How The Model Tenancy Act Aims To Solve The Paradox Of Shortage Of Houses Despite Large Stock Of Vacant Houses

Cities across India are faced with the paradox of shortage in housing units despite availability of vacant housing in these cities.

According to the report of the technical group of 12th plan period (2012-17), there was a housing shortage of 18.78 million units. Although there has been a steady rise in proportion of population living in urban areas over decades from 18 per cent in 1961 to 31 per cent, there has been a steep fall in the proportion of people living in rented accommodation in urban areas from 52 per cent in 1961 to 28 per cent in the 2011 census.

This shortage of rental accommodation pinches people living at the bottom of the economic or social ladder. But at the same time, there are millions of housing units lying vacant.

As per the latest census, there is a shortage of over 11 million vacant housing units. A research report has analysed that the proportion of such vacant stock is as high as 20 per cent of the total housing stock in some cities.

Several government reports over the years have flagged this issue.

According to the National Urban Rental Housing Policy (2015), the probable reasons for this shortage are due to low rental yield, fear of possession, Rent Control Acts in various states and lack of incentives.

The yield rate for Mumbai has been falling from 6 per cent during 2006 to around 1.5 per cent in 2011. Various Rent Control Acts in states set low rent ceilings, which has led to low quality of maintenance of the already less number of houses available for rent.

This has, in turn, led to the preference to own houses rather than rent. But this luxury isn’t available to the weaker sections of society, which do not have a fixed variable income.

Moreover, due to pro-tenant laws in various states, house owners are dis-incentivised from renting out a vacant property.

The Model Tenancy Act 2021 introduced by the Union Government in June this year is aimed at resolving these issues which ail the industry. It does this primarily by formalising rent agreements and removing rent controls.

The Model Act seeks to remove rent controls. It asks the state governments to abolish Rent Control Acts. According to the new Act, the amount of rent would be determined by the owner and the prospective tenant through negotiation.

Thus, it allows rents to be determined by market forces, allowing the sector to become lucrative, as it would not just motivate existing owners to rent out their property, but also attract new investments into this sector.

The Model Act makes formal rent agreements compulsory. The written rent agreement drawn between the owner and tenant must include the amount of rent, the time period for the tenancy, terms and period for revision of rent, security deposit to be paid in advance, reasonable causes for entry of landlord into the premises, and responsibilities to maintain the premises.

The rent agreement must be intimated to the Rent Authority (established through law) within two months of entering into the agreement, after which the Rent Authority would allot a unique ID number for the agreement.

According to the most recent census, a majority of rental housing agreements are conducted informally. An NSSO survey of 2008-09 states that only 5 per cent of rental agreements were formal.

Formalising renting agreements makes both the tenant and the owner eligible to legal remedy in case of grievance.

Apart from these provisions, the Model Act introduces a three tier adjudication process — the Rent Authority, the Rent Court and the Rent Tribunal — at the topmost level.

It also standardises the amount of security deposit payable — at 2 months' rent for residential purposes and six months' rent for other commercial purposes.

By formalising rent agreements and removing rent controls, this strangled sector will be encouraged to expand and also aid the government’s aim to provide Housing for All by 2022.

But success would largely depend on the willingness of state governments and its execution by them. The Karnataka government has already expressed its intent to bring in a new tenancy Act based on the model Act due to the large vacant stock in Bengaluru (3 lakh).

It remains to be seen whether states are proactive towards revamping the urban rental sector in India.