0735

12 August 2009

New Delhi

A US-based acquaintance of mine announced yesterday that he was moving from a 3000 sq. ft. home to a 5100 sq. ft. mansion with 5 bedrooms, plus study, den, etc. etc. This, just at the time when his only child is leaving home for University. Despite being well into his 50s, he's taking on a 30-year mortgage to fund the difference in the value of the two homes. Roughly the same age as he, my instinct is to shed all liabilities on my balance sheet; that's a personal attitude towards debt, but I am almost alarmed that a bank should fund a loan of such a nature.

The wise old economist, Adam Smith, regarded expenditure on housing as unproductive; the same amount of money put into a factory, a power plant, or even a road, would add more to national income. By his yardstick, then, the US has seen a huge growth in unproductive assets over the last decade or so, as bloated McMansions took center-stage.

The recession seems to have altered that substantially, and I read just this morning that the average size of the new home in the US has shrunk by 7% during the last year, to just over 2000 sq. ft. Less rooms to cool in the summer, heat in the winter, and above all to finance.

There's no number available for the average Indian home, but my guess is it would be in the region of 500 sq. ft. With an average family size of well over 5, we need to see much larger homes. In the Indian context, I would tend to disagree with Adam Smith - larger homes would be more productive, for children needing an undisturbed place to study, or adults working part-time from home.

That's not about to happen in a hurry, as there is huge pressure on urban land - which is where the population is growing most rapidly. On the financial front too, credit growth is slowing, as government sucks more and more money in. The shortest cut to more living room for us Indians would be large scale migration into the vacant homes of US suburbia.

McMansions, here we come.