Boost public housing for economic revival

Towards a better economy: Replacing slums with proper housing has huge positive externalities   -  R Ragu

Monetising underutilised land assets can make housing affordable. It will also bring back much-needed demand in the industry

The Covid-19 pandemic has delivered both a supply and a demand shock to economic activity, which is likely to witness a significant downturn in this financial year. This will, of course, also result in major job losses across most sectors of the economy. The job situation is now probably worse than what it was in 2014. It may remain under unacceptable levels of stress for some more years, unless strong measures for stimulation of the economy are undertaken soon.

While formulating programmes for reviving the economy, we may have to think out-of-the-box and focus on sectors that might have the potential for rapid recovery in the medium term. One such sector is housing, especially public housing. Housing is both a consumer and investment need, and the potential demand for it is virtually unlimited, provided the price is right. The scheme being proposed here has the central feature of making available housing at affordable rates by monetising the underutilised land assets, both in private and public ownership.

It may be noted that investment in housing was a prime mover of the economy in China during its programme of stimulation after the Great Recession of 2008-09. The share of investment in housing reached 12 per cent of China’s GDP in 2014. In India, housing investment declined from 8 per cent of the GDP in 2011-12 to 4 per cent in 2017-18, and the downslide has continued in the current year. Congested slums and overall residential vulnerability have been at the core of the coronavirus crisis. Taking cognisance of the current situation and the platonic approaches that have clouded India’s urban housing landscape in terms of informal settlement development, we propose strategic structural changes that will create a dynamic social and public housing ecosystem in India.

Slum redevelopment

The social housing scheme being proposed can address the issue of slum development both as a preventive strategy — wherein migrants will find institutional units for occupancy and thus prevent new slums in the future — and a curative strategy, through which existing slums can be upgraded to formal units without being a bearing on the public exchequer. The public housing scheme will rehabilitate current government accommodations in high-rises, thus freeing significant high-value land in the core areas of metro cities and State capitals, which can be monetised. The present crisis has underlined the need for a slum-mukt Bharat, and the sooner the better!

Similar programmes are already being implemented in various parts of the country; but there are several new features in this proposal. At the fore is the level of ambition being suggested — this is required if we are to make investment in housing as one of the key drivers of bringing the GDP growth back to 7-8 per cent trajectory in the shortest possible time. The proposal seeks to scale up the programme country-wide, starting with green districts and gradually panning every district in the next five years.

The current PM Awas Yojana needs to expand its scope and get its first vertical on in-situ slum redevelopment (ISSR) on a fast-track growth mode. Of the nearly 65-million slum population of India in 2011, which is now estimated at more than 100 million (or 20 million slum households), ISSR has so far been able to rehabilitate a mere 2 per cent in acceptable housing by December 2019. The Covid-19 crisis has surely helped to remove any lingering doubts about the necessity to achieve a slum-mukt Bharat. Replacing slums with proper housing has huge positive externalities. If 20 per cent of the slums are rehabilitated every year, India would be slum-free by 2025.

Land availability

There will be ample land availability if we jettison the archaic building laws and regulations. One such set of laws are, the extremely low FAR/FSI (Floor Area Ratio/Floor Space Index) combined with municipal and aviation-related building height restrictions, and density norms. The economic efficiency of cities rests on the assumption that land is valued at market prices, and that it is periodically recycled to its best and highest use as determined by market forces. Every land-constrained, populated city in the world has gone vertical, be it Singapore (FAR ranging 12-24), Canary Wharf (London), Shanghai (FAR of 13) or even downtown Manhattan (FAR of 15).

In most Indian cities, the average permissible FSI continues to be about 1.5, irrespective of change in population. Raising it to more reasonable levels is now imperative. This will make sufficient space available not only for rehabilitating the slums but also to construct public housing for workers in industrial cities and towns. India is one of the few countries where we don’t have public housing for workers, except for those employed in PSEs.

The 571-acre General Pool Residential Accommodation Redevelopment Project in Delhi, a laudable initiative by Ministry of Housing and Urban Affairs, needs to be scaled-up country-wide. Even if 10 per cent of the current public houses are remodeled in such a manner each year, over the next five years, 50 per cent of valuable urban land under such land-use will become marketable. If every district authority is empowered to undertake social and public housing schemes in their districts, India will surge towards a slum-free and modern public housing that will considerably change the urban panorama.

Financial support

The scheme can absorb large-scale financing in the shortest possible time if executed in the PPP mode; if scheduled commercial banks are given the required authorisation to extend credit liberally to these projects — whose viability can be guaranteed by the government — these units can be made available either to slum-dwellers or public employees. The exact extent of the fiscal support required will be discovered through competitive bidding. Housing finance companies will have to support such initiatives by consolidating a long-term fund with State guarantees, capable of funding the construction of these dwelling units.

Social and public housing will be the government’s biggest welfare measure during this health and economic crisis. With its extensive backward linkages and multiplier effects, it will also generate much-needed demand for industries currently suffering acutely due to the collapse in demand. Therefore, it will provide support on both the demand and supply side, and be a far better alternative than just doling out cash, which has only a one-off demand impact and does not improve the supply capacity of the economy. The strong merit of the scheme is that it can be initiated on a large scale in a relatively very short time period, as the implementation can be decentralised.

Kumar is Vice-Chairman, Agarwala is Distinguished Fellow and Rashmi is Young Professional at NITI Aayog. Views are personal

Published on June 11, 2020

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