What Is Affordable Housing?

While there is a near-complete agreement across governments that housing should be affordable, there is no consensus on the term's definition. The reason is that the phrase, by itself, does not mean anything in particular. To decide whether housing in a city is affordable or not, it is necessary to compare the price of housing in various other cities. To decide whether housing is affordable in a certain year, it is necessary to compare the prices of housing in that particular year with prices ever year before, so far as we can go back in history. Monthly rents and mortgage payments in a certain time and space are also often taken into account, while deciding whether housing is affordable or not. Internationally, there is some agreement that housing is affordable if the cost of housing in a month is not higher than 25 or 30 per cent of the household income of individuals. However, all such definitions are wanting. 

Sizing it up

In the Union Budget 2016-17, the government decided to propose a 100 per cent deduction in taxes to developers that construct housing units less than 30 sq mt in four metropolises of India. For other cities, the upper limit is kept at 60 sq mt. Many argue that this is the first time the government is defining affordable housing in terms of the size of the flat and not in terms of the price of the flat. Is this enough? It is important that the size of houses are taken into account before defining affordable because the size of a median house varies from city to city. However, there is more to this. Even within a city, the cost of housing widely varies. Apart from that, the construction material, design and many other parameters also matter.

This is true of the cost of housing, too. The cost of housing not only varies widely across cities but also within cities. Still, there are many reasons why this makes sense. It is much easier to stipulate the size of an affordable house in a metro and a non-metro than to classify housing according to the cost of housing in cities, where prices widely vary. People need houses that are reasonably spacious.

The biggest flaw in the typical definition of affordable housing is that “housing” is one of the many fundamental needs of people. To live near the amenity-rich central business districts (CBDs) of large cities, people are quite willing to pay a fortune. By paying more for housing, they are also paying for proximity to potential partners, employers, schools, hospitals, malls, restaurants and everything else that they find near the CBD. This is why even when governments build housing projects for slum dwellers in Indian cities in the periphery, they often move back to some slum near the central city. They want other amenities and jobs more than they need housing.  

Moreover, if most low-income households are not willing to commute from the periphery to their workplace near the central city, at their expense, this means that it is transportation that they do not find affordable. In cities like Mumbai, according to a World Bank study, a formal house in the periphery costs as much as a shanty near the CBD. So, housing is affordable while transportation is not. The fact is that land is not scarce in India; it is only the urban land which is scarce. Urban land as such does not have a specific nature and properties. What people value are the amenities, jobs and people that are concentrated on urban land. What does this mean? The government should allow greater concentration of all these on as little land as possible.

There should be greater recognition of this fact for housing to become truly affordable.