Opinion

Providing affordable housing requires a multi-pronged approach

Rajani Sinha | Updated on June 22, 2021

Subsidies apart, infrastructure development and provision of basic services/amenities around the housing projects are a must. Also, policies and measures that help lower costs will enhance the feasibility of these projects

The current pandemic has brought to fore the plight of migrant workers in India. The reverse migration that we saw with Covid, highlights the need to provide affordable living conditions to the workers, so that they are not compelled to migrate back in times of income uncertainties. Data show that around 25 per cent of India’s urban population lives in slums and for States like Maharashtra, Andhra Pradesh, Chhattisgarh and Haryana, this number is close to 35 per cent. This starkly highlights the dismal living conditions of the urban poor.

India had an urban housing shortage of around 19 million units as per the report of the Technical Group formed by the Ministry of Housing and Urban Affairs in 2012. Most of this shortage is in the EWS (economically weaker section) and LIC (low income category). With the rapid pace of urbanisation happening in India, the urban housing requirement in this income category is going to increase further.

The government of India has taken initiatives to boost affordable housing. Apart from the demand-side initiatives like CLSS (Credit Linked Subsidy Scheme) for affordable home buyers, the government has also announced various measures to improve the supply of affordable housing. Under the PMAY-U (Pradhan Mantri Awaas Yojana-Urban), the government is targeting completing 11.2 million houses by 2022. Against this target, currently 4.8 million houses have been completed and around eight million houses are under various stages of construction.

While the government may be able to achieve its housing target under PMAY-U by next year, there are few critical aspects that’s worth highlighting for future course of action. Even while the supply of affordable housing is increasing, it is important to ensure that these houses meet the genuine requirements of the urban poor. Here, there is an interesting anomaly — while India has a huge housing shortage, it also has large vacant dwellings.

Vacant housing stock

As per 2011 Census, there were 11 million vacant urban housing stock in India. A large part of this vacant stock is in areas far away from city-centres and job centres, with poor infrastructure and lack of basic services. Given the high cost of land and low margins of affordable housing, these projects always get pushed to peripheries of the cities, where the infrastructure may not be good and may require long commute time for work.

In such a situation, the poor may prefer to live in slums under inhabitable conditions than go to these far away locations. Improvement of transport connectivity and availability of basic services in these areas will definitely help the cause. Another way to tackle this problem would be to earmark land for affordable housing in the city Master Plan. This would retain land values within the feasible range for affordable housing and ensure that these housing projects are not necessarily pushed out to city periphery.

Several states in the US and Canada use inclusionary zoning in their urban planning and housing policies. Unlocking large parcels of vacant land within city centres with entities like the railways, defence, port trusts and other PSEs (public sector enterprises) for usage for affordable housing also presents a huge potential. However, this land needs to be provided at feasible cost for affordable housing.

The large stock of vacant houses in India also highlights the need to reform the rental policies. Even while many of these houses are vacant, they are not being given on rent. As per Census data (2011), the share of rentals as share of total housing was at a low of 28 per cent. While this number is likely to much higher now, it nevertheless highlights the preference of Indians for home ownership vis-a-vis renting.

Model Tenancy Act

This is also reflected in low rental yields in India, at around 2-2.5 per cent. The Model Tenancy Act 2021 is a step in the right direction as it endeavours to correct some of the imbalances in the rental market, while also proposing a redress mechanism that should enable creation of a more matured rental market in India. But the critical aspect would be implementation of this Model Tenancy Act in its true spirit by different State governments. Given that affordability in rental housing is less of an issue, the inclusion of some of these vacant houses in the rental market would help reduce the housing shortage.

Affordable rental housing is another critical piece required to complete the affordable housing puzzle. It is important to note that even with all the incentives provided by the government, there is a section of the population that cannot afford to buy a house. There is also a large segment of the population that may not want to buy a house because they are migrant workers/floating population.

Hence, for a developing country witnessing rapid urbanisation, it is critical to focus on affordable rental housing to ensure decent living conditions for the economically weaker segment. Providing social rental housing is a policy across many countries, including the US, Brazil, China and France. Last year, the Indian government came up with ARH (Affordable Rental Housing) scheme which is a step in the right direction. While the scheme has the right intent, effective implementation will be the key.

Multi-pronged approach

The conundrum of providing affordable housing requires multi-pronged approach covering both demand and supply side issues. On the demand side, while it is important to provide subsidies, it is equally important to supplement them with infrastructure development and provision of basic services/amenities around these housing projects.

On the supply-side, given that affordable housing is a low margin business, policies and measures that enable lower cost will enhance the feasibility of these projects. Other missing pieces like a matured rental market and specifically a robust affordable rental housing scheme will also enable a holistic approach towards affordable housing.

The writer is Chief Economist and Head of Research at Knight Frank India

Published on June 22, 2021

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