Efficient Constructions May Be The Key To Solve India's Affordable Homes Shortage

The factors that influence the affordability of homes in a country include its land use policy, building regulations, the right to private property, and productivity and competitiveness in the construction industry. However, much of the debate on affordability of homes in India focuses on regulatory norms, though efficiency of the construction sector matters as much.

Recently, Union Minister of Road Transport & Highways and Shipping Nitin Gadkari said that real estate developers should focus on building affordable homes. The minister was discussing the shortage of affordable homes in the context of India's rapid urbanisation.

A look at how developers can make homes affordable and how the government can facilitate this process:

Efficiency of a nation's construction industry and affordability of homes are correlated. In countries that have a vibrant real estate industry, homes are more affordable, relative to income levels. So, interests of developers of real estate in India and low-income households are not necessarily in conflict with each other.

The efficiency of the construction industry largely dependents on the level of investment. By attracting foreign entities to invest here and allowing domestic developers to function freely, the government can ensure the sector is funded sufficiently. With greater capital investments, use of technologically superior machinery would rise, helping the sector build more homes at lower costs. 

A common belief is that while the residential market has a glut of premium homes, there is a shortage of affordable ones. The assumption that premium homes make homes less affordable may not be right, as expensive homes often filter down to low income households over decades. The only way to make homes more affordable is by allowing greater production.

In discussions over floor space index (FSI) and affordability of homes in Indian cities, real estate developers are often painted in poor light, portraying the common man as the sufferer. However, low-income households would not be able to consume greater floor space without someone producing it, efficiently, at a lower cost. To make apartments in India more affordable, increasing the supply of floor space relative to demand is important. Real estate developers have been attempting to do so.