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Affordable housing: time to boost demand and supply

It's critical for the government to create a self-sustainable ecosystem of affordable housing

The lack of cost-effective housing is one of India’s most pressing developmental problems. According to official figures, India faces a shortage of around 18.78 million homes, of which 10.55 million are required for the economically weaker section (EWS) and 7.41 million for the lower income group (LIG) section. It is further estimated that another 15 million households are situated in “unacceptably congested conditions".

While the low-cost housing segment has got some boost in the last few years—primarily after the contraction of the housing market in 2008-09—there is still a long way to go and there is a need for comprehensive steps from the government.

Steps to boost buyer demand

Use Aadhar platform: One of the most important prerequisites for solving the housing challenge is identifying the beneficiaries. Given the country’s vast population, it is critical that platforms such as the Unique Identification Authority of India (Aadhar) or the National Population Register are effectively used to identify the target segment as per their socio-economic classification.

Help LIG and EWS households financially: To enable people from these groups to buy low-cost houses, typically in the range of 5-20 lakh, lending institutions need to develop customized lending models that take into consideration the buyer’s ability to pay. The government can also explore the rental model and create funds to channel finance into this segment.

Boost innovation: The term “low cost" cannot and should not be equated with “inferior". Recently, some engineers from Indian Institute of Technology, Madras, created a two-bedroom flat over 800 sq. ft home for 10 lakh, using special panels. The government needs to actively fund such research and bring better technology into the design of low-cost housing.

Steps to boost developers’ interest

Simplify land laws: Authorities must release tracts of under-used or non-marketable land to make space for such dwellings to come up. More clarity and transparency are required in land titles, so that the government can identify illegal ownership and free up additional inventory. Finally, urban centres must expand outwards to prevent property prices in cities from spiralling out of control.

Give infra status to affordable housing: The government is reportedly considering granting infrastructure status to affordable housing. This is a welcome step, since this would help channelize more bank funds into this area—infrastructure being a priority sector.

Give incentives to developers: The task force on affordable housing set up by the ministry of housing and urban poverty alleviation recommends providing extra floor space index (FSI) and transferable development rights (TDR) as incentives for developers to create or earmark a portion of their projects for low-cost housing. This must happen on a wider scale with more FSI/TDR benefits being linked to time-bound development of such projects. The government must also provide developers assistance on financing and clearances.

Encouraging public private partnerships (PPPs): Having more PPPs in affordable and low-cost housing will also help. One of the most successful examples to date has been observed in Bengal in the nineties, wherein prominent developers partnered with the state government for a housing project where a significant amount of units were allocated to LIG and EWS housing. While recent examples have been seen in Andhra Pradesh, Rajasthan, Gujarat and Maharashtra, governments and corporates need to join hands for more such partnerships.

Given the target segment and the large social imbalances, it is critical for the government to create a self-sustainable ecosystem of affordable housing where all stakeholders are benefited.

Sachin Nigam is senior director, Crisil Real Estate Star Ratings.

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