Whether It Is Homes Or Cars, Here’s Why We Need To Rethink Ownership

Anand Mahindra, the charismatic chief of the Mahindra & Mahindra group, wants to get into the ride hailing business, a business now dominated by pure-play app-based companies like Ola and Uber in India.

He is bang on. The reality is that the world is slowly moving on from an ownership-based society, where we wanted to own almost everything we use, to one that is user-based, as columnist Santosh Desai presciently pointed out in an article some months ago.

There is actually no need to own a car or a house or even a piece of software (which is why we having cloud computing in the first place) when it can be hired for a reasonable price for the time it is useful. Given congested roads and the high cost of ownership (huge capital costs, interest servicing costs, and the costs of maintenance and repair), it actually is cheaper to hire a car and ride anywhere rather than own one. The Times of India quotes Mahindra as saying that his own daughters had “no intention of owning a car for commuting. This reality is now at home.”

So, if he gets into ride-hailing services, Mahindra is essentially trying to insure his company’s future, where car buyers will mostly be commercial fleet owners or even private owners running a taxi service for monthly earnings.

In this context, it is worrying that the Union transport ministry is throwing cold water on a Niti Aayog proposal to allow private cars to become part of the ride-hailing pool. Its excuse for being obstructionist is that this would impact the livelihoods of five million taxi owners “who have paid commercial duties and permit fees to run taxis. Their employment cannot be endangered…and allowing private cars would be something like doing away with the concept of taxis”, The Economic Times quotes an unnamed official in the ministry as saying.

This is Luddite thinking. The right way to weigh a new policy is not how it will impact existing players and vested interests, but how it will generate positive externalities for the whole community. It does not mean tilting the field against existing taxi owners, but levelling it by making sure that any private car that becomes part of a ride hailing service also pays the same licence and other fees (including insurance) as current fleet and individual taxi owners.

Once the field is levelled, many car owners may choose to not go commercial, but some surely will. While this means more competition for taxi owners, it will also expand the demand for private car drivers and garage services as more owners convert their vehicles to mixed use – personal and commercial. Jobs will increase if the pool of private cars becomes commercialised.

In an over leveraged world, all assets need to be sweated more in order to deliver value for money spent in acquiring ownership.

In a world where regular jobs are shrinking and being replaced by contractual or short-involvement gigs, it makes even less sense to own a house or a car when income streams may become irregular. It is worrying when young people (even Dinks – double-income-no-kids) spend crores on overvalued homes whose rental yields are less than a savings bank account which pays four per cent. In most Indian cities, it is better to rent a home in the early years of one’s work life than buy an overpriced one; buying a home makes most sense when you are older, and your savings and incomes are stable or enough to pay for the psychological advantage of “settling down”. Buying a house when you may move jobs and cities many times in a career, or even lose them temporarily, is folly.

Large furniture leasing companies have also begun operations, making moving home cheaper and less troublesome than in the past.

Even companies need to reconsider the value of ownership versus leasing. Airline companies already sell planes and lease them back to improve cash flows. Giant office blocks make no sense unless you actually have permanent staff to fill them, but in a world where administrative work can increasingly be automated, one should reconsider the value of owning large corporate headquarters, especially when most work is being digitised and can be performed from a remote location. When payments are digitised, banks will need fewer owned locations for branches and housing ATMs.

We are clearly heading towards a non-ownership economy in the age of use-based value delivery rather than ownership-based valuations.

Of course, it is all too human to want to own something, but half the problem is because we don’t seem to consider the real costs of ownership and tend to think of every costly acquisition as an “investment”. A house or car are not investments, they are depreciating assets. The value of the land may be an appreciating asset, but this value is determined by policy. Land values depend not just on demand, but also supply policies. Increase the amount of building that can take place on a piece of land and its value changes. Reduce it, and its value falls. The same piece of land can have different values based on land use and building permit policies.

For the brave new world of transient jobs and transient fortunes of companies, the ownership economy is a luxury that needs extraordinary justification.