Housing for all: the way forward
A multi-pronged approach to simultaneously cater to different aspects of affordable housing is crucial
The National Democratic Alliance government has recently announced its intention to launch the Sardar Patel Urban Housing Mission to make good on its promise to provide housing for all by 2022. The mission will integrate and innovate upon the various urban awas yojanas (housing schemes) run by the previous government. The aim of the new mission is to build 30 million houses for all, including the economically-weaker sections. It will also focus on the conditions of slum dwellers and make provisions for social inclusion by providing access to better services and local development of slums.
For the mission to be successful, there must be clarity on what one means by housing for all. This requires an agreement on certain minimum acceptable standards of housing. Housing standards include factors such as size of dwelling units, density, quality of materials, among other things. However, minimum standards that are unreasonable or unenforceable could result in higher construction costs that would crowd out the poorer populations and lead to rampant violations.
In a chapter in a seminal book on housing for the poor published in 1972, John Turner pointed to the non-compliance by the low-income population in Lima, Peru in following housing standards since the standards significantly increased house prices. Noted urbanist Alain Bertaud, in a paper commissioned by the Wolfensohn Center for Development and published in 2010, contended that the World Bank-led sites and services programme, where serviced plots were provided to low-income households who built their own dwellings in an incremental manner, was not emulated by the private sector because they were not allowed to use realistic standards that the government used.
To circumvent these problems, minimum standards should focus on health and safety and vary depending upon the income classes for which dwellings are built, size of the city or urban settlement, land costs and availability, and other local conditions. Further, there should be enough flexibility for revisions in minimum standards over time.
A crucial component of housing provision for all is rental housing and any sound housing policy must factor in rental housing provision. In many developed countries, rental housing forms a major component of the housing market and various regulations actively encourage housing for rental purposes. According to the Housing Statistics provided by the European Commission, Switzerland, in 2012, had 56% of its population living in rental housing. Though not quite as high, this proportion is also significant in other European countries such as Germany (46.7%), Austria (42.5%), and Denmark (35.7%).
Unfortunately, rental housing has not received due attention in housing policies in India. The current restrictive rent control laws together with other regulations have all but killed off investment in rental housing in the formal sector. At present, rent increases allowed by law are usually lower than the inflation rate. For properties that are not under rent control, the returns on investments are low so that the opportunity cost for investing is high. As a result, one sees that formal rental housing as a share of total housing has declined over the years throughout the country. The Census figures indicate that for urban India, the share for rental to total housing has fallen from 54% in 1961 to 28% in 2011.
The housing mission must ensure the revival of rental housing either by providing public housing units to be used solely for rental purposes and managed by housing associations that would set and collect rents or by incentivizing private investment in rental housing. Increasing private investment would require changes in rent control laws to allow for revisions in rents that would provide attractive returns to landlords while providing adequate protection to tenants. Some other regulations such as tax exemptions on incomes from rent, identical property taxes for rental and ownership housing units, would also help boost investments in rental housing. On the demand side, a policy of housing vouchers could be introduced so that the poor have access to private rental housing.
In order to successfully meet its time-bound objective, the new mission must employ a multi-pronged approach to simultaneously cater to the different aspects of affordable housing provision. This would include public housing for ownership for middle and low income groups to be provided by state government agencies on public land; inclusionary housing, which requires a certain percentage of built-up area of any new construction to be built for low income housing either on-site or off-site with an option of providing in-lieu fees at market rates; and a sites and services programme that is scalable and replicable.
It must also make provisions for demand side subsidies for bolstering finances of lower income groups and supply side subsidies for incentivizing the creation of affordable housing stock. Beyond providing finances, setting targets, and determining the various instruments, the central government must recognize that land is a state subject and give state governments enough flexibility and autonomy to choose from a bouquet of options those strategies that are most suited for their individual conditions.
Vaidehi Tandel is associate vice-president at IDFC Institute and Sahil Gandhi is consultant at the Indian Council for Research on International Economic Relations (ICRIER).
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