Urbanization pressure: India’s housing policy needs a big rethink

Since rents in our cities are so high that even after a rent subsidy, private housing remains largely unaffordable to the urban poor. (Mint)
Since rents in our cities are so high that even after a rent subsidy, private housing remains largely unaffordable to the urban poor. (Mint)


  • Reforms must take city-ward migration into account, enlarge urban supply and make use of rental vouchers for the needy.

Cities occupy 3% of India’s land and contribute about 60% to the economy, as per a 2019 UN report. In recognition of the need for affordable and quality housing, the government launched the PM Awas Yojana-Urban (PMAY-U) in June 2015 to provide housing for all by December 2024. Around 8.2 million of nearly 11.7 million houses approved under the scheme have been completed, as per the PMAY website, as of 7 April. In contrast, 25 million houses of the 29.5 million target under the scheme’s rural version, PMAY-Gramin, had been completed by November 2023. Not only is the urban version’s completion rate lower, many houses constructed under it remain unoccupied.

Why explains the difference? Let us see why there appears to be low urban demand for public housing, despite the high cost of private housing in our cities. The Standing Committee on Housing and Urban Affairs noted in 2022 that many houses under PMAY-U are not in “liveable condition," pointing to missing windows and doors, and illegal occupation by “anti-social elements." In the same year, a Comptroller and Auditor General report noted several issues related to the selection of beneficiaries under PMAY-U. In Karnataka, for example, some beneficiaries got multiple benefits while ineligible people got allotments.

Given weak purchase demand for public housing , the Centre launched a scheme under which PMAY-U houses are repaired and converted into affordable rental housing complexes for urban migrants/poor. However, this faced low demand too. What may be the reasons?

First, a housing subsidy in rural areas is used to build homes on land owned by families in their native places. The location of a residence is not decided by the government, but by individuals. Urban public housing can’t offer such choice.

Second, rural homes under the scheme are standalone units, not apartment complexes as with most urban housing. In complexes, public space maintenance and shared-resource use are often subject to the ‘tragedy of commons.’ Public resources tend to get misused and suffer from poor upkeep.

Third, people may not prefer to live in neighbourhoods that do not suit their aspirations of upward mobility. Evidence from the US shows that moving to a better neighbourhood improves schooling and labour market outcomes.

Fourth, migrants from other states often stay together and form a small local community, since assimilation in the larger urban community takes time. That may discourage migrants from other states from applying for public housing rental apartments. Migrants may also find it difficult to deal with local public officials, especially in their early days, given language and cultural barriers. It is also unclear if there is proper dissemination of information on the rental housing available, the process of applying for it, and so on.

Can public policy take a new approach so that our rental housing markets work more efficiently? Without this, the expansion of Indian cities would become unsustainable.

The 2015 National Urban Rental Housing Policy mentions the provision of a fund to set up a rental voucher scheme and a pilot project in selected cities. The vouchers were meant to partially offset the cost of private housing rent incurred by the urban poor and migrants. Several countries have successfully used a housing voucher policy to help families move to locations that best meet their needs.

Little information about the Indian pilot of the rent-voucher scheme is available in the public domain. One concern may be that rents in our cities are so high that even after a rent subsidy, private housing remains largely unaffordable to the urban poor.

If that were the case, then the reason for rental housing being out of reach would be a shortfall in it supply. The supply of urban housing can be increased via two measures that the government has duly acknowledged. First, a stockpile of private accommodation can be unlocked that remains locked up because of unfavourable terms for house owners under rental laws. Second, regulations can be eased that control and thereby slow the construction of new homes in big cities.

Another issue that policymakers should discuss is whether a push for home ownership under the PMAY-Gramin lowers the incentive for labour mobility. If a family has a village home, it would make sense for the family to stay there, as it is unlikely to find rental tenants, rather than incurring a high urban rent by moving to a city. Families splitting up because of one member’s migration is not welfare-enhancing either. Since the jobs on offer are in urban and semi-urban areas, it may be worthwhile to reconsider the policy of creating housing stock in rural India and instead offer monetary support for urban housing rents.

Successfully implementing an urban rent voucher scheme, or any other such policy for urban housing, is easier said than done. But then, most major reforms are always cumbersome and met with opposition. If India is to become a prosperous nation, our cities would be at its core. It is therefore imperative to rethink the country’s urban public housing policy once national elections are over.

Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.