Economic benefits of the metro and relaxed floor area ratio: Evidence from Bengaluru, India

Abstract

The objective of this research is to understand the economic benefits arising from relaxing the local Floor Area Ratio (FAR) regulations and therefore, increasing access to metro rail infrastructure in a major urban area of India, which is set to be an economic powerhouse. We study how job density and its spatial distribution are influenced by the metro and the FAR. Applying this question to Bengaluru, the research focuses on an ex-ante quantitative assessment of how job density and economic activity may be impacted by the Bengaluru Metro under different scenarios of the FAR. The novelty of our paper is that we use estimates of consumed FAR at the municipal ward level and do not just use the regulatory FAR as most studies do. Estimating regressions of job density as the dependent variable, we find that the FAR consumed has the expected positive effect in increasing job density. We perform simulations based on FAR relaxation under various regulatory scenarios--the most aggressive, intermediate, and least aggressive, in addition to two scenarios representing the actual FAR consumed in southeast Asian cities of Seoul and Shenzhen which have policies requiring high FARs in metro transit corridors. In each of these simulations, we examine the effects of the relaxed FAR regulations on job density and wages, at the municipal ward level.

We find that the benefits in absolute job density are the highest in the scenario in which Shenzhen’s estimated FAR consumption is assumed, especially when there is at least one metro station in the ward. Further, with FAR relaxation, the job density is distributed across Bengaluru’s wards a lot more extensively than is the case currently. Using standard elasticities applicable for India, we extend the gains in job density via agglomeration benefits to wages and find that the most aggressive regulatory scenario yields the highest increase in monthly wages by 1.4 times on average the monthly wages in the baseline scenario. The policy implications and caveats are summarized which have implications for other cities in India and other emerging economies where investments in metro transit systems are occurring.