What Will It Take to Bridge Urban Housing Shortage?

Despite the significant residential unit inventory and fresh housing supply, most of the urban housing projects across major Indian cities are unaffordable for our economically weaker sections (EWS). This is primarily because developers are by-and-large focused on launching luxury, high-end and mid-end housing projects that are considered ‘safe’ from the perspective of risks and returns in the capital market. To address the issue of housing shortage, particularly for EWS/low-income groups (LIG), who constitute the bulk of the housing shortage, affordable housing is the need of the hour. The number of impediments to the formulation of an effective affordable housing policy are manifold, however, which inter-alia include escalating land prices, archaic building bye-laws, regulatory hurdles resulting in delay of project approvals, and reluctance of formal financial institutions to lend to low-income sections.

Although the Union Budget 2014–15 announcements supporting affordable housing was welcomed by the real estate industry, the segment has a long way ahead as yet. To begin with, there is considerable supply shortage in this arena—pegged at 18.78 million for the 12th Five Year Plan (2012–2017) by the Ministry of Housing and Urban Poverty Alleviation Ministry (HUPA), of which 96% is in the EWS and LIG categories. Housing shortage for the EWS stands at almost 11 million homes, while that for LIG stands at 7.41 million homes. The erstwhile government had set up a committee to develop a slum index at the city, state and national levels to sharpen policy focus on the urban poor. Slum data (source: HUPA) released in March 2013 for Census 2011 had pointed out that around one out of every six households in urban India (17.4%) lived in a slum. It had also shown that well over a third of all slum households (38%) were in cities with a population in excess of a million.

A key push was given to the housing sector in the recent Budget, with an allocation of Rs. 4,000 crore through the National Housing Board (NHB) for providing cheaper loans for low cost housing to support the ‘housing for all by 2022’ scheme. Additionally, Rs. 8,000 crore was allocated for the rural housing scheme under the NHB. A relaxation of Foreign Direct Investment (FDI) norms in the housing sector was also announced in the Budget, with major policy revisions including the reduction in the minimum capitalization from US$10 million to US$5 million for wholly-owned subsidiaries; and trimming the minimum area of construction projects from a carpet area of 50,000 sq. m. to 20,000 sq. m. Such relaxation in entry norms are expected to provide a fillip to the quantum of investments going into the housing sector, particularly in India’s tier II and III cities.

With a substantial amount of funds, however, already allocated for the creation of affordable and/or low-cost mass housing in the previous fiscal left unused, the effective utilization of fund allocation for affordable housing cannot be stressed enough. According to HUPA, as of February 20, 2013, as against a target of 3.10 lakh beneficiaries with a total outlay of Rs. 1,100 crore, approximately 13,485 beneficiaries had been benefitted with a net present value (NPV) of interest subsidy of Rs. 16 crore. Additionally, although about Rs. 2,000 crore had already been allocated to the Urban Housing Fund by the erstwhile government, the National Housing Bank (NHB) was yet to set up the fund.

Provision of low-cost housing or affordable housing solutions has been predominantly the domain of public authorities. Over time, the Government of India has undertaken a number of initiatives (provision of taxation benefits or opening up funding channels) or formulated policies towards addressing housing needs of the economically weaker sections. With the passage of time, these policies and initiatives have evolved, with the role of public sector transitioning towards a ‘facilitator’ from being a ‘provider’, increased focus on private-sector participation, provision of fiscal incentives and concessions, as well as promoting an enabling environment for channelizing affordable housing finance and cost-effective technologies.

Housing being a state subject, a number of state governments have formulated and implemented housing policies to address the housing shortage and enhance affordability among our teeming masses. This is a daunting task in itself; and keeping in mind their limitations, state governments are encouraging public–private partnership models where the private sector is playing a key role in offering solutions to low-income households. While some of these housing policies are implemented with assistance from the center, others are totally supported by individual state governments. States such as Rajasthan, Haryana, Odisha, Andhra Pradesh and Gujarat have implemented housing policies to address affordability issues for home buyers.

At the risk of reiterating the same point, although the government has put in place various funds and bodies to bridge the enormous housing shortage gap in urban India, much more needs to be done as far as implementing these policies are concerned. Despite the total outstanding housing loan portfolio with Housing Finance Companies (HFCs) in 2012–13 increasing by 30.69% to Rs. 2,90,427 crore (NHB Annual Report, March 31, 2013)—out of the total housing loans disbursed by PSUs in 2012–13, those of less than Rs. 5 lakh barely stood at 10%. Furthermore, housing loans as a percentage of Gross Bank Credit for Scheduled Commercial Banks (as of March 31, 2013), stood at just about 9.25%.

A major reason for this might be inaccessible financing options for the EWS/LIG segment of urban India. Almost 70% of potential low-income home buyers have informal income avenues, but need access to housing loans to buy a home. Needless to say, traditional financial players do not service this vast group. Growing interest in low-income housing finance is a very recent phenomenon; and it’s taken till 2011–12 for new entities, private players and established financial institutions to make an entry into the market. For all intents and purposes, therefore, government funds and schemes for mass housing are perhaps the only recourse for India’s urban populace. Recent developments have seen the NHB planning to refinance banks and HFCs for rolling out long-term fixed rate loans of upto Rs. 10 lakh to borrowers for a period of 15–20 years. The intent behind developing this product is to specifically protect low and moderate income households against prevailing volatility in floating rates on housing loans.

Keeping in mind the proliferation of informal urban settlements and urban sprawls across the country, the development of affordable housing on a mass scale is imperative. Keeping in mind the fact that a significant proportion of the population requires access to affordable housing, there is a need to formulate guidelines that would help in identifying the right beneficiaries for such housing. There should be concerted efforts towards devising innovative financing models which would be effective in addressing funding constraints of the EWS/LIG segments. From a supply point of view, however, developers and lending institutions need to be incentivized and the regulatory process needs to be streamlined to provide the required impetus to spur affordable housing supply.

As the housing market evolves in the country, the new government is pushing for greater private sector participation in providing housing for the economically under privileged sections of the society. Developers have also begun to look at new techniques such as pre-cast construction to bring down construction costs. Concepts such as green homes and senior homes are also catching up as developers are trying to replicate trends observed in developed markets and create products that are environmentally more sustainable. The government on its part is also trying the bridge the demand/supply gap by offering incentives such as subsidized land, and relaxed development control regulations, among others, to make way for increased housing ownership in India across various socio-economic segments.

Anshuman Magazine, CMD, CBRE South Asia Pvt. Ltd.

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