Affordable Housing In An Unaffordable India

India is an emerging market with the largest chunk of Indians in the low-middle income groups. With such demographics it is of utmost priority that most of the housing stock needs to be in the economically weak segment or affordable housing. Further the rapid urbanisation of Indian metropolitan areas has led to problems of congestion, shortage of water and power and lack of open spaces. Contrary to the above the Indian real estate companies seem to fancy premium or luxury real estate. Isn’t this a conundrum?

The housing for poor and EWS (Economically Weaker Section) is primarily provided by the government for welfare purposes which is insufficient as compared to the demand. Thus, housing requirement for lower income groups gets neglected and there exists a huge shortfall even in the supply of affordable housing. The real estate community finds the high value market attractive not only for the margins that they can command on the product but also due to regulatory issues discussed later.

The new government at the centre had said that its motto is housing for all by 2022. Union minister for urban development, housing and poverty alleviation, Venkaiah Naidu had called it a gigantic task in which the government would need to involve the private sector.

Centre has put greater onus on state governments for the ambitious Housing “For All Scheme”. As a first step, all states implementing the scheme will sign Memorandums of Agreement (MoAs) with the Union Urban Development Ministry. The draft MoA circulated to states specifies that the extra cost due to any delays in execution or otherwise will be borne by the states.

States also have to earmark land for affordable housing and they need to provide additional FAR/ FSI, Transferable Development Rights (TDR’s) and relax density norms for slum redevelopment and low cost housing. All these measures are required to make the construction of affordable homes more lucrative to the real estate companies.

According to a recent KPMG report, India has a housing shortage of about 6 crore units. At present, annual investments going into the housing sector stand at about USD110 to USD120 billion. By 2022, though, India needs to develop about 11 crore housing units for which investments of more than USD2 trillion or about USD250 to USD260 billion will be required annually.

So why exactly is affordable housing not picking up despite lot of hullabaloo around it?

  • High land costs
  • Rising cost of construction
  • Lack of access of finance for low income group
  • Highly complex approvals, long lead time.
    • Multiple bodies (agencies) carrying out similar functions (for e.g. Pollution Control Board (PCB), Minisitry Of Environment and Forests (MOEF))
  • Cumbersome Bye laws

Disposable income of the people remains the primary factor in determining the affordability. As a result, it becomes the responsibility of the government to cater to the rising demand for affordable housing. Without a proper policy or a regulator in place, the role of state agencies in facilitating affordable housing is limited by the sheer pressure from the politician-builder nexus.

What could be done to achieve the Housing for All Goal?

  1. Ramp up the infrastructure development especially of the MRTS (Bus, Train, Metro etc) so that far off areas can be accessed easily.
  2. Affordable housing projects must receive priority at both state and central level for approvals
  3. Very tight definitions for what constitutes affordable housing units (citywise)
  4. RBI to further ease the risk weight on affordable housing loans, lowering the mortgage cost down for the buyer
  5. Devise statistical tools to analyse the delivery and performance of such projects such that the industry takes up the construction seriously
  6. Devise ways through which higher priced apartment owners cross subsidise development of affordable housing (maintain revenue neutrality of the government finances)

Apt priced housing is good for the society and the nation on the whole. It will promote efficiency as people can be assured of good infrastructure and housing, thus resources are channelized to productive use.

“The Government may seriously look into this dispensation in the quest for housing for all by 2022.”

Contributed by Aman and Amurtya, students of real estate

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4 Replies to “Affordable Housing In An Unaffordable India”

  1. It is not just nexus between politician and builder rather is a trio builder-politician-banker. As banker-builder nexus provides capital base to launch as many projects as builder can and politician backed them and help them during land acquisition.

    Also, cost of construction is not much and have not gone significantly high except labour cost which keeps increasing (even if actual labour does not get much and most of increased labour cost goes to labour contractor) but reduces impact because of seasonal cycle of availability of labours.

    Current cost of construction in medium rise to high rise buildings ranges from Rs. 1150 to 1800 per sqft and if we calculate the cost of an apartment size of 550 sqft (for one small family, couple and 2 kids etc), it turns out be roughly 6.3 lakh from lower side. Even you actual see the cost of development of high rise building which can fall under luxury segment, cost of construction does not go beyond Rs. 2000 per sqft even we pay more than 7K per sqft and beyond.

    So developing an affordable housing is not that difficult from operations perspective. However, needed infrastructure and government approval should be in place so that at least construction companies would start looking into this kind of affordable housing development where margins are not high.

    Once an eco-system is built and operated upon, builders community may find values in it and may start investing and developing the same.

    I understand completely that above corollary of price does not fit for all the market like Mumbai/Delhi or other metro where land cost is excessively high but perfectly valid in parts of Gurgaon, Noida and Ghaziabad and places like this.

    The only flaw I find in any low cost housing study or comment is that builders generally do not construct, they just collaborate and sell. Can we bank upon those companies who actually constructs like L&T, HCC etc. and ask them innovate or do improvise in pre-fabricated building for faster and cheaper development and once that will happen, cost of development will not be an issue any more.

    There are so many dots in realty sector which lies poles apart from each other and we should solve the problem at every dots and connect them.

    Also, one important point which was missing in the study is that there is no focus of creating new cities. It will solve the problem to certain extent if planned well and city is not sold to bureaucrats and politicians.

    Hope that my comments will provide some more insights to actual problem which needs to solves if we are really serious about low cost housing and housing for all.

    Sachidanand Rai

    1. Very valid comment. My belief is once the eco-system ie. approvals and infrastructure delivery is made faster some or the other developer chasing profits will enter the segment. However, currently the oversupply is expensive real estate exists because of delayed projects (burden of interest being loaded to the end user), most projects still planned around main city and not suburbs and aggressive assumptions made by developers.

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