As the economy has been steadily bouncing back even amidst intermittent peaks of milder variants of Covid, housing sales, one of the barometers of the economy, rose 60 per cent annually across major Indian cities during January-June 2022, according to Frank Knight’s ‘India Real Estate: Residential and Office Market H1 2022’ report.
Housing was unaffordable in the pre-pandemic period, with about 19 million urban households facing a housing shortage even though 11.1 million houses were vacant in cities, per the India Infrastructure Report (2018). The Covid crisis significantly impacted affordable housing.
We discern two effects on residential housing due to the pandemic. One is preference for large homes at the level of the individual buyer is increasing and the other is a more sprawling pattern of the population’s spatial distribution at the city level, leading to a decline in the intra-city house price gradient as US studies have found.
Pandemic compulsions
While the ‘stay home stay safe’ slogan during the pandemic highlighted the importance of a home, the ‘work from home’ phenomenon changed the traditional understanding of a home. The key reasons for this were attributed to the increase in demand for a home as being indoors, which in turn meant physical distancing and being safe.
With multiple family members operating (schooling and work) from home, the requirement not only shifted to larger homes, and motivated first-time home buyers to buy a bigger house, it also encouraged many existing homeowners to upgrade to larger units. Technology friendly, ready to move-in gated communities with ample amenities became a hallmark of pandemic house sales across the country.
In addition to preference for large homes, as studies in the US showed, the pandemic decreased the willingness of workforce to live closer to workplaces in cities, as the hybrid mode of work gained momentum, due to health and safety considerations, putting downward pressure on housing prices near employment centres.
Nonetheless, the hybrid mode of work meant that the workforce couldn’t leave the cities as they did earlier (moving to their hometowns or smaller cities in India). Due to this reason, some US studies found that the pandemic essentially led to a ‘donut’ effect in housing where the central ring of cities was deserted in favour of the suburbs. This is a phenomenon which may quite well be true for Indian cities too. The pandemic created essentially the higher income effect that theories predict lead to suburbanisation.
Judging from these cues, to arrest the sector’s decline following onset of the pandemic, and to make housing affordable, government incentives were introduced following the first pandemic wave in 2020.
Several demand-side incentives like reduced interest rates to increase liquidity, reduction in stamp duty for registration of property, and tax deductions on home loans decreased the total cost of a home significantly in the cities. The disposable income of the consumers also rose with measures such as reduction in Tax Deduction at Source (TDS) in income tax and GST filings.
Developers either reduced or eliminated extra charges that were earlier levied on car parking, higher floor allocations in multi-storied buildings, use of amenities in the housing complex, etc. The supply side interventions included moratorium on all home loans for a period of six months, reduction in Customs duty on building materials like iron and steel, which enhanced affordability.
Invoking the force majeure clause in the RERA Act meant that the timelines for project registration and completion were revised helping the developers to cope with the delays caused due to lockdowns. A one-time loan restructuring scheme along with a tax holiday were offered to developers who were working on affordable housing projects.
These policies resulted in a reduction in the price of housing units in the middle- and high-income segments. This may be seen from the NHB data, which showed that in the high-income segment, there was a decrease of ₹234 per sq metre, whereas in the middle-income segment there was a smaller decrease of ₹185 per sq metre.
However, what is less known is the fact that there was an increase of ₹49 per sq metre, in the price of housing units in the low-income segment between the first and second waves of the pandemic, based on a comparison of these housing segments in the top seven metropolitan cities. This is understandable given the demand surge was driven primarily by high-earning tech workers in search of larger homes due to the WFA (work from anywhere) situation.
To leverage the pandemic induced housing affordability even for the urban poor, several fundamental changes in policy are necessary. Revised town planning regulations with selective increase in the floor area ratio/floor space index (FAR/FSI) may promote the creation of affordable housing units closer to workplaces.
Unlocking vacant government land and single window clearances for affordable housing projects will improve developer sentiment. Finally, bureaucratic procedures and clearances to developers must be made simpler, such that developers are in a position to pass on an affordable home to the low-income buyer.
Sridhar is professor, and Nagarjun is Ph.D scholar, at the Institute for Social and Economic Change, Bengaluru