India has an abysmal story to tell on affordable urban housing. NSSO’s 2002 survey showed that 52,000 slums hold eight million urban households, representing 14% of the total urban population, and only half the poor—the others live on the streets.

Infrastructure facilities are equally atrocious: only 15% of these households have drinking water, electricity and latrines in their premises. Less than 25% of them have sanitation systems. The housing stock shortage in India is already around 20 million, of which 50% is urban. These figures get worse: The housing and urban poverty alleviation ministry’s data shows that by 2012, the urban housing requirement will be more than 25 million units, 97% for the poor. To provide some perspective, HDFC has financed a total of 2.5 million homes over 25 years. If we didn’t already know this, the writing is clear: The need of the moment is scale.

Intelligent minds are attempting to grapple with this complex problem, both within and outside government. One question worth asking is: “What role can be played by market forces?"

After all, the boom in India’s housing finance has happened due to market forces. So, why are banks not lending to the low-income group, and why are real estate developers not building for this gigantic market? The NSSO survey shows that the urban poor spend close to Rs1 lakh of their own money on housing: the nesting instinct is universal.

The low-income market isn’t serviced for three reasons: One, the inability to assess credit risk: no pay slips, no tax returns, uncertain cash flows; Two, lower profit margins due to smaller transaction sizes and fixed costs; and three, lack of clarity on recoveries, especially given uncertainty over land ownership.

There have been small pilots based on market-driven solutions—a few hundred units in one city or another. But large-scale answers need policy support and will take time to emerge.

One example of policy support is related to the structural constraint of land titles. The absence of a guaranteed land title system in India has far-reaching implications. Current land ownership records only provide “presumptive title": the sale deed and the tax-paid receipt. All developed countries guarantee titles; but most developing countries don’t. Herando de Soto, a Peruvian economist, has written compellingly about this in a book, The Mystery of Capital. While many countries are changing their ways, leadership in cleaning up the land title process is barely beginning in India.

But land title systems alone are not enough. We need zoning and land use planning that encourages low-income housing, and mixed-income neighbourhoods. We need integrated delivery of services—water supply and sanitation, health care, education and access to livelihood—and not just housing in isolation. Examples show that for every rupee invested in such public infrastructure, the poor generate Rs7 of their own capital. But not everyone can afford to own a home. So, we also need stocks of publicly created, innovatively managed rental housing.

We also need development finance assistance to jumpstart market-based solutions for affordable housing. Here, we have a mixed track record. It is true that over the past 50 years, government policy has matured from a fragmented scheme-oriented approach to one that sees housing as part of integrated development. But, actual scalable solutions are yet to really kick in.

Hudco has lent a cumulative amount of Rs10,000 crore for urban housing since its inception in 1970. But, as it is a quasi-financial institution with minimal regulatory oversight or governance mechanism, there is need for several institutional changes in its own functioning. The National Housing Policy and the National Housing Bank (NHB) emerged out of continued thinking on this issue. NHB has finally begun to take a decisive leadership role in this space.

For doing justice to its role in filling the housing gap, NHB will have to engage in a multi-pronged strategy. Only a small portion of this will have to do with addressing market linkages wherever possible—much of its early work will have to do with the structural issues mentioned above. The challenge is that the policy levers are distributed in various entities scattered across our federal system: land title is a state subject, but there are disabling Central laws; urban planning is a local government subject, but there is heavy state involvement. A strong partnership needs to emerge with the ministry of housing and urban poverty alleviation.

Fulfilling this large mandate will demand much intellectual and financial capital. Even as the days of development finance institutions come to a close in India, we clearly need at least one more chapter to be written.

Ramesh Ramanathan is co-founder of Janaagraha. Möbius strip, much like its mathematical origins, blurs boundaries. It is about the continuum between the state, market and our society. Your comments are welcome at