Affordable Housing In India: Challenges & Opportunities

India, like most major emerging economies, has been witnessing accelerating urbanisation.  As per the census of India in 2001, about 72 per cent of the population lived in rural areas, and 28 per cent in urban areas.  By 2011, these figures had changed to 69 per cent rural population and 31 per cent urban population.  In fact, as per census 2011, for the first time since India's independence, the absolute increase in population was more in urban areas than in rural areas.  

According to estimates, around 600 million people are expected to make urban India their home by 2031, a whopping 59 per cent growth over 2011.  As an increasing proportion of India's population starts participating in its growth story, it brings with it mounting pressure on the existing infrastructure, which needs to at least keep pace with the growing demand, if not be ahead of the curve.  The current housing deficit in India stands at 19 million units, which, in the absence of any meaningful intervention, is slated to double to 38 million units by 2030.  95 per cent of this deficit is around the EWS (Economically Weaker Sections) and LIG (Low Income Group) segments, which technically puts the figure at a staggering 18 million units in this category (approximately).  While this number is huge, there is also a substantial chunk of upper end of LIG band and lower to middle end of MIG band, which we can say comprises 'the emerging middle class', who are also deprived of decent living conditions.  The deficit in this category is approximately 4 lakh units, which, if not addressed, would further aggravate the proliferation of unplanned and unsustainable urbanisation.  Statistics show that more than 80 per cent of this category are staying in congested homes.  

The lack of available housing options, combined with limited income and minimal access to home finance for low income borrowers, means that millions of Indian households currently live in cramped, poorly constructed houses/slum areas/shanties.  They lack access to a clean and healthy environment, with even basic amenities such as sanitation, clean water, sewage, waste management and electricity often absent.  Thus, 'Affordable Housing' is an idea whose time has come, and sooner rather than later, planned sustainable urbanisation will have to be by default and not by choice.

Who is the affordable housing customer & what does he/she want?

Decent, affordable housing is fundamental to the health and wellbeing of people and to the smooth functioning of the economy.  Against the backdrop of impending large-scale urbanisation in India over the next few decades, it is important to identify, evaluate the needs of, and address the challenges faced by the largest chunk of urban housing consumers with the most pressing needs – the Affordable Housing customer.  

In India, it is appropriate to define affordability in housing as being a function of three broad parameters - the monthly household income (MHI) of prospective buyers, the size of the dwelling unit and the affordability of the home buyer (the ratio of the price of the home to annual income or the ratio of EMI to monthly income). First and foremost, the affordable housing customer seeks a strong value proposition.  Limited income and difficulty in access to credit mean that a home will most likely comprise the most important asset/biggest investment in his/her lifetime, and will form the starting point for the long-term welfare of his/her family.   A well-constructed home in a planned development with adequate sanitation, security, privacy, play areas for children, and uninterrupted water & electricity supply holds significant aspirational value for this customer, whose current living conditions are likely to be compromised.  Good connectivity to places of work in urban centres and the presence of social infrastructure such as schools and hospitals are also key.

Urbanisation challenges: A global phenomenon

Globally, examples abound of how fast-growing and dynamic cities have successfully addressed the various challenges of impending urbanisation.  In Hong Kong, for example, the provision of Affordable Housing has been a huge success wherein early resettlement programs (in the 1960s) have transformed into high-density public housing developments in new towns, successfully accommodating a fast-growing urban population over the course of time.  Compact and high-density neighbourhoods have been strategically promoted, typically around railway stations, and are served by an efficient public transit service.  In fact, public transit in Hong Kong currently attracts nearly 90 per cent of the city's daily trips, contributing significantly to its sustainable urbanisation in the field of transportation strategy.   Similarly, in the city-state of Singapore, the high-density housing estates in its new towns are well-connected to the central business districts and industrial estates of the main city via a Mass Rapid Transit (MRT) system.  Kuala Lumpur's urban management strategy follows a top-down approach and includes a CityPlan 2020, which aims to enhance urban sustainability efforts by emphasising livability and quality of life for local communities via the provision of public housing, improved urban transportation and environmental measures.  The integration of land use with transport networks forms the backbone of Kuala Lumpur's sustainable urban development framework.  Also, measures have been taken to encourage the redevelopment of dilapidated housing areas, to be replaced with high-density residential developments and, wherever possible, appropriate Affordable Housing solutions.

In India, while home-ownership remains a long-cherished dream for the potential Affordable Housing customer, he/she faces several hurdles en route:

• Connectivity: For Affordable Housing to be truly sustainable, it is important for both development and throughput to be speedy and large scale.  However, the lack of affordable and adequately sized land parcels in inner urban localities has driven the development of Affordable Housing to urban peripheries.  This is turn often poses a challenge to the Affordable Housing customer, who requires efficient connectivity to areas of work in city business districts.  The development of effective mass rapid transit systems is the solution to facilitate easy commute and reduce travel time.

• Financial literacy: Unable to produce formal pay slips and other relevant documentation to establish creditworthiness, EWS and LIG categories often find it difficult to secure formal housing finance.  Financial assistance and financial literacy training are thus the need of the hour for the segment, and Non-Banking Financial Companies have stepped in to provide the needful assistance to such customers in securing home loans.

• Cost of ownership: Lack of affordable land, various forms of taxes and levies like VAT, Service Tax, Stamp Duty etc. constitutes anywhere between 30 per cent to 35 per cent of the home cost, which increases the cost of home ownership.  This is in addition to the inefficiencies that is brought to a project by local development rules which are more attuned to premium housing. Moreover, the lack of affordable land options within the city pushes the Affordable Housing corridors to the peri-urban areas which, when coupled with the lack of mass rapid transit systems, makes it difficult for the Affordable Housing customer to take the all-important decision of owning his/her first home.  Positive intervention by respective state governments along with help from the central government will go a long way in increasing supplies within the city limits till at such time as the last-mile public infrastructure like mass rapid transit, water, electricity, sewage disposal facility, etc. is established in peri-urban areas.

The recently announced Housing for All mission is a significant step in the right direction to transform the Affordable Housing paradigm in India.  Some of the initiatives like the redefining of EWS/LIG categories, interest subvention schemes and incentives to private players are definitely great first steps taken in addressing the housing deficit challenge facing the nation today.  For example, the interest subvention scheme of 6.5 per cent is expected to substantially reduce the cost of home ownership for end users as the effective rate of interest can be as low as 3.5 per cent to four per cent, post accounting for the subvention up to a loan amount of first Rs 6 lakh, which again has a scope to be relooked at for raising the limit of the loan size eligible for subvention.  This can motivate the real target segment to overcome their hesitation and take that crucial first step towards formal home ownership.

PPP in affordable housing: A plethora of possibilities

The affordable housing stakeholder community is diverse and includes the Central Government, State Governments, real estate and infrastructure developers, financial institutions, urban planners and, most importantly, urban dwellers.  Backed by a strong mandate of the Central Government, whose recent announcement to start building homes for the urban poor across 305 cities and towns is expected to boost the economy, the Affordable Housing segment has the potential to offer a multitude of opportunities to all stakeholders, provided there are concerted and aligned efforts in a common direction.  In this context, the private sector can play a significant role in bridging the current deficit of Affordable Housing.  In an ideal PPP scenario, the public sector could look into aggregating land for projects, providing single-window and time bound clearances, redrafting the local development byelaws to suit the requirements of Affordable Housing projects and re-evaluating the taxes and levies from the perspective of reducing cost of home ownership for the target segment; private sector entities can leverage core competencies such as Planning & Design, Project Development, Technology best practices, Project Financing, Human Resources, Sales and Marketing.

The way forward: An enabling ecosystem

Increasing urbanisation, a renewed focus on the sector by the Government and rising income & aspirations are all key demand drivers in the Affordable Housing story.  Against this backdrop, the aforementioned synergistic approach has the potential to accelerate the momentum of 'right time right place' Affordable Housing development across India.  An enabling ecosystem can facilitate well-planned and Sustainable Urbanisation that will adequately meet housing needs of the urban poor while leveraging the strengths of key stakeholder groups:

• Timely, single-window clearances and time bound fast-tracked approvals. Self certification should be the rule of the game with proper carrot and stick approach - Can help to significantly reduce project development costs.

• The development of Affordable Housing Zones, along with the promotion of innovative construction technology providers co-located with the Affordable Housing projects and catering to project requirements, can be a win – win solution. This approach can entail varied benefits, both from the perspective of individual project requirements via speeding up of supplies and to the technology provider who can achieve the desired scale by catering to multiple projects within the zone.  New-age construction technology like Pre–Fab can help speed up the construction process, while ensuring uniform, high-quality standards.
• Optimal FSI:  This helps reduce costs per unit and increases the economic viability of Affordable Housing.  FSI can also serve as a cashless subsidy, the benefits of which can then be passed on to end users/customers.

• Reduction in stamp duty, exemption from sales tax, reduction/waiver in registration charges, VAT and service tax, etc. - All of these typically increase the cost of ownership by 30 per cent-35 per cent.

• Review local byelaws like setbacks, parking norms, etc. and fine-tune the same to meet the requirements of affordable housing projects.

• Reduction/exemption of taxes and duties on construction materials can significantly reduce construction-related costs.

• Development of urban infrastructure: Affordable Housing (or any form of housing development, for that matter) cannot exist in isolation.  Parallel focus on urban infrastructure development (Metro, inter and intra-city highways, mono rail, etc.) is imperative to make the Affordable Housing proposition a truly wholesome one.

It is a bit of a paradox that while a basic human necessity like housing is becoming increasingly expensive, luxury items such as smartphones and electronic goods are more and more affordable.  The neighbourhood taxi driver may wield the latest mobile technology, but home might still mean a compromised solution.  And yet, the future holds infinite possibilities.  All it needs for Affordable Housing to become a widespread reality in India is a unified and sustainable approach by all stakeholders with one common goal in mind – Quality Housing that is truly for All.