The financialisation of floor space,Mumbai 1880–2015

Introduction

In 1991, the local state in Mumbai, India, introduced the financial instrument of ‘Transferable Development Rights’ or TDR. This instrument creates a market in concessions to building height regulations, allowing developers to buy and sell exemptions in a logic similar to carbon credits. TDR allows developers to monetise the undeveloped potential of (literally) the air over their plot and to sell it to others. If land is a fictitious commodity, then TDR is even more so (Yang and Chang, 2018). From a prescriptive regulation where a standard was set for the height of buildings – colonial-era standards of maximum permissible height in metres, or post-1950s floor space index – TDR is a shift to a market-based incentive. Paradoxically, TDR or ‘air rights’, and related incentives, are used by the state to achieve urban development and social goals. Such goals include land acquisition for public purposes, heritage and green space conservation, and especially, the redevelopment of the thousands of ‘slum’ and dilapidated buildings in Mumbai. This paper traces and explains the shift from a prescriptive regulation to a financial instrument, from standard to incentive, and the consequences of that shift.

In the metropolis, the political economy of land is linked to the political economy of floor space. This is because in any city where vertical building is a prevalent mode of construction, policies regulating floor space impact profits from land development. Such policies, including rules about building heights, open spaces and minimum lot sizes, are thus central to debates about affordable housing whether in Mumbai, San Francisco, Taipei, London, Shanghai or elsewhere. As such policies impact urban density, their relationship to public health is of renewed concern with the global pandemic (Webster, 2021). Building regulations are a form-based code, and these ‘rules about building form’ are ubiquitous urban policy instruments (Glaeser, 2011; Talen, 2009: 144). In Mumbai, policy-makers see building regulations as a key policy lever, although the importance accorded to this policy is also criticised. This study selects the case of Mumbai because scholars and policy-makers have argued that building regulations are too restrictive in developing world cities with Mumbai seen as an extreme case (Bertaud and Brueckner, 2005; Glaeser, 2011; Sridhar, 2010). Cities like Mumbai have lengthy histories of urban regulatory politics, but in a different context from what we know about European and American cities. Building regulations are a historical thread to analyse urban change. A history of building regulations advances comparative urbanism by providing a framework for comparing the financialisation of urban policy instruments in other cities.

As city and regional governments experiment with incentive-based policies, there is a need in urban studies to understand how such incentives have emerged. Governments and other institutions increasingly stress the importance of market-based incentives over traditional regulation even for the achievement of social goals (Levin and Espeland, 2002). Given the seeming neutrality of incentives, their emergence often goes unanalysed. Recent literature has focused on the increasingly financialised nature of floor space, and the ways in which floor space can function as a market-based incentive through TDR (e.g. Jose, 2017; Yang and Chang, 2018). This paper contributes to this literature by tracing out how financialisation has occurred over the longue durée and the implications of this transformation: How did floor space emerge as a financialised policy instrument in Mumbai? More generally, how are commodities created from thin air, in this case literally from thin air? The shift from traditional regulations to financialised policy instruments will be shown to have emerged gradually, characterised by failed attempts, conflict and contingent outcomes.

It is parsimonious to explain the financialisation of floor space as a result of exogenous changes: such as, India’s liberalisation in 1991 coincident with the introduction of TDR, the resultant changing political economic context at the national level, global spread of incentive-based policy paradigms, neoliberalism or policy transfer from other cities. The idea of policy translation adds a local piquancy to these exogenous factors by positing that policy ideas are translated and adapted to local contexts (Mukhtarov, 2014). The shift towards market-based policies or ‘neoliberalism’ is often written as a transfer of ideas from the global North, missing the endogenous histories and domestic politics of the global South (Connell and Dados, 2014; Rouanet and Halbert, 2016; Yeşilbağ, 2020). Tracing the shift towards market-based incentives using within-case analysis goes beyond black-boxed explanations of exogenous shifts that hoover up country contexts in their path.

Financialisation is seen as a contingent, uneven and variegated process occurring when ‘the logic of finance [penetrates] different, hitherto non-financial, “things”’ (Aalbers, 2017: 544; Yeşilbağ, 2020). There is increasing interest in going beyond the paradigmatic cases of financialisation in advanced economies (Halbert and Attuyer, 2016). To understand financialisation as a historical process, it is important to focus on actors, practices, and institutions. Theories of gradual and endogenous institutional change can help here with their focus on the strategies of actors and the practices of rule following within institutions (Mahoney and Thelen, 2010). Economic sociology provides insights about how markets are constructed through the processes of commensuration, objectification, and standardisation (Carruthers and Stinchcombe, 1999; Levin and Espeland, 2002). Accounts of the construction of carbon markets provide an interesting parallel to TDR. Both these market-based instruments are fictitious commodities, involving commodification and financialisation of air, where the construction of markets has been attended by controversies, setbacks, allegations of fraud and irregularities, and debates over the legal status of policy instruments (MacKenzie, 2009).

In the language of economic sociology, the policy trajectory of Floor Space Index (FSI)/TDR shows how diverse, previously unrelated spheres of policy were made commensurable. The argument of this paper is, in brief: For a policy instrument such as building height regulations to become financialised, it must first be conceived of as an object that can be bought and sold. There were important shifts in language and ideas that enabled this commodification of building heights in Mumbai. The laying of this ideational groundwork was not state-led, but instead led by landed elites and developers in the 1950s and 1960s, who wanted to circumvent building regulations for their own interest. In the post-war rationing and housing shortage of the 1950s, individual developers started asking the government for variances to restrictive height regulations. The ad hoc or personal appeals of landowners used a language of ‘compensation’, ‘concessions’, ‘allocation’, ‘incentives’ and ‘utilisation’– these terms are not consistent with a prescriptive regulatory policy, but are consistent with, and paved the way for, the financialisation of building heights and its emergence as a flexible, market-based instrument. These terms continue to be used by state and market actors today, and are the discursive shifts that created the ideational infrastructure of TDR. This paper demonstrates how these ad hoc appeals and related language allowed building heights to be seen not as a regulatory prescription but as a subsidy or grant. Gradually, over time, a range of urban development goals were related to incentive grants of floor space – floor space became a currency with which the state could pay for land acquisition and incentivise the private sector to pursue urban development goals. By the time TDR was introduced in 1991, the ideational change towards a market-based instrument had long been under way.

This is to my knowledge the first longue durée history of an urban policy in a developing world city, including the middle decades of the last century – a period often missing from the urban turn (Haynes and Rao, 2013). Tracing a history of building regulations is methodologically challenging because its documentary traces are mere glimmers in the archival record. There are no entries for ‘building heights’ or ‘floor space’ in archival catalogues. Yet it remains a traceable thread in a shifting historical tapestry. Primary-source records were found under diverse topics in the archives: land acquisition, slum redevelopment, development planning, permitting process, planning debates and the like. This original archival research of hitherto unexplored historical records included planning texts, legal compendiums, and especially internal bureaucratic files. Ad hoc concessions to landowners based on appeals and petitions are a crucial part of this history – such petitions are only traceable through files or other unpublished bureaucratic correspondence. Research was carried out in the Maharashtra State Archives (henceforth, MSA), the Mumbai Metropolitan Region Development Authority Library (henceforth, MMRDA), and ProQuest newspaper archive for pre-1990s news articles. Archival research was supplemented with 80 in-depth interviews conducted from 2006 to 2017 with experts and policy-makers, including those in office and playing key roles at turning points in this history (municipal commissioners, urban and housing department officials, municipal engineers, housing activists, officials in parastatal agencies, real-estate consultants, etc.). Process-tracing and triangulation across different data sources are used to describe and explain this policy trajectory (Collier, 2011; Rueschemeyer, 2003; Trampusch and Palier, 2016).

This history of building regulations is structured across the three main historical periods of modern Indian history: colonial till 1947, mixed-economy till the 1980s, post-liberalisation after 1991. The conclusion considers the policy implications for Mumbai, and the wider theoretical contributions. I use ‘Bombay’ when writing about the colonial and postcolonial periods, and ‘Mumbai’ for the post-1991 period.

The colonial period: Heights and rights

A history of building height regulations in the colonial period, especially after the consolidation of modern municipal government in the late 19th century, demonstrates that building regulations have long been politically contentious in Bombay. ¹ In the colonial period, building regulations focused on public health. The idea was that tall buildings blocked light and air, and crammed too many people into small spaces (Issar, 2017). The resultant overcrowding created the conditions for epidemics and ill health. Concerns about urban density have a long history in Bombay starting at least with the well-known report by Conybeare (1855). Building regulations were seen as a way to control the built environment and improve public health (Valverde, 2011; Webster, 2021). ²

The earliest systematic building heights bye-laws were a set of loose prescriptions in the Municipal Act of 1878. The owner ‘shall if required to do so by the [Municipal] Commissioner, furnish him with a plan …’ outlining ventilation, building heights, number of floors and building materials (emphasis added). ³ Building regulations were updated in 1897, and the bye-laws shifted from loose prescriptions to more precise and technical building regulations. For example, the height of buildings was related to the width of streets and a maximum height was prescribed. ⁴

Urban regulations restrict the owner’s discretion over the use of land and buildings (Fischel, 2004). Building regulations are thus a source of contention between the state and landowners, between public and private interest. Such regulations were framed as property rights infringement by supporters and opponents during debates in the late 1870s over strengthening the enforceability of building regulations. A letter to the editor of the Times ofIndia said, ‘it is necessary that our individual liberty should be checked … for the public good’. ⁵ On the other hand, the Bombay Association said the ‘minute and inquisitorial’ regulations were ‘undue interference with individual discretion’ in their formal petition following a public meeting and protest. ⁶ An editorial argued that the regulations were ‘enough … to drive any native maistry [workman] wild’, were not adapted to the Indian context, lacked popular participation in their framing, and encouraged corruption. It continued, ‘[these rules] are worse than useless, they are harmful, they give the power of unlimited interference to the lower Municipal subordinates, and will be a fruitful source of oppression and “dustoorie” or bribery’. ⁷ Such concerns over corruption and irregularities are a recurring theme in the history of building regulations in Mumbai. ⁸

Debates over building regulations were reinvigorated after the plague of 1898, when the Bombay Improvement Trust was set up to enact urban renewal and slum clearance. The Trust was a technocratic agency and could take the sort of peremptory action that the Municipal Corporation’s more democratic and deliberative organisational setup gummed up. The Chairman of the Trust complained that ‘any restriction of an owner’s right to build upon his old plinth [is seen] as confiscation and any interference with a poor man’s choice of dwelling place as grandmotherly and tyrannical’. ⁹ After much debate, the instrument of the light plane was adopted in 1919, and mandated a 63.5°‘angle at which light … will strike the floor’. ¹⁰ This instrument remained in place till the 1940s. ¹¹

To sum up, building heights in the colonial period were prescribed as metres or light plane, making this a prescriptive regulation framed as a standard. And conflicts, controversies, problems of enforceability and corruption have been an issue since its earliest history and can be read in the newspaper even today.

Mixed-economy till the 1980s: A regime of exemptions

During the 1940s and 1950s, Bombay’s population increased by 66% – the highest decadal growth rate of the last century – resulting in a widely commented on housing shortage. ¹² From the late 1940s to roughly the late 1980s, India instituted a ‘mixed economy’ (a mix of capitalism and socialism), which included a strict rationing and licensing regime. Legislation was passed in Maharashtra (the state where Mumbai is located) to restrict construction, control rents, set ceilings on land ownership, and limit speculative investment and excess profits from land. The period is difficult to characterise with a single phrase and is often referred to as one of mixed economy, state interventionism, and statist developmentalism (Kohli, 2004: 221; 2009: 188).

Archival research conducted for this paper shows that from at least the late 1940s, a number of ‘requests’ or ‘representations’ were made by landowners and builders to construct additional storeys to existing buildings. These petitions were not calls to deregulate building height regulations, but personal appeals for ad hoc exemptions. In response to these requests, the government ‘sanctioned’ temporary citywide ‘concessions’ that allowed for the building of additional floors. The first such concession was granted in 1948 for five years, re-authorised in 1953 and 1956. The policy objective was ‘to stimulate maximum amount of housing within the shortest possible time’. ¹³ Granting such a concession to a prescriptive regulation raised the question within the government of whether an additional ground rent, fine, property assessment or other ‘premium’ could or should be charged for such a concession. The question of such premiums has been repeatedly raised since then whenever an easing of height restrictions is considered by the government. The premium was ruled to be legally unleviable. ¹⁴ Not morally unleviable though; in 1956, a Revenue Department internal memo said –‘Morally, therefore, if Government tried to get a reasonable additional ground rent, the attempt will not be un-justified. [Plot-holders are] clamouring for permission to build additional storeys … the mere fact that they have asked for such permission goes to indicate that they are of the view that permission is required and that they may be willing to pay a reasonable amount as additional ground rent, if they feel that the permission is likely to be withheld or even delayed.’ ¹⁵ Thus, the charging of a premium was deemed morally justified, but legally infeasible – it was also noted that the inability to charge such a premium was ‘to the disadvantage of Govt’. ¹⁶ The government was starting to see concessions or exemptions to building heights as having revenue implications. This is a crucial moment for policy evolution. And although these concessions were seen as problematic since, as noted in an internal government file of the Revenue Department, the ‘irregular structures so constructed will be a permanent nuisance and liability’, ¹⁷ the concessions became routine.

From the late 1950s, building heights were no longer prescribed in metres or light planes, but in the more flexible metric of Floor Space Index or FSI. FSI, called FAR or floor area ratio in other countries, was formally included in the 1964 Development Plan, although it was under consideration as early as 1959 (Times of India, 1959). The Development Plan was accompanied by Development Control Rules, which included FSI. Floor Space Index was defined as ‘a modern yardstick to control the volume of buildings’ (Development Plan for Greater Bombay, 1964: 147). FSI regulates building height, or more precisely the volume or bulk of the built environment, and, in principle, regulates population density (the relationship of density and FSI is, however, contested; see MCGM, 2015; Patel et al., 2007). FSI is, the ratio of total built-up area (excluding areas defined in planning regulations) to total plot area. An FSI of 1 implies that if an entire plot is built upon, the developer can build one floor. If 50% of the plot is left as open space, the developer can build two floors, and so on.

In 1963, a government committee was convened by the state of Maharashtra to fix an appropriate FSI for Bombay. The committee included officials from the revenue department, public health and municipal corporation, engineers and state architects – with greater weight given to the regional rather than local jurisdiction. The 1966 Maharashtra Regional and Town Planning Act mandated the municipality as the competent authority for the formulation of development plans and FSI rules. However, state ministries have discretionary and veto powers, and could introduce exemptions into these rules. In the 1963 committee, the municipal corporation appears to have been side-lined, and was not present for key decisions. The committee proposed to ease FSI restrictions, which they said had become ‘outdated… [and] would have to be relaxed with suitable safeguards’. ¹⁸ This easing of FSI restrictions was proposed for the southern city and particularly for the Back Bay Reclamation area (where the CBD and historic city centre are) – this was land reclaimed from the sea where both state and private actors had ‘growth machine’ interests for intensifying urban development. The FSI proposed for this area was between 2.45 and 3.5. For the northern city (the ‘suburbs’) a lower FSI was proposed, at 1.33. The ‘guiding principles’ for fixing FSI included water supply, drainage, transport, community facilities, and living space standards. This is a more detailed list than that used in the colonial era, where building height standards focused largely on light and ventilation. Planners privileged service provision and infrastructural carrying capacity in determining FSI. There was also an overall policy focus on managing the population of Bombay – as the Development Plan of 1964 noted, ‘there should be a limit to the size of a metropolitan area’ (p. 149). FSI was introduced as part of a technocratic and optimistic guessing-game of population projections. ‘Based on these FSIs the Corporation has arrived at a figure of maximum population of 34 lakhs in the city by 1980’ (Development Plan for Greater Bombay, 1964: 16). FSI thus became seen as an instrument to control the population densities of municipal wards and the entire city, compared with colonial building height regulations that focused on light and air for rooms and houses. As mentioned earlier, Mumbai’s FSI levels are considered to be too restrictive, and seen as a major distortion in the housing market. However, these low FSI levels on paper exist alongside a range of exemptions and incentive-based concessions in practice. This paper does not make any claims about the effects of FSI or its exemptions on housing supply or prices. Although economic theory associates restrictive building regulations with high prices, regulatory price effects are difficult to analyse due to inadequate data and identification problems (see Gyourko and Molloy, 2015). Tracing the history of FSI could provide contextual information for future analyses on this subject.

With the advent of FSI, the discourse and modalities of concessions to building height restrictions changed. Mittal, a well-known developer, asked the government to ‘please allow me to utilize the FSI for … the plot which has been acquired … for road widening’. ¹⁹ For relinquishing his land for road widening (a public purpose), he was offered FSI on another plot of land. Demands for ‘additional FSI’ or ‘utilising’ of FSI (e.g. if a building does not ‘consume’ all the FSI allocated to that plot) indicates a shift in how height restrictions were conceived by developers and the state. Part of this shift emerged from developers’ appeals and petitions, and shows how policy ideas were circulating between state and society. These petitions and requests from societal actors provide evidence for endogenous institutional change, generated from within domestic or local institutions and discourse. Another petition in 1969 from a firm of architects asked the government for excess FSI to enable their clients ‘to augment their income therefrom and thus giving an incentive […] to undertake the work of repair’. ²⁰ This was likely to have been a rent-controlled building given its vintage. Previous repairs mandated by the municipality had created structural faults that the landlord wanted to repair. The petition claimed that repairs could only be financed with additional FSI. In response to this petition, a hand-written comment in the file in the Revenue Department notes: ‘Increased FSI is demanded so as to give inducement of incentive to the owners of the building to carry out major repairs …’ (emphasis added). ²¹ This is one of the earliest uses of the idea of ‘incentive’ in relation to FSI that I have found. It is possible that some Bombay landlords were translating policy ideas from other countries. These policy ideas were not, however, imposed by the local state, but were used and adapted by local actors to local conditions.

The idea of incentive FSI for slum redevelopment, a well-known policy tool today, appeared as early as 1970. ²² Then in 1972, the idea was proposed that an ‘enterprising builder’ could build multi-storey buildings to house those living in slum structures and utilise the remaining plot area for buildings to be sold at market rates (Times of India, 1972). In 1979, a committee of builders proposed a policy similar to the 1995 Slum Redevelopment policy, which explicitly uses FSI and TDR as incentives (see next section). The builders recommended that the development control rules be ‘relaxed’ for slum redevelopment, implying exemptions to FSI rules for a specific purpose rather than a wholesale deregulation (Dharmarajan, 1979). It is possible that deregulation was not an option on the policy table, and builders accordingly attempted to gain targeted exemptions. It is also possible that builders preferred targeted exemptions rather than deregulation that would open up competition. This tension between deregulation and targeted exemptions continues today. In addition to the examples above of slum redevelopment, road widening, and building repairs, an ‘FSI concession for reservations’ was also in place by 1975 (Times of India, 1975c). A ‘reservation’ is the earmarking of a plot for a public purpose (e.g. a school or park) in the Development Plan, and is an eminent domain issue. Thus, an urban regime based around incentives slowly emerged, where a prescriptive regulation (FSI) co-existed with a range of state-mandated exemptions and concessions for special purposes (see Gururani, 2013, for ‘flexible planning’ in India; Ellickson, 1973; Valverde, 2011, for exemptions in the US).

While the additional storey concessions of the 1950s were meant to do just that (construct another floor), the FSI exemptions and grants from the late 1960s related disparate objectives to each other. This created a more flexible policy instrument that, like money, could be made commensurable across diverse domains (e.g. connecting road widening or slum redevelopment with building regulations) (see MacKenzie, 2009, for commensuration in carbon markets; Yang and Chang, 2018, for incentive uses of TDR in Taipei in the 1990s). Ad hoc concessions granted to individuals evolved into a discourse about using height restrictions and their exemptions to achieve urban development goals and compensate individual landowners for ‘takings’. Now FSI could be ‘granted’ to a developer as an incentive for various public goals in a way that building heights were not granted. To build infrastructure or attain other goals, the state ‘creates the floor area ex nihilo and bestows it upon the developer’ (Costonis, 1972: 576, writing about the US). Since FSI regulated floor space in an increasingly expensive city, a discretionary allocation of FSI was akin to an allocation of land. FSI was no longer a command-and-control regulation, but state largesse. Although land is a fixed resource, floor space is not, and governments can modulate the floor space index to ‘create’ more land. However, there were unintended consequences to the new idea of FSI as a resource to be allocated –‘irregularities in granting FSI’ and ‘FSI frauds’ quickly emerged (Thakkar, 1996: 262). FSI became mired in scandals, allegations of malfeasance, and anti-corruption investigations.

Amongst these irregularities was a short-lived, much-criticised policy instrument called ‘floating FSI’, of the mid-1970s. It had similarities to TDR although it was not market-based. It was criticised for ‘irregularities’ and allegations of ‘collusion’ between government and developers and was withdrawn (Fernandes, 1978; Times of India, 1975a). It worked as follows: if a landlord handed over land to the government (e.g. for a public purpose), they could utilise the relinquished FSI on a contiguous plot. The controversy arose because landlords were giving up land in the cheap suburbs, and ‘floating’ FSI into more expensive areas. During field-research, policy-makers still talked about floating FSI. Various actors protested against floating FSI – for instance, small builders said that it favoured larger builders (Times of India, 1975b). Some factions of the municipality argued in 1975 that this instrument had ‘flagrantly violated development control rules’ (by granting discretionary FSI exemptions) (Times of India, 1975c). It was said that ‘[E]very flat built on a fake, stolen or floating FSI figure means increased congestion, more traffic bottlenecks and an unbearable burden on the already badly stretched civic infrastructure’ (Times of India, 1984). Floating FSI prefigures TDR because it disembedded development potential from a point in space and allowed it to be floated elsewhere. It also highlighted the potential for misuse in the new flexible FSI, and influenced instrument design for TDR.

To sum up, in the mixed-economy period, building heights were prescribed in the more flexible metric of FSI. This policy instrument increasingly became an incentive for the accomplishment of urban development goals. This disembedding of FSI from a strict regulatory standard created the ideational infrastructure on which TDR could be built.

Post-liberalisation: Markets for concessions

In 1991, the urban planning tool of Transferable Development Rights (TDR) was introduced in Mumbai. The date is interesting as 1991 marks the formal date of India’s national-level liberalisation reforms. As this paper demonstrates, the seeds of TDR were sown far earlier and are not a consequence of liberalisation. TDR is a ‘negotiable instrument’ and thus ‘functions as a kind of money’ (Carruthers and Stinchcombe, 1999: 361). TDR is a diverse set of tools formulated differently in different cities – the common core is that TDR separates the right to develop land from a specific location (McConnell et al., 2006). TDR is defined in Mumbai as follows: ‘In certain circumstances, the development potential of a plot of land may be separated from the land itself and may be made available to the owner of the land in the form of (TDR).’ ²³ A senior official in the housing development authority explained TDR as ‘de facto land’ because by purchasing DRs (development rights) from those who hold them, a builder can legally subvert FSI rules and build more floor space (Interview, 17 June 2010). Given the high cost of land in Mumbai, TDR is a mechanism to ‘create’ land – rather, to create floor space – by creating a market for concessions to FSI rules. In this way the political economy of land is linked to that of floor space. This section shows the final steps in how building heights became financialised, and outlines recent developments.

The design of TDR in Mumbai was motivated by the state’s constant need to acquire land for the construction of place-based public goods (such as roads and schools). DT Joseph, who was Maharashtra’s Secretary of Urban Development when TDR was introduced in 1991, said in an interview with the author that the ‘sole motive’ for TDR was the implementation of the development plan. In contrast, most American cities use TDR for heritage, natural conservation, and growth controls (Nainan, 2008). Joseph said that TDR provided an alternative to cash compensation and this policy innovation was sold to developers and landowners as ‘flexibility in land use’ (Interview, June 2010). Urban policies such as rent control and land ceilings from the mixed economy period negatively impacted state revenues (Nainan, 2008). TDR enabled the state to acquire land without having to dip into its own coffers, and (potentially) avoid the labyrinthine legal complications that often arise in land acquisition. TDR followed from the flexibilisation of FSI and its ‘granting’ or ‘floating’ around Mumbai.

It is at this point in the historical trajectory that external influences on the financialisation of floor space are most apparent. The name itself –‘TDR’– reflects policy borrowing from other places. During field-research, V Phatak (retired chief-planner of the regional planning authority, MMRDA) said that he gave an American planning article on TDR to municipal policy-makers in the mid-1980s. He also noted that an urban planner with experience of US regulations was consulted during the framing of TDR (Interview, June 2016). Together with these borrowings, TDR continued to intersect with the local context.

The introduction of TDR in 1991 was immediately challenged in court by the Bombay Environmental Action Group (BEAG), trade unions, and a housing NGO called Nivara Hakk Suraksha Samiti. They claimed that as a negotiable instrument TDR should be the purview of Parliament rather than regional government (Times of India, 1991). This objection was deemed a legal technicality and dismissed by the courts. Underlying this objection was a distrust of high FSI (whether as grant or sale of TDR) as an unnecessary give-away to elite developers. This distrust continues today and was part of the protest against the Development Plan in 2015 – the Plan proposed an increase in FSI to ‘establish a framework within which market can competitively operate’ (MCGM, 2015: 312). The critique of high FSI is expressed by some local architects (Das, 2003) and academics who interpret TDR as a ‘weapon’ that wrests space from the poor (Rao, 2007: 244).

In Mumbai, development rights (DRs) are said to be ‘generated’ through the actions taken towards the implementation of the Development Plan. For example, if a landowner gives up a plot of land to the government for a public purpose, a development right in terms of equivalent floor space is generated. The language of ‘generating’ is notable – instead of a regulation that restricts height, TDR represents a currency created through actions mandated by the state. This generated TDR can then be ‘loaded’ in another plot of land with some restrictions, or sold on the TDR market. To prevent speculation, until 2016 TDR was to be loaded northward of where it was generated (since the north of Mumbai is less expensive), avoiding certain zones, and subject to a maximum FSI (Nainan, 2008). These rules overcome some of the drawbacks of earlier policies like floating FSI.

The rate at which land that is relinquished is converted into TDR can be tweaked by the state to further incentivise particular development goals. There are various types of TDR – for example, road TDR (generated by giving up land for road widening), slum TDR (generated through the slum redevelopment programme), reservation TDR (generated by developing plots earmarked for particular uses). Slum redevelopment quickly became the most important and contentious incentive use of TDR, with a municipal engineer noting that it was on a ‘higher pedestal’ than other types of TDR (Interview, June 2006).

A critical juncture in the history of TDR was the election of the Shiv Sena and BJP coalition in the 1995 Maharashtra state elections. Their election manifesto promised ‘free housing to 40 lakh hutment dwellers’ or 4 million residents (Government of Maharashtra, 1997). To realise this promise, TDR was pressed into action. As the previous section showed, the idea of incentive FSI for slum redevelopment existed as early as the 1970s – however, it was the slum redevelopment programme of 1995 that fully realised this possibility. TDR provided the crucial component: a developer could, with consent from at least 70% of the residents of an informal settlement, construct free housing for residents (see Nijman, 2008; Weinstein, 2014, for more details). Since informal settlements have an FSI of 1 (single-storey structures, minimal open space), the developer could consolidate residents of the existing settlement into a multi-storey building. The land thus freed up would be available to construct market-rate apartments. If the density of the pre-redeveloped plot was already higher than permissible, or the construction of redevelopment apartments exhausted the permissible FSI in the plot, the remaining FSI could be generated as TDR and sold in the TDR market. To further incentivise slum redevelopment, 20% of the TDR used in any real estate project had to be slum TDR, and slum TDR could be used in zones prohibited for other TDR use. It was noted that 80% of all informal settlements could be redeveloped through this programme, indicating a massive potential for the generation of TDR (Government of Maharashtra, 1997). In reality, the implementation has been slow, and evidence suggests spatial unevenness in the generation and use of TDR with concerns about over-densification and infrastructure shortfalls (Nainan, 2008). As an official from a parastatal housing agency reported during fieldwork, slums are a ‘source of land’ that is not on the market directly but available through TDR (Interview, June 2009). Another official in the same agency agreed, saying that TDR brings slum land ‘into the mainstream’ (Interview, June 2009). TDR is also being used to promote rental housing in Mumbai (Jose, 2017). Parastatal agencies can generate slum TDR when they undertake redevelopment projects and can sell TDR to generate revenue (Phadke, 2015). Developers can take loans against the prospective value of the TDR that will be generated in a project. Through such practices, FSI has been converted from a regulatory standard into a financial asset that can be traded and used as collateral.

The TDR market developed rapidly and property value registers started to include the price of TDR in different areas of Mumbai. Prices fluctuated based on the release of TDR into the market or due to hoarding (Gandhi and Phatak, 2016; Nainan, 2008). The state argued in 2008 that this hoarding amounted to a cartel. Ostensibly to counter this, the state raised the FSI limit on the condition that the extra FSI was bought from the state, through payment of a ‘premium’, rather than from the TDR market. The premium price was less than the prevailing market rate of TDR, setting the state up in direct competition with TDR holders. TDR and FSI are intrinsically linked: actors with interests in the TDR market have an interest in low FSI because when the government relaxes FSI levels, the TDR market loses value. In addition, a real-estate consultant mentioned that there are fewer transaction costs in buying premium FSI from the state than in buying TDR from the TDR market (Interview, June 2016). Earnings from this premium FSI are included in the state’s budget estimates (shared between the state and municipality; see Gandhi and Phatak, 2016). Thus, the state has fiscal interests in avoiding citywide deregulation of FSI and instead selling concessions to developers (Issar, 2020). From the earlier colonial focus on mitigating externalities (i.e. concerns with public health and the built environment), the current policy regime is driven by fiscal considerations.

In response, petitioners self-identifying as ‘civil society’ filed a writ petition challenging the state’s charging of this premium. ²⁴ Note that this is the same question as in the mixed-economy period, of whether a premium is legally leviable. The petitioners asserted that the state was setting itself up as a competitor in the TDR market, that it ‘intends to become “dealer” or “trader” of FSI and make profits by driving TDR holders out of the market and take over such business from them’ (see note 24, p. 10). TDR ‘holders’ and brokers were thus a new constituency invested in the new market for floor space exemptions. The High Court sided with the petitioners, and the state’s ability to charge this premium was deemed illegal. The state overturned the court judgement through legislation, providing the requisite ‘legal backing’ to the dual existence of premium FSI and TDR (Gandhi and Phatak, 2016: 36).

Both premium FSI and TDR create constituencies for low FSI – in the first case, the state and municipality, and in the second, TDR holders. While the textual values of FSI remain low in Mumbai, construction via its exemptions generates significant built-up space. The use of TDR has generated an estimated 130 million square feet between 1997 and 2017, of which 84 million square feet were generated through the slum redevelopment process (Bharucha, 2017). Since exemptions also come in the form of premium FSI and FSI grants, the total built-up space generated through different FSI exemptions is significantly higher than this estimate. The low textual levels of FSI invoked by deregulationists do not tell the full story of housing supply in Mumbai.

The introduction of TDR and premium FSI has made deregulation of FSI politically contentious. Regulating floor space now involves FSI as a standard as well as various incentives, premiums, and TDR-based exemptions. Today ‘incentive FSI’ is almost a portmanteau – these two words often appear together. Other portmanteaus – compensatory FSI, additional FSI, fungible FSI, concessional FSI, extra FSI, bonus FSI, premium FSI – carry similar meanings. These conjunctions reflect a policy that is always linked to its exemptions. From this original historical research into FSI, we can see that the discourse around FSI shifted – FSI was now allocated, granted, utilised, consumed, loaded, or there could be excess of it that could be used elsewhere. These are important shifts in language reflecting shifts in practice – FSI is no longer a prohibition or standard stated in metres or light angles. Instead, one uses it, consumes it, buys it, loads it, piles it up.

This is an evolving history, which continues to intersect with a changing political and economic context. In the 2015 Development Plan, the state had increased FSI – not through citywide deregulation but through the payment of revenue-generating premiums. In 2021, to boost the real estate sector during the global pandemic, the state reduced FSI premiums rather than deregulating the absolute levels of FSI (Thomas, 2021). That is, the state continues to maintain exemptions to FSI as a revocable incentive that can be (re)calibrated in the face of changing circumstances.

Discussion

What can a policy history of one city tell us? Is this story of the financialisation of floor space ‘generalisable’? Although empirical details and events are context-specific, the mechanisms identified can be extended to and tested in other cities. Form-based codes, such as building height regulations, are common across the world. A history of building regulations in Mumbai can advance comparative urbanism, by serving as a framework for research on other cities where FSI or FAR is a hybrid instrument. The first learning from this research is that urban policy instruments can have very long histories, and any attempt to understand their effects must account for policy legacies. The common impetus for zoning and building regulations in many cities was concerns about public health emerging by the 1850s (Fischel, 2004; Valverde, 2011). This policy history suggests that over time the policy instrument of building heights became flexibilised and adapted to diverse uses and public goals (slum redevelopment, green spaces, heritage conservation). Financialisation through the emergence of the TDR market is the most recent step in this process of flexibilisation. Similar processes are evident elsewhere – for example, Yang and Chang (2018) writing about TDR in Taipei note the use of TDR for diverse public goals, as a source of state revenue, implicated in developers’ financing strategies and beset by conflicts and irregularities.

Combining FSI with various exemptions and a financialised TDR market creates a hybrid instrument that combines regulation, fee and incentive. There is FSI as a regulatory standard, TDR as a market-based incentive or tradable permit generated through specific actions, and premium FSI which has the nature of a fee. The state plays an important role in the commodification and financialisation of floor space – especially by delineating the actions that generate TDR. A testable hypothesis that emerges is that a hybrid policy instrument creates multiple constituencies. As a result, changes to one component of the instrument affect other components and other constituencies. For practitioners interested in policy change, any proposal for policy change would have to contend with these multiple constituencies. A deregulation of FSI, recommended by economists, might benefit some developers, but negatively impact TDR holders and state revenue. Financialisation has created a hybrid instrument that mediates further policy change: this pattern is also seen in Taipei by Yang and Chang (2018) and can be tested in other cities.

Finally, exemptions, variances and the use of incentive instruments are common in affordable housing programmes around the world, as zoning bonuses, density bonuses, tax breaks and so on. Such incentives are all marked by the evolution from a standard to an incentive. Building code exemptions and variances of various kinds suggest that textual values and actual existing built environment might be in disjuncture (Durst and Wegmann, 2017; Valverde, 2011). Methodologically, the presence of exemptions suggests that the effects of building regulations on housing supply and prices must include such exemptions and not just focus on textual levels.

Conclusion

This paper explores the history of floor space policies, analysing instrument design, the actors and state agencies involved, key moments and policy debates in Mumbai over more than a hundred years. There was a shift in instrument design over time – from height, to light angles, to FSI, to floating FSI, to financialised FSI as TDR. There was an attendant shift in discourse – from public health, to controlling urban density, to a regime of exemptions that linked the instrument to diverse state-mandated goals. The shift from a command-and-control policy to a financialised policy instrument was local, endogenous, gradual, and conflictual. A hybrid instrument emerged, where the regulatory standard (FSI) remains in place, together with a TDR market and the selling of concessions by the state. This hybridity has created constituencies invested in low FSI and a regime of exceptions, variances and concessions mediating future institutional change.

This paper adds to the emerging empirical evidence on urban policy histories in developing world cities. Such a historical analysis is important for academic and policy debates about urban regulations. Tracing out instrument history challenges assumptions about the influence of neoliberalism or market opening. The original archival research conducted for this paper indicates that the financialisation of regulatory instruments and the emergence of market-based instruments was gradual and preceded shifts towards liberalisation. Contrary to assumptions that floor space instruments are apolitical and determined by the subjective opinions of planners, this research shows that this policy instrument has been politically contentious from the start, including such conflicts as: the resistance of landlords in the 1870s, the intra-state conflict over building regulations from 1898 through the early 1900s, floating FSI and its irregularities in the 1970s and 1980s, the legal battle over the introduction of TDR in 1991, the allegations that the TDR market was a cartel in 2008, and the protests over the Development Plan in 2015. Policy change is not just a technical matter and can elicit resistance from local stakeholders. Policy recommendations about building regulations in developing world cities are often based on inadequate data and under-researched policy histories. Such recommendations ignore the use of floor space rules as a policy lever, incentive, and market instrument by local governments. To understand the political economy of floor space, we must account for its historical, contentious and exemption-driven nature.