Why Housing Is More Affordable In Countries Where Productivity Is High

Housing is more affordable in countries where people are more productive. To understand what this means, imagine how much you would have earned a centuries ago by doing what you are doing now. Let us suppose you are a blogger. You would not have earned anything much by placing your fingers on a horizontal row and moving them where your muscle memory takes you. In other words, you would not have been able to buy food, clothes and shelter by moving your fingers.

This is not just because computers and the internet did not exist. Electricity is a recent invention. Even language is new. Language, of course, has been around for perhaps thousands of years. But most people were illiterate, till very recently. In 1947, for example, over four-fifth of the Indian population was illiterate. Almost all the inventions that make blogging possible come from western capitalist democracies. Capitalism is recent too, dated back only to 18th century. So, you would have been forced to hunt and gather food even if you were the most talented blogger material among primates. By hunting and gathering, it would have been really hard to find food to keep yourself alive. Hunter-gatherer societies did not produce much.

It is impossible to list the countless other discoveries, inventions and moral advancements that made blogging possible. People would not have been free to invent and discover if they did not have time. They were able to find time only because rising productivity freed up time and labour. By now, it must be obvious why your labour is worth more in modern, productive societies. Your labour is worth more goods and services in prosperous societies where people produce more, invent more and are free to think. This is why it takes 308.1 years of labour of an average worker to buy a 100 square meter residence in a prime neighbourhood in Mumbai, while this is only 48.4 years in New York and 42.7 years in Singapore. For the same reason a primate blogger would have died of starvation, many 21st century Indians find decent housing beyond their means. It is not surprising that housing is so expensive in India where much of farming is small-scale and done by hand, and where means of production are still primitive.

Now, it is true that raising floor area ratios (FAR is the ratio of constructed floor area to the area of the plot) and repealing rent controls and other regulations will make housing far more affordable. But this is not enough, because the single biggest reason that housing is expensive is that productivity levels are so low. This is why Indian wages are low by global standards. The per capita income in India is Rs 93,293. Even if we assume that housing is affordable if it costs about the income of a person for about three years, that would be unreasonable. It is improbable that construction costs will fall, so much so that a decent house can be built at Rs 279,879. Some shanties in Dharavi cost over Rs 1 crore. Housing will become affordable only with greater liberalisation and major economic reforms that raise Indian incomes many fold.