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India's Housing Conundrum

India's Housing Conundrum

Richa Rashmi


Urban areas today face multifaceted challenges such as population growth, changes in family patterns, growing numbers of urban residents living in slums and informal settlements, constrained urban services, emerging concerns of climate change and upsurge in migration. This has resulted in housing backlog, infrastructure deficit and mushrooming of informal settlements. There were 0.9 million homeless people in urban India [Census 2011], in addition to a slum population of roughly 65 million (or 17% of urban India). People from India’s rural areas, home to 833 million people, are migrating in large numbers to urban centres. As such, housing has gained paramount importance in government policies and private investments. Housing remains the biggest driver of economic growth with strong forward and backward linkages. Increasing the supply and quality of housing has a multiplier effect on the economy by boosting the primary sector (raw materials), manufacturing sector (construction materials) and the service sector (architects and engineers, skilled labours, banking and finance).

Historical Issues in Housing Sector:

The Indian housing market has, in the past, experienced a skewed demand–supply management. Housing backlogs co-exist with stressed assets and vacant housing stock. The development of affordable housing is constrained by economic and spatial issues. On the supply side, scarcity of developed and encumbrance-free urban land, increased cost of construction, growing informal housing options, absence of viable rental market and master-plan restraints have lowered the potential growth of formal affordable housing market. On the demand side, lower purchasing capacity, lack of cheaper loans, inaccessible formal lending options and lesser percolation of subsidy benefits have long been the cause of lower affordability for securing formal shelter.

Land-use plans are unable to keep pace with rapid urban population increase and land development. This leads to the growth of slums and prevents their rehabilitation, which is mired in insecure land tenures, and keep the land locked under litigation or off the market and, hence, sees little or no development/re-development. Low-income households therefore invest little in the betterment of the rudimentary house, which negates any transformation of the neighbourhood into vibrant space even with progress in income standards.

In addition, Development Control Regulations of lower Floor Area Ratio (FAR)/Floor Space Index (FSI) or arbitrary parameters of setbacks, building heights and width of access roads that constrain building development or full-realization of permitted FAR/FSI are not only anachronistic but has become redundant in the present times of burgeoning population and exacerbating need of land. These parameters are also responsible for creating sub-standard and inadequate ticket sizes, which finds no demand in the market and pile up as vacant stock.

Impact of Pradhan Mantri Awas Yojana (Urban) – Housing for All Scheme:

To tackle the urban housing backlog, Pradhan Mantri Awas Yojana (Urban) was launched in 2015 to provide housing for all by 2022 and focuses on in-situ rehabilitation of slum dwellers (ISSR), subsidy for beneficiary led construction/ enhancement of houses (BLC), providing institutional credit through credit-linked subsidy (CLSS) and affordable housing via a partnership model between the public and private sectors (AHP). A Technology Sub-mission had been introduced to bring in a basket of new technologies that can invigorate the construction market. The scheme has been progressive and largely holistic for ownership based housing in the country. The mission verticals, originally designed for the Economically Weaker Section (EWS) and Lower Income Group (LIG) segment, have been protracted to include the Middle Income Group (MIG) as well, thus magnifying the total net of beneficiaries.

The PMAY (U) has been innovative in incorporating flexibility within the process and empowering the States/ UTs and ULBs to take ground level decisions to enable appropriate and time-bound clearance of projects. Such a comprehensive approach has enabled record number of sanctions of over 10.3 million houses in last five years with a total investment of INR 6.13 lakh crores involving central assistance of 27 per cent, beneficiary contribution of 49 per cent and States/UTs as well as ULB share of 24 per cent. Out of the total sanctioned strength, construction has started for approximately 60 lakh houses and the 32 lakh houses are ready for occupancy. As per the comparison drawn by Ministry of Housing and Urban Affairs (MoHUA) between the progress under PMAY (U) (2014-20) with JNNURM (2004-14), the growth in investments have alone been more than fifteen times for the sanctioned strength, which is about 7.5 times that of houses sanctioned under JNNURM schemes. As per the report ‘Assessing Employment Generation under PMAY-Urban (February, 2019)’ by National Institute of Public Finance and Policy, PMAY (U) has been able to generate 12 million jobs through forward and backward linkages in 21 sectors. The construction of sanctioned houses has consumption for more than 17 million metric tons of cement and 13 million tons of steel.

Probably, the single factor, which has contributed most to the housing problem, is the unavailability and the high cost of building materials. Under the Technology Sub-mission 33 alternate technologies have been identified, evaluated and promoted for use in the construction sector. Under the scheme, 1.5 million houses have made use of these identified technologies. Strengthening of domestic technological capability to produce sustainable alternate building materials from the available local materials is crucial to promote development of supply chains in the sector.  In addition, Government’s support through direct use of identified technologies under its scheme will address issues of user prejudices and accelerate market uptake. To promote seamless adoption of identified technologies, Schedule of Rates have been floated for 29 identified technologies by Central Public Works Department, which addresses both legal and procurement issues in use of alternate technologies.

Policy Interventions required and Way Forward:

Although PMAY (U) has been progressive in addressing some of the housing concerns in the ownership-type dwellings market, yet it has not been able to fathom the concerns of every citizen as it had aimed for. Lack of affordable rental market directly affects liveability in the city. Vienna, the most liveable city in the world as per both the Economist Intelligence Unit survey 2019 and Mercer’s Quality of Living survey 2019, has 80% of its population living in rental housing. Two-thirds of Viennese citizens live in municipal or publicly subsidised housing. India needs to create a viable formal renting market. Rental Housing at affordable rentals will provide houses to short-term/temporary settlers in towns as well as to those who cannot afford an ownership house. Additionally, rental housing will be able to prevent informal settlements, provide residential security, and will in particular address the housing concerns of single working-women, students and temporary job seekers.

Second, the development control regulations will have to be new-fangled. Most often, infrastructure constraints have been sighted as the reason for lower FAR/FSI. To adequately match the upward rise in FAR with the carrying capacity of city, a detailed infrastructure plan with details of water budget, expandable limits of sewer network, loading limits of electric supply may be prepared for a prospective design period population in order to arrive at a reasonable increase in FAR. Every land-constrained, populated city in the world has gone vertical be it Singapore, Canary Wharf or even Downtown Manhattan. Easing up FAR will not only ease space constraints but will also eliminate market distortions. This is especially true for land-constrained metropolises that are faced with issues of land shortage and reducing per capita built-up space.

Arguably, the need to improve land-use planning is perhaps the most urgent requirement. The economic efficiency of cities rests on the assumption that land is valued at market prices and that it is periodically recycled to its best and highest use as determined by market forces. The master planning approach needs to have flexibility. The town planning departments in the cities should periodically review the value of their land assets and change to a different use if the net return of the significant transaction costs is not optimum under the current use. Innovative financial models like value capture finance instruments of Transfer of development rights (TDR), betterment levies, and saleable FAR may also be explored in upcoming cities.

Given the complex nature of affordable housing conundrum, a multi-pronged approach will go a long way in breaking the incongruity of the issues in hand sustainably. Good quality urban panorama contributes to investment, strong economic performance and wealth creation, as it provides predictability and order in urban development from a wide range of perspectives, including spatial, societal, economic and environmental. Increase in the built-up stock and related infrastructures further leverages municipal finances and gives more autonomy to people-centric planning. The core of all these approach lies in creating a strong, sustainable and vibrant urban space where every household has a well-sheltered existence. Concentrated efforts in the identified areas will definitely catalyse the housing situation in India. This transition will also contribute towards achieving the Sustainable Development Goals (SDGs) as laid out by the United Nations (UN), the New Urban Agenda and the Paris Climate Accord to which India is a signatory and other such international commitments.

Richa Rashmi is a Young Professional at NITI Aayog. Views expressed are personal.