The government alone can’t solve the housing problem in India; there is an imminent need to bring in the private sector, which can happen only when regulations are streamlined and made more effective
Urbanisation is generating a massive housing shortage and this growing concentration of people in urban areas has led to problems of land shortage, housing shortfall and congested transit. It has also severely stressed the existing basic amenities such as water, power and open spaces of towns and cities. This is primarily due to the skyrocketing prices of land and real estate in urban areas.
Development of large-scale affordable housing is the necessity of urban India today. The objective of creating affordable housing is to provide adequate affordable shelter to all. Creation of affordable housing should encompass both – enabling people to buy and to rent, for which there is a need to put an institutional structure in place. While the concept of affordable housing seems to be a simple solution to current housing woes, its execution remains complicated due to the unclear policy framework. To make affordable housing work in India, it would require ‘will’ from all the stakeholders by slightly adjusting their interests towards a wider social cause.
Ever since the first National Housing Policy in 1988, the government has tried to reform the housing and real estate sector, yet many affordable housing schemes have underachieved. With infrastructure and investment being two of the key pillars to transform India, the RERA has laid a road map for real estate development.
Affordable housing is a sector that has stood the test of time when large scale housing projects have failed to attract buyers and investors. Today, realty majors, who previously focused only on mid-income and high-end housing projects, are seriously looking at building up their presence in affordable housing sector as well.
As announced by the Finance Minister in his budget speech, India faces an urban housing shortage of approximately 20 million units, of which housing for so-called Economically Weaker Sections (EWS) and Lower Income Groups (LIG) – families with a monthly income of up to `16,000 – accounts for over 90% of the gap. A number of schemes were introduced by previous governments to address the issue of affordable housing, including the Jawaharlal Nehru National Urban Renewal Mission (JNNURM), Rajiv Gandhi Awas Yojana and Affordable Housing in Partnership (AHIP) scheme.
With growing demand for affordable housing come various challenges in building them. The biggest challenge is the lack of a clear definition and separate class for affordable housing, as it is a relative concept and could have several implied meanings in different contexts. For some developers in tier I cities, a unit worth `50 lakh is also considered to be affordable. And on the other hand few developers who actually build the so-called affordable houses are selling the units in the price band of `10-20 lakh. Developing affordable housing in Indian cities faces significant challenges due to several economic, regulatory and urban issues. Whilst the lack of availability of urban land, rising threshold costs of construction, and regulatory issues are supply side constraints, lack of access to home finance is a serious demand side constraint which impacts the ability of low income groups to buy house.
The current government has plans to provide housing for all Indians by 2022. It recently announced that 2,508 cities in 26 states have been selected under the Pradhan Mantri Awas Yojana for providing affordable houses to low income families.
The central government and state housing boards will continue to be major providers of affordable housing. But they cannot do so on their own, given the enormous scale of the problem. They thus need to recognise the imminent need to bring in the private sector in the form of public private partnerships (PPP), which can only happen when regulations are streamlined and made more effective. Another challenge that works as a hindrance for affordable housing by private players is the high cost of land. Developers prefer to build high priced apartments to cover their cost, as the low cost properties do not provide sufficient returns on their investments. Also, due to high priced land options and lack of financing, the burden is transferred onto the customer by increasing the prices. Additionally, due to the lack of single window clearance for various approvals required by the builder, the delay in approvals leads to higher interests being paid by the developers, which ultimately leads to price increase and the properties no longer remain within the affordable band.
As India’s population continues to grow and more people move to cities, affordable housing is going to become even more important. Only by getting the foundations right now can the country cope with future pressures of rapid urbanisation.
The author is executive director of RE/MAX India. Views expressed herein are personal.