Affordable housing, a costly affair?

With an estimated slum population of about 65 million and another 0.9 million homeless people in urban India, the Housing for All / Pradhan Mantri Awas Yojana (PMAY-HFA), which aims to provide a home to all urban poor by 2022, is an important urban policy thrust.

Affordable housing scripted a growth of 27 per cent between January to September, 2017 (y-o-y) compared to an overall residential housing contraction of 33 per cent. That is quite a striking trend, and has possibly come at the back of mission-mode implementation of PMAY-HFA; affordable housing’s new found infrastructure status; as well as much-improved inflow of formal credit (NBFCs and banks) to the segment. Affordable housing finance is estimated to be a ₹6 lakh crore business opportunity by 2022, by when the Government seeks to achieve housing for all citizens.

Empirical research shows the uptake among slum dwellers for affordable housing is closely related to the balance of benefits and costs. The latter could include social uprooting, estrangement from familiar circles, lack of access to informal credit networks, and reduced collective action resulting from rehabilitation into formal affordable housing in disparate geographies.

At a time when the unilateral, supply-side push for ‘Housing for All’ is at an all-time high, with a thrust on building affordable homes for the economically weaker section (EWS) and low income groups (LIG), where 90 per cent of the housing unit shortage is felt, one has to be doubly sure that what is intended as a benign social policy is not a response to a mere artificial demand bubble.

The now infamous supply glut in Indian real estate, marked by a great deal of unsold inventories, was also predicated on false hopes of adequate demand for housing. This is a cost that a large-scale state-subsidised model for housing projects across India cannot withstand, hence making the need for policies to be well-informed and contextualised.

Examples of empty low-cost housing units have also begun to emerge. Some make it to the news, such as Boisar in Palghar; many don’t. Here, it appears that there is a case for the Government to consider going for a sustained focus on in situ upgradation, which would alleviate much of the social capital concerns and at the same time entail lower costs. And at a time when scarcity of new land is a running theme behind any infrastructure capacity addition, this is relevant. As on August, 2017, only 2.2 per cent of the total approved housing under PMAY-HFA was for in situ development.

Some 2 lakh hectares is needed to plug the housing shortage of about 18 million units. If the target is to be met by new units alone, 44,000 houses are to be built every day, according to a report. That’s a tall order.

Rental housing — pegged as a smart, complementary solution to the housing shortage — is a concept that the policy dispensation has only recently warmed up to. The National Urban Rental Housing Policy 2017 is currently awaiting the Cabinet’s approval. An important facet of rental housing is that it would absorb floating population/seasonal migrants, who might not want to invest in property — an immovable illiquid asset — no matter how subsidised or cheap.

Rental housing would also drive down the land requirement and might even work well in terms of social capital formation. Some States do have rental housing policies, including Maharashtra and Odisha — meant to provide low cost sharing flats for internal migrants.

As a concept, social rental housing needs greater impetus even though rental housing for commercial purposes is well entrenched in metropolises, where millions of educated internal migrants, students, etc. live as tenants. All the same, last measured, about 10 million houses lay vacant, and did not enter the rental market. This is by itself little more than half of the housing shortage estimated in the country.

In addition to creating new capacity, one must consider why owners of these houses do not see merit in renting out idle properties. Surely, rent control legislation cannot be the full answer to that question?

Anybody familiar with urban India knows a huge chunk of rental accommodation actually goes on without any formal contract. Is there room for moulding behaviour to create a rental market with many more participants? These may include incentives or penalties, depending on an assessment of what may work.

Policies cannot be designed as an overdrive of hard infrastructure alone, but also incorporate human behavioural insights, for them to be successes, in terms of achievement of outcomes, rather than merely output.

The writer is a development and policy researcher