I've written a lot over the years about the harmful impact of restrictions on new residential housing in American cities. But it's really a global issue, and some of the most egregious cases happen in foreign countries. In fact, a new initiative to upzone Mumbai, India is probably the most important urban-policy development in the world today. It should fairly dramatically increase living standards in one of the biggest cities on the planet and possibly do a great deal to drive economic growth forward throughout India.

Zoning news from the third world isn't the kind of thing most people in the west are going to pay attention to. But as India is both the world's largest democracy and has the world's largest concentration of poor people, its success or failure in generating rising living standards is a huge deal. And getting urban planning right is a huge piece of that.

The dysfunctional status quo in Mumbai

One important measurement in the urban-planning world is what Americans call Floor Area Ratio (FAR) and what Indians call Floor Space Index (FSI). FAR/FSI measures the ratio of built-out floor space to land area. In a suburban area full of one-floor buildings, large lawns, and generous parking lots you would expect FAR to be well below 1. In midtown Manhattan, which is full of very tall buildings, FARs get as high as 15.

Mumbai currently has a regulatory ceiling of 1.33 FAR for the central city and 1 for more outlying areas. In the United States, a 1.33 FAR would probably be a neighborhood full of three story row-houses. In other words, a kind of low-density residential urbanism.

But making this the maximum allowed building density in a low-income city of 12 million people has created a very different situation: Mumbai's infamous hyper-crowded slums, as seen in Katherine Boo's Beyond the Beautiful Forevers. Alain Berteaud points out that contrary to what you might guess, "a lot of slum dwellers are gainfully employed and are not poor in terms of their relative income. Rather, they are the victims of a number of misguided land use policies and of a lack of government investments in infrastructure."

By Indian standards, in other words, Mumbai has good opportunities for jobs and incomes. So people have flooded into the city. But the city has not allowed for remotely adequate levels of new construction. Consequently, by 2009 the average Mumbai resident had just 48 square feet of residential space at his disposal compared to about 365 square feet in Shanghai.

The proposed change

Greater Mumbai's governing authority is proposing a sweeping change to the permitted FARs in the area. Under the plan, Mumbai would be divided into five zones with an FAR of 8 allowed in the very densest areas and FARs in the 5-6 range in places well-served by mass transit. Fifty-eight percent of the city's land area would remain below 3.5, but even that could mean significant increases in the amount of building allowed in many areas.

New construction should have four major economic impacts:

Existing Mumbai residents should be able to obtain more living space for themselves, allowing for higher real living standards even in the absence of wage increases. It should become more feasible for more Indians to relocate to Mumbai and its relatively robust economy, increasing wages and productivity nationwide. The new construction itself will generate jobs. With more space at their disposal, Mumbai residents can accumulate more consumer goods, increasing demand for higher-end products.

The proposed change doesn't come directly from the central Indian government, but does reflect priorities of the still-relatively-new prime minister Narendra Modi. As leader of the Indian state of Gujarat he increased density in several cities and often linked new building permits to infrastructure funding.

Even a city as large as Mumbai contains only a relatively small fraction of India's vast population. But it is in many respects the country's most economically dynamic metropolis, so its decisions have big national implications. And if the change goes through and is seen to pay off, it could inspire further reforms across the country that give urban Indians the opportunity for better homes and better lives.