Recently, the Centre extended goodies to middle-income home-buyers by tweaking the eligibility criteria for benefits under its Credit Linked Subsidy Scheme (CLSS) for Middle Income Group (MIG) under the Pradhan Mantri Awas Yojana (Urban). The Cabinet approved the enhancement of the carpet area of houses eligible under the scheme, thus allowing more home-buyers to avail themselves of the benefit.

The move brings good tidings for all — first-home buyers, housing finance companies and developers. But given that the very purpose of the ‘Pradhan Mantri Awas Yojana (Urban) — PMAY(U) — Housing for All’ scheme was to cater to the economically weaker sections in the first place, the Centre’s increasing focus on the middle-income segment raises some questions.

Middle-income earners

In 2015, the Centre announced the CLSS under PMAY(U), offering an interest subvention of 6.5 per cent on housing loans up to ₹6 lakh for a tenure of 20 years to the economically weaker section (EWS) and low income group (LIG). Following the announcement made by Prime Minister Narendra Modi on December 31 last year, the scope of CLSS under PMAY(U) was widened to include the middle-income category.

Effective January 1, 2017, the scheme for MIG offers an upfront interest subsidy of up to ₹2.3-2.35 lakh to borrowers, covering two income segments — ₹6,00,001 to ₹12 lakh (MIG-I) and ₹12,00,001 to ₹18 lakh (MIG-II) per annum.

Given the robust appetite for affordable housing within this segment of income earners, the scheme has no doubt seen a good response. While there aren’t any publicly available numbers yet, strong traction in loan disbursements of banks and housing finance companies within the affordable housing space suggest that the Centre’s focus on this space is paying off.

Demonetisation, the Real Estate Regulatory Authority (RERA), and the Goods and Services Tax (GST) was a triple whammy for the already ailing real estate sector. Heightened activity in the affordable housing space has given some respite to developers as well.

The Centre has also been sweetening the deal under CLSS for MIG. It has extended the validity of the scheme to March 2019 (from one year earlier). The very recent increase in eligible carpet area from up to 90 square metres to 120 square metres for MIG I, and from 110 square metres to 150 square metres for MIG II will also draw more home-buyers within this segment. Where does all this leave the economically weaker and lower income category of home buyers — the original beneficiaries under PMAY(U)?

Unviable proposition

PMAY(U) — a newer version of earlier schemes such as interest subsidy for housing the urban poor (ISHUP) and the Rajiv Rinn Yojana — had to some extent addressed some of the issues. For one, the new scheme brought in more uniformity in calculation of interest subsidy. Earlier, under Rajiv Rinn, NHB and HUDCO were appointed nodal agencies and all banks and housing finance companies were supposed to claim their subsidy through them. But each had to formulate their own workings depending on the loan amount.

Secondly, the PMAY(U) scheme raised the income ceilings for both EWS and LIG categories from ₹1 lakh to ₹3 lakh and ₹2 lakh to ₹6 lakh respectively, bringing more people under the scope of the scheme.

But the scheme still failed to deliver the desired results. According to Sixteenth Standing Committee Report on Urban Development presented to Lok Sabha in March 2017, houses provided to EWS/LIG category during FY16 and FY17 (till February 13, 2017) under CLSS and PMAY(U), stood at 6,000 and about 14,000 respectively.

India’s urban housing shortage is pegged at about 1 crore (only recently revised down by half from the earlier estimate of 1.8 crore). Given that EWS and LIG groups together constitute over 95 per cent of the total housing shortage, the pace of progress of PMAY(U) is worrisome. At a run rate of 14,000 per annum, meeting the one crore-odd housing shortage by 2020, is no doubt a tall ask. The Centre in its budget had reduced its allocation to CLSS for EWS and LIG from ₹475 crore in FY17 to ₹400 crore in FY18 and instead apportioned ₹1,000 crore in FY18 to CLSS for MIG.

True, a credit-linked scheme for EWS/LIG and MIG deal with different sets of income segments altogether and hence the higher allocation of funds to the latter can hardly be construed as diversion of funds. But still, the Centre could have ensured that the challenges in expanding credit flow to the economically weaker sections are tackled first before extending the scope of the subsidy scheme.

Making it viable

For starters, developers have always been reluctant to construct for very low income households. High cost of land remains a key reason for the slow progress of low-income housing, which the Centre needs to tackle first.

Many sick public sector enterprises own large unused land parcels. Central and State governments too own substantial urban land that remains unused. Many ministries such as the railways, ports, aviation and defence also hold vast tracts that can be freed up for building low-cost homes. Clear title of land also remains a key issue. Many people who have taken up space in the cities do not actually own the piece of land they are occupying. The Government has to legalise their space by providing clear titles. Only then can banks and housing finance companies find it easier to fund them. In large-scale urban housing, the Government has to provide single-window clearance.

Also, in the past, lack of coordination between the Centre and the States hindered the progress of such welfare schemes; what’s more, land is a State issue. Each State will have to enter into an MoU with the Centre and identify land that can be put up for development.

Unless such issues are resolved, developers will not find it viable to construct houses for very low income households. The Centre may have resolved the demand-side issues to some extent by offering interest subvention for low-ticket home loans. It’s time it put its weight behind resolving supply constraints too if its envisioned ‘housing for all by 2022’ must deliver in its entirety.