Futuristic economic reforms in RERA Act, 2016: ‘Internalizing negative externalities in housing sector for achieving sustainable and balanced growth’ Patil Shubhada1,*, Aneja Paras2,** 1Ph.D. Scholar, NMIMS University, Mumbai, Maharashtra, India 2Assistant Professor, Seedling School of Law and Governance, Jaipur National University, Jaipur, Rajasthan, India *Email id: shubhada.patil@gmail.com
**parasaneja@jnujaipur.ac.in
Online Published on 28 February, 2024. Abstract Real estate sector also create by-product that is environmental pollution. Research paper examines efficient allocation of scarce resources in realestate sector and their pricing dynamics. It breakthroughs into efficient allocation of TDR and dynamically analyses impact of FSI premiums on environment (environment cost) and affordable housing (social cost). ‘Equilibrium of supply and demand’ ensures efficient allocation of resources. To use Adam Smith’s favourite metaphor, the “invisible hand” of the marketplace leads self-interested buyers and sellers in a market to maximize the total benefit that society derives from that market. This insight is basis of principles of economics. Markets are usually a good way to organize economic activities. ‘Invisible hand’ of market prevents builder firms from emitting too much pollution and efficiently allocates resources. However, so not case always. Markets do many thing well but they do not do everything well. Government can achieve sustainable development through reformative measures that will improve market outcome. Present research paper analyses and contemplate how sometimes real estate sector fails to allocate resources efficiently, how government policies (reformative changes in RERA Act) can potentially improve scarce resources allocation in real estate sector. Research paper presents new accounting technique for FSI allocation, dynamic pricing techniques for TDR, reality sector market reforms through regulatory measures, technological upgradation for achieving sustainable development. The market failure examined in this research paper falls under principle of externality. An externality arises when a person engages in an activity that influences adversity (negative externality) of bystander and yet neither receives any compensation for that effect. In the presence of externalities, society’s interest in market outcome extends beyond the well-being of buyers and sellers who participate in the market; because buyers and sellers neglect the external effect of their outcome, the equilibrium fails to maximize the total benefit to society as a whole. However policy makers can work upon such externalities through corrective reforms of internalizing externality by setting up reformative market. Such market structure helps in internalizing externalities (positive, negative). Current research paper suggests such corrective market dynamic reforms in real estate sector taking into consideration social Costas well as environmental cost. Such reformative measures will ultimately lead housing sector towards balanced and sustainable development. Sustainable development can be achieved based on ‘polluter pays’ principle altering incentives so that people take into account external effects of their actions. How can social planner achieve the optimal outcome in real estate sector? The research paper contemplates that, by adopting inclusive registration, other RERA charges, FSI premiums, TDR market rates with reformative share market of sale and purchase between Seller (government) and buyer (allottee) for internalizing externality for achieving balanced growth. Research paper suggests technological reforms for calculation of such charges and corrective pricing techniques (inclusive of social and environmental cost) while allocating FSI and purchase of TDR in real estate sector. Builder /real estate sector developers would in essence, take the cost of pollution into account when deciding how much housing to supply because appropriate charges would make them pay for corrective external costs. This will also take into consideration different pricing of housing for different economic background consumers (willingness as well as capacity to buy houses) that will help to internalize social cost in Real Estate Sector. Because the market price would reflect the social cost for buyers now builders would have incentive for efficient allocation of resources. The policy is based on one of the ten principles of economics: people respond to incentives. Research paper enlightens in more detail how policymaker can achieve this favourable outcome and can deal with externalities in efficient manner. Top Keywords Negative externality, Polluter pay principle, Internalizing externality, Balanced growth, RERA. Top |