples of the “market value”, the true market value in most cases is so depressed that farmers usually get paid a pittance.

That aside, so what prevents us from dismantling these distortionary transaction taxes on property? Firstly, they are a massive source of income to state governments and local bodies, and if they are to be dismantled they need to be replaced with another equivalent tax. Economists usually advocate property holding taxes as a less distortionary and more stable means of funding local governments. Till recently, however, bad record-keeping meant those weren’t enforceable. You already have nominal property taxes that are collected, but reports in newspapers suggests that implementation is lax, and there is significant tax evasion there.

Even if all property records are formalized and computerized, there is another major hurdle in dismantling property transaction taxes and increasing property holding taxes. Higher property holding taxes means that the value of property will see a sudden drop (lower “free cash flow” each year, and all that). Markets might become more efficient and liquid, but real estate companies who have sunk in millions assuming a certain valuation of their properties will see a sudden erosion in that value, and see value in lobbying against this change taking place. In the long run, they will benefit, in terms of greater investment, greater liquidity and faster disposal of the properties they have built. But the initial “shock” in terms of reduced valuations will mean they will lobby against this change.

Thus, unless something drastic happens in terms of reforms, it is likely that we will be stuck in this inefficient regime of high property transaction tax.

Cross posted at The INI Broad Mind