Chasing Ideals Through Yet more policy

-By Akash Shrestha

This article was originally published in The Himalayan Times, 5 July 2015.

News of the Ministry of Urban Development (MoUD) coming up with a building code whereby people will no longer be allowed to set up shutters in their residential houses and rent out their private spaces for commercial purposes is being circulated, especially in the social media. As per the reports, if one wishes to do so, then s/he has to register the building as a commercial building.

The policy discussion might have been fuelled by the observation that a lot of houses that fell during the earthquake were also renting out spaces for commercial activities. If so, then this new policy seems out of place for two reasons: a) it is not quite clear how this new building code will solve the problem, should similar quakes hit the country again in future and b) there are economic implications — unintended consequences — that this policy is very likely to bring.

SOUNDS APPEALING BUT IS IT FEASIBLE?

The first question a common man will have about this policy is, how will the mere fact of having no shutters in residential houses make houses safer in the long run? Common sense dictates that the frame of the house bears its load. The reports on the other hand, seem to hint that walls also support a great chunk of the load — which is why (it might have been argued that) having no shutters would mean that there is more support to the building, making it more earthquake-resilient.

This argument takes for granted the possibility that in case of the residential houses that fell, the frames might not have been set up right and housing ‘norms’ (please note the use of ‘norms’ instead of ‘regulations’) might not have been properly followed. This scenario is also what sounds more appealing to a common man. One can register her/his building as commercial building if they like, but if the structure is not built right, it will just not see us through other big earthquakes — even if we use it only for residential purposes.

However, this article does not intend to go into the nitty-gritties of engineering, for I do not hold any expertise on the subject. It would definitely be worthwhile still, to delve into some of the economic implications this policy change holds.

POLICY IMPLICATIONS

Banning an individual from renting out his space — for whatever reason he sees fit, as long as he and the tenant are okay with the deal they cut — is against the principle of private property. A’s house is his property and he has the economic right to own his property, use his property in any way he sees fit, and trade it (or a portion of it) with another party so long as both parties agree to the terms of trade. Of course, badly built houses can invite unwelcome events — like the houses that fell on top of, or are leaning against a neighbour’s house, like the house that fell and crushed vehicles and people on the road! Then the question would be, ‘how do we minimise these possibilities?’

It would make far greater sense, to have the local communities deciding for themselves, what local norms a house-owner might have to abide by, if s/he is to live in that community. Private property also comes with a responsibility, and it makes sense to have local communities come up with their own solutions under these circumstances. There are lessons to be learned from other countries, in this regard. For example, the way the Home Owners’ Association regulates the housing norms in parts of the USA. In the absence of such community institution in Nepal, one alternative could be that the ward offices serve as the institution where the members of the community get to voice their terms. Then following the majority voice, the local administration enforces the community designed regulation, instead of the state enforcing a blanket regulation.

But when the cabinet endorses the law, it goes beyond the case of an individual’s private property right or a community’s preference. When a building has to be built as a commercial building, there are additional costs associated with it. There are minimum setback criteria, there are different tax codes, and most importantly, there is suddenly a big shift in the number of available rentable spaces (supply). All these costs are eventually transferred to the consumers.

DEMAND SUPPLY MISMATCH

With the wholesale and retail trade occupying close to 15 per cent share of GDP as of 2014/15, a lot of people in Nepal, especially major cities like Kathmandu depend on the retail trade as their primary occupation. Mom-and-pop stores (kirana pasals), stationeries, clothing stores, hotels, et cetera are some of the more popular options of economic activity for people who have relatively lesser education and possess very little technical expertise in Nepal. As the relative supply of shutters rentable to these people go down, and as the cost of building such commercial buildings goes up, the rents will then follow suit. On one hand, we are arguing that rents in places like Kathmandu are too high already, and on the other hand, we are introducing policies that will increase the rents even further.

This demand-supply mismatch and increase in rents alone will have a two-fold effect (at least). It means, in effect, that we cut-down on the economic opportunities available for the lower-class people in the country, mostly the cities. Also, as rents go up, the price of products will go up — a classic case of cost-push inflation. It will eventually be the poor people who suffer, with no economic opportunities and unaffordable prices. Like most policies we make in Nepal, one major problem with this new clause in the building code (that all these reports are talking about) is our longing for that ideal scenario. It sounds tempting to have well-devised building codes which in turn, lead to well-planned cities. But what also is equally important is to have policies that are implementable. Otherwise, what use is a “great policy (?)” that nobody can implement? And even if the state implements it by force, against these ground realities, it only has in store, the unintended consequences.