Whose Value, Whose City? Speculative Land Markets and the Socialized Costs of the Dharavi Redevelopment

Urban informality refers to arrangements that exist outside of a formal legal property rights network or framework. 62.6% of the population lives in slum-like conditions - a massive jump from the 2011 census number of 42% (Arora, T, 2023). A large number of households depend on forms of tenure that do not fit within the formal regulatory framework. By this, I do not simply suggest illegal occupation, but rather unregistered rentals (some even on verbal agreement), occupancy without legal titles, collective claims on land, and regularizable settlements that are partially serviced. These may or may not possess power of attorney documents, but not title deeds, outside of this. Informality can be seen as a system of internally negotiated order providing a livelihood to those whom the formal markets failed to serve. We can also further argue that the state itself may produce informality (Roy,2005) since law and order in these areas are selectively enforced and have punctuated policy shifts often with sporadic political intent/motivations. Formal land and housing markets fail to supply affordable homes and keep up with incremental growth to support migrant populations, especially in a city like Mumbai. The presence of urban informality is an ode to deeper structural issues in governance, such as problems caused by speculative land marketers, exclusionary zoning, unequal (or absent) access to land, or slow planning processes (Roy, 2005). One, however, cannot dismiss the economic necessity generated through informal markets. A rough back-of-the-envelope calculation by Dharavi residents put total revenue generation at 1,500-2,000 crore per year, with a daily turnout of at least five crore (SPARC&KRVIA,2008). This clearly shows us the scale; Dharavi isn't just a slum economy, but an industrial cluster that actively supports and sustains affordability. If one were to formalise Dharavi, one cannot dismiss these livelihoods. Redevelopment and formalisation must try to preserve the informal economy’s growth and potential rather than destroy and stunt it. 

Credits: Citizen Matters

The Dharavi Redevelopment Project

The original Dharavi Redevelopment Project organised Dharavi into five sectors and invited global consortia to provide free housing to eligible residents (insert eligibility criteria) in exchange for a floor space index as an incentive. The Floor Space Index is a planning tool that helps determine the amount of floor area that can be built on a given land parcel. All developers in the bidding process were offered free sale FSI, which means they got additional buildable area in exchange for covering up on expenses instead of a conventional 50-80% incentive as given by the urban renewal scheme, the total permissible FSI in this case was at 4, increasing the incentive to 133%. The SPARC/KRVIA report characterised the living conditions as too dense and unlivable (SPARC & KRVIA, 2008), with no room for open spaces, social amenities, or even basic ventilation. Vertical rehousing would threaten to destroy the mixed residential-industrial codependent ecology that sustained most of Dharavi. No community survey was reported during the process, despite the minimal democratic consent norm of 70%. Increasing the FSI so drastically suggests that the state made this decision without understanding who would live there or how many would occupy the redeveloped space. For comparative reference, the average in Mumbai is between 1 and 2.5. This in no way guarantees infrastructural improvement; it only promises collapse. This became a clear case of the state's aggressive, top-down management. The then Prime Minister, Dr Manmohan Singh, explicitly described the provess as “profoundly undemocratic.” Eligibility surveys were also reported to be flawed, with the percentage of residents classified as eligible turning out at low rates, leaving tenants, post-cut-off migrants and informal workers with no entitlement and guaranteed displacement. 

Tenure, Property Rights and Legal Ambiguity in Informal Settlements

It is essential to note that land tenure and property rights are distinct. Slum dwellers possess land tenure but not title, which gives them a claim to protection from eviction; however, it does not provide them with legal protection to claim ownership(Benjamin et al, 2018). Tenure refers to the social or administrative arrangements that determine who has the right to use a particular piece of land and how it can be formal, semi-formal, informal, or customary. The literature on tenure guarantee has generally observed the effects of tenure formalisation, that is, the extension of de jure status to slum settlements, either by granting property titles to slum dwellers or by administrative recognition, such as notification of a slum or the extension of lease rights for a specific period (Benjamin et al.2018). Literature on the impacts of de facto tenure security, which in essence is recognition of occupancy rights, is scarce. (Benjamin et. al, 2018). The state is clearly trying to restructure property rights in an environment where only this quasi-legal tenure exists, in the form of an Aadhaar card, an address, or a photo pass (unique to Mumbai). Even Slum declarations can provide only limited protection against eviction, but there is no clarity on who is entitled to ownership or eligible for any type of compensation. This quasi-legal system of partial recognition remains legally ambiguous because when redevelopment begins in these areas, questions arise: “Which documents count?” “What of a post-2000 migrant?” or “Is a tenant eligible for rights?” These questions alone raise transaction costs, as the negotiation process is no longer straightforward but a struggle over definitions and recognition. 

Urban Informality in India as a Wicked Problem

Urban informality in India symbolises a failure of the state's effort to formalise property rights. The Dharavi redevelopment plan has generated new externalities, infrastructural stress, and distributive injustice, without addressing tenure insecurity. This has impacted housing (and displacement), livability, and urban planning capacity. The SPARC/KRVIA reports clearly show arbitrary FSI (Floor Space Index) allocations (set at 4), a lack of formal surveys, and clear indications of unworkable densities, despite livability studies showing that vertical rehousing disrupts social networks and livelihood systems (Sarkar & Bardhan, 2020). This problem arises from a state attempting to allocate resources as a super firm in a high-transaction-cost environment, characterised by fragmented governance and a marginalised informal population with little to no bargaining power—market-oriented FSI regimes in sanctioned projects clearly privilege land-value capture rules. Demsetz points out that a state attempting to internalise externalities will just create new ones. 

This exemplifies a classic wicked problem because resource allocation through technocratic or market-led means is impossible without constantly generating new externalities. Conventional urban planning tools are often unable to address the issue due to structural inequities. The state views this as a planning defect that necessitates urgent redevelopment. At the same time, potential residents view it as an affordable solution to the city's space problem, while developers regard it as undervalued land yet to be unlocked to its full potential. For eligible slum dwellers, formalising their occupancy comes at the cost of their lifestyle; for ineligible slum dwellers, there is total precariousness with little potential and guaranteed displacement. Lastly, in the informal economy, there is a latent threat because redevelopment cannot guarantee protection of the mixed residential-industrial activity it was characterised by, which enabled home-based production. The ₹ 1,500-2000 crore economy stands at risk of being destroyed.

Transaction Costs, Fragmented Claims, and the Limits of Bargaining

Ronald Coase presents a relatively simple argument: if negotiation costs are zero, then parties can reach an efficient outcome regardless of how rights are distributed in the dynamic (Coase, 1960). This arrangement, however, rarely animates into real circumstances, especially in a densely populated informal economy like Dharavi. Bargaining here is practically impossible, which leads to an inefficient allocation of resources. Any attempt to reorganise rights will incur information, knowledge, administrative and resource constraints collectively culminating in action barriers- thereby making way for the state to intervene and then allocate resources as a super firm. However, the SPARC/KRVIA document clearly shows that these interventions remained driven by political interests, extreme administrative fragmentation, and a market-driven FSI regime, leading to new externalities.

Eligible and ineligible residents also have competing incentives. Owners want larger flats; tenants fear eviction; migrant workers who rely on proximity to work fear displacement; and informal manufacturers that need mixed residential-industrial spaces fear capital loss. The fragmentation here holds Dharaviu back from being a settlement that can articulate a single bargaining voice, which would aggregate the population's preferences or even present a single set of demands. 

Transaction costs are further increased when we consider the informality of urban slums. Dharavi hosts over 600 businesses ranging from leather goods, recycling fronts, food processing, pottery and many home-based industries. The entire economy is based on spatial proximity, with workers living in, behind or adjacent to their workplaces. Businesses here rely on informal credit and extended social networks to establish a stable livelihood. Redevelopment sends these residents into vertical towers that disrupt their livelihood and living systems entirely. A Coasean bargain cannot compensate for such interdependent value flows because the cost of measurement itself becomes prohibitively high, which partially explains why the state initially held back on conducting surveys. This raises the question of how one quantifies the loss of a neighbourhood’s production capacity in a way that would make bargaining feasible.

The state then steps into such an environment as a super firm since negotiation is almost impossible to then allocate resources itself(Coase,1960.). However, the SPARC/KRVIA report shows how even the state’s own actions increase transaction costs. Arbitrary and unjust FSI rates, which are market-driven, and the abandonment of the 70% consent requirement clearly violate the trust of slum dwellers in the state(SPARC&KRVIA,2008). As a high-cost environment in the Coasean sense, bargaining over redevelopment in Dharavi is challenging because the number of stakeholders is massive, their demands are heterogeneous, and socioeconomic structures are too complex to be addressed simply through a market mechanism.

Demsetz and the Evolution of Property Rights in High-Value Urban Land

While Coase explains why the state must intervene as a super-firm, Demsetz helps explain why attempts to formalise rights in such environments consistently generate new externalities. Harold Demsetz’s theory of the evolution of property rights explains why redevelopment projects like the Dharavi Redevelopment Project are never straightforward. This is because they produce new injustices to fix old ones. Through formalising tenure, they create new externalities. Demsetz exemplifies this theory of how property rights emerge when the benefits of internalising an externality exceed the cost of delineating the right, through explaining the nature of the fur trade by the Native Americans. Hiding territories that were originally communal because externalities shared were small, were later privatised when the value of the fur increased(Demsetz,1967). Property rights, therefore, are not moral absolutes but institutional tools for adapting to changes in economic environments. Drawing a parallel with Mumbai, as land value rises with urbanisation and economic activity, the externalities of informal tenure are increasingly costly for the state, and this very rise in land value creates pressure to internalise them, including misused land, fragmented responsibility, and highly dense infrastructure. The Dharavi Redevelopment Project is the state’s attempt to evolve enforceable property rights to better align with the economic environment. This evolution, however, comes with a warning. 

Demsetz, however, warns that if property rights are rearranged without much regard for social circumstances, the process of internalisation will generate new externalities, making the status quo even worse off. Enforcement of property rights alone cannot guarantee efficiency. Institutional capacity to reshape disruptive justice will also decline if stakeholders are truly better off. An FSI of 4 is far higher than in a typical redevelopment project, making the situation “unworkable” due to a lack of basic infrastructure(SPARC&KRVIA,2008). Populations deemed ineligible will be relocated to the city's outskirts, far from their livelihoods. The theory helps explain why individual property rights may not fit into communities and areas where production and lives (reproduction) are collective and rely on the same infrastructure, which is what the formal economy’s infrastructure relies on.

Citizenship, Rights, and Moral Claims to the City

These institutional failures raise normative questions about the moral basis of property and residency in informal settlements. I would now like to develop this section of the essay by asking some questions about what property rights really mean in the context of slum rehabilitation. Who owns the right to live in the city? Is housing a commodity or a right? What counts as citizenship, and should residents be pushed out of their homes for being informal despite contributing to the city’s economy? And lastly, who deserves the gains from the rising land values?

For the first question, I'd like to state that spatial manifestations of illegality must be corrected. Slum residents who lack entitlements are labelled as “encroachers”  - this language treats housing as a good and citizenship as that which is only validated by documentation and property. I find this ironic, since informal settlements exist precisely because the formal housing market fails to meet the needs of low-income groups (who sustain the economy), who are then pushed into informal settlements. Suppose employment is a marker for citizenship (which is a recognised norm). In that case, one must also have the right to live near employment in affordable infrastructure, since it directly flows from their contribution to the urban economy and their citizenship; it does not originate from one's ability to purchase formal housing.

Secondly, if housing is a right, then rehabilitation is simply a matter of justice. The state must work to protect the shelter and livelihood of its residents. However, if housing is treated as a commodity- subject to market push and pull and speculative forces then displacement could never have been easier. The Dharavi Redevelopment Project chooses to offer rehabilitation flats only to those who meet the bureaucratic criteria (which I find arbitrary); land developers have free sale rights, while slum residents have conditional and revocable rights.

Third, citizenship markers like the Aadhaar-linked address or the photo pass being used to determine who deserves rehabilitation are simply a show of bureaucratic legitimacy and not belonging(Benjamin et al,2018). Many households may not possess the documents that signify legitimacy but they sustain the labour market and sustain the urban economy. Citizenship here is treated as administrative rather than substantive, which brings me to my follow-up on questioning the moral legitimacy of residency. When a settlement generates an economic value of 1500-2000 crore rs a year, despite being “informal” and, in fact, created solely by exclusion from the “formal” markets, the state must owe its residents the duty to protect, formalise, and scale these industries. Development will not just reorganise the space of Dharavi but will also dismantle an economic and ecological system.

Lastly, on who deserves to benefit from rising land values, Henry George would say that all land gains are generated through collective action, not by private owners (George, 1935). By this logic all residents of a settlement like Dharavi who have been labouring and clustering for decades, given the area's land value, deserve a fair share of that value. Dharavi Redevelopment Project chooses to funnel these gains straight into the hands of the developers - a case of privatising of land value and socialising of redevelopment costs. It is important to note that the valuation of the land in Dharavi is inflated by speculative increases in land value, not by actual improvements in the settlement. The state finds the value in Dharavi's central location and its proximity to transport, rather than any formal investment. 

(AI Assisted)Under the Dharavi Redevelopment Project framework, developers receive free-sale FSI and commercial rights worth hundreds of crores. At the same time, the community is granted only a bare minimum rehabilitation flat, which often destroys the conditions that once sustained their livelihoods. This is precisely the injustice George warned about: when land values rise due to collective activity, but gains are privatised, the poor are displaced not despite their contributions, but because of them. Their economic and social labour creates the very conditions that make the land attractive for speculative redevelopment. As speculative value increases, so does pressure to clear the land for high-return commercial projects, which are framed as “public interest” even though they primarily benefit private capital. In this way, speculative land value deepens inequality. The people who produce value through their presence and labour are excluded from its benefits. Their neighbourhoods are demolished to unlock the value they themselves generated. Their rights—already tenuous—are overwritten by the logic of speculation. As George predicted, when the social value embedded in land is legally recognised as private property, those who create the value are the ones most likely to bear the cost of its extraction.

 Policy Framework for Just and Participatory Redevelopment

Now that the specifics of the problem have been established, the SPARC/KRVIA report clearly elucidates a burning question: “How do we meet the aspirations of the people in a just manner while enlisting participation in the design and implementation of the redevelopment project?” Here are the principles from which Thomas Paine, Henry George, Coase and Demsetz would draft their policy solutions.

For the grounding of the normative principles from which property must be used, Thomas Paine’s argument is that individuals possess inherent property rights not through obedience but by membership of a collective and no property right is legitimate if it ends up depriving members of subsistence(Paine,1797). A policy approach woould state that a resdients shelter and political membership/voice isnt depenetdent on a legal title or any formality and all residents must be given a chance to form the future of their own neighborhoods through governance structures that allow room for consent (in this case the norm of 70%) and collective decision making ideally through giving the locals a voice through negotiation with their campaigns like Dharavi Bachao Andolan.

Henry George extends this normative position by arguing that land and the value it produces are social products generated not by a private wonder but by collective human activity, and therefore rising land value benefits collective human activity (George, 1935). Private actors trying to capture a speculative land value will lead to an unjust appropriation of wealth not created by them. A policy solution based on these principles would mandate a socialised reinvestment of the generated gains back into the neighbourhood through channels such as cooperative institutions and public funds, rather than a land value gain captured through an unjust free sale FSI.

Demsetz would complete this policy framework by warning that improperly structured rights, without heed to social context, will create new extenratilities (Demsetz, 1967). And therefore, an approach to design rights that can internalise and not displace the existing social-economic interdependencies of a space like Dharavi, and, through reconfiguring these practices of collective tenure and shared spaces, can guarantee the possibility of forming a protectable form of property.

(AI assisted)Taken together, these thinkers suggest that a just redevelopment model must treat housing as a right grounded in democratic participation (Paine), socialise the gains of rising land value (George), use state coordination to reduce—not exacerbate—transaction costs (Coase), and evolve property rights in ways that protect and sustain existing community ecologies (Demsetz). Only by integrating these principles can redevelopment meet people's aspirations equitably and sustainably.

References

• Arora, T. (2023). Brown paper on urban informality in India.

• Benjamin, S. (2008). The field of struggle, the office and the street: Urban governance in India.

• Coase, R. H. (1960). The problem of social cost. Journal of Law and Economics, 3(1), 1–44.

• Demsetz, H. (1967). Toward a theory of property rights. American Economic Review, 57(2), 347–359.

• Desai, R., McFarlane, C., & Graham, S. (2020). Tenure security and urban social protection in India.

• Fischer, F. (2003). Reframing public policy: Discursive politics and deliberative practices. Oxford University Press.

• George, H. (1935). Progress and poverty. Robert Schalkenbach Foundation. (Original work published 1879)

• Benjamin, S., Raman, B., & Bhuvaneshwari, R. (2018). Tenure security and urban social protection in India. Society for the Promotion of Area Resource Centres (SPARC).

• Kamla Raheja Vidyanidhi Institute for Architecture (KRVIA). (2007). Mumbai report: Proposal for inclusive redevelopment.

• Roy, A. (2005). Urban informality: Toward an epistemology of planning. Journal of the American Planning Association, 71(2), 147–158.

• Roy, A., & AlSayyad, N. (Eds.). (2004). Urban informality: Transnational perspectives from the Middle East, Latin America, and South Asia. Lexington Books.

• Roy, A. (2010). Poverty capital: Microfinance and the making of development. Routledge.

• Society for the Promotion of Area Resource Centres (SPARC). (2011). Liveability in low-income settlements.

• Society for the Promotion of Area Resource Centres (SPARC), & Kamla Raheja Vidyanidhi Institute for Architecture (KRVIA). (2008). Re-Dharavi: The remaking of Dharavi.