Why housing data can better gauge the economy

  • At the agglomerated level of a state or the country as a whole, this tells us clearly what people are feeling about their economic future
  • Mint analyses why more housing data is needed to better understand the economy

Over the last few years, watchers of the Indian economy have been analysing high-frequency indicators to figure out its overall state. These include sales of cars and two-wheelers, cement consumption and bank credit growth. One area that isn’t considered is housing, as reliable data is not available. Mint analyses why more housing data is needed to better understand the economy.

Why is proper housing data important?

Buying a house is by far the biggest financial decision that most people make in their lives. When people decide to buy a house, in most cases they are feeling confident about the economic future. They are confident of being able to pay the down payment at the time of buying the house and the EMIs on the home loan, if taken, in the years ahead. At the agglomerated level of a state or the country as a whole, this tells us clearly what people are feeling about their economic future. That is an important input in deciding the overall state of the economy. The problem is we don’t have any reliable data on this front.

What are the other advantages of having proper housing data?

A 2016 KPMG-Naredco study titled “Urban Indian Real Estate—Promising Opportunities" states, “The real estate and infrastructure sector… (have) significant backward and forward linkages with more than 250 ancillary industries." This means that when the housing sector does well, many others do well, too. In terms of backward linkages, everything from cement to steel tends to do well. As far as forward linkages are concerned, everything from bank lending to furnishings tends to do well. The housing sector has the ability to create many low-skilled jobs, which India direly needs.

What kind of data is needed on this front?

In the US, housing starts is an important economic indicator. It is the number of privately-owned new housing units for which construction has begun during a given period. The long-term trend of housing starts data indicates if there is demand for homes. What about India? With the Real Estate (Regulation and Development) Act (Rera) in place, real estate firms need to file the details of projects they are executing with their local authority. Hence, the Rera of any state should have an idea of housing starts in that state at any point. An economic agency of the government could agglomerate this data from across the country.

How can more data be generated?

The Reserve Bank of India publishes data regarding the total amount of home loans given by banks (see chart).

It could also publish the number of home loans given by banks and housing finance companies, which might give people a good idea of economic activity in the housing sector. Further, it could tell us how many of these are loans for buying new homes in a given month.

What else can be done?

A stamp duty needs to be paid by the buyer to the state government every time a house is sold. Thus, state governments have data for the number of houses bought and sold during a given period. An economic agency of the government can agglomerate this data from across India. If this data becomes available, policymakers would have a better idea about which way the economy is headed.

Vivek Kaul is an economist and the author of the Easy Money trilogy.

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