How to put affordable housing in the fast lane
“Affordable Housing is basically a volumes game. However building affordable units on a mass scale requires large chunks of land, which are not easily available.”
Vice Chairman, Lotus Greens Developers
The Current Situation
There is a severe shortage of housing in India, especially in the affordable housing category. This prevents millions of Indians to own even a modest dwelling. As per the report of the Technical Group on Urban Housing Shortage (2012-17) constituted by the Ministry of Housing and Urban Poverty Alleviation (MoHUPA), there is a shortage of 18.78 million dwelling units out of which nearly 96% belongs to the Economically Weaker Sections (EWS) and Lower Income Group (LIG) Households.
This is where the big opportunity lies for public sector housing companies and private developers. Given the choice of living in a small affordable home, even if it is farther off in the suburbs, most of these people would come forward to buy houses between 250-400 square feet at market prices (Rs.5 lakh to Rs.10 lakh). That makes the estimated opportunity size of affordable housing market at Rs 1,100,000 Cr or, 11 trillion rupees.
Challenges And Solutions
Though the opportunity exists, it is not easy for developers to crack this market. There are certain challenges holding back this massive segment.
Affordable Housing is basically a volumes game. However building affordable units on a mass scale requires large chunks of land, which are not easily available. As developing affordable housing projects on expensive land in inner urban localities has become prohibitively expensive, developers have no option but to acquire land on city outskirts to keep costs down. However, the infrastructure in these areas is mostly found wanting. Roads and the public transportation system are often not adequately developed, which make the developments unattractive to lower-income citizens.
Current regulations that govern real estate development require multiple approvals from different central and state government departments, which can be time consuming at times. Private participation in affordable housing will certainly get a further boost if a mechanism to grant timely approvals for projects can be put in place. Just ensuring that regulatory approvals, licenses and clearances are given in a timely fashion can help to reduce project cost by 25- 30 %.
Construction in India is labour intensive and traditional raw materials drive up cost and increase construction time. The government and industry need to come together to use innovative new-age construction technology like Pre – Fab to produce large volumes needed for affordable housing units.
In the absence of a specialized policy for affordable housing, general development norms apply on affordable housing projects, which push up the overall cost of houses. As a corrective measure, increased FSI and ground coverage, lower external development charges along with the waiver of other statutory charges like land conversion charges and stamp duty can help bring down the cost of affordable housing units.
Similarly, on the demand side, access to home finance for low income groups is one of the major concerns for the affordable housing market to make a significant headway. Measures similar to what banks have taken for promoting professional education like lower interest rates, moratoriums for the first few years and a relaxed repayment option can bring affordable housing within the reach of a wider segment of our society.
Conscious of the demand-supply gap in affordable housing, the Ministry of Housing and Urban Poverty Alleviation has drafted a policy which has been sent to the states for their feedback. This will allow households with an annual income of up to Rs.2 lakh to apply for subsidized houses. Such low-cost houses, with a proposed carpet area of 21-27sq m and 28-60sq m respectively for EWS and LIG categories, would be developed in partnership with either the state housing boards or private developers and are estimated to cost Rs.4-10 lakh. The houses will be sold by the developer/ housing boards at rates fixed by the states, while beneficiaries will be selected through draw of lots. This policy, if it comes through, will put a correct perspective in place.
Public Private People Participation can be a game changer
States like Haryana and Rajasthan have taken a lead in making available affordable housing to people under the PPPP model. While Haryana has introduced a scheme where private developers have been offered special incentives like increased FAR and ground coverage, Rajasthan and Gujarat are giving free FSI and allowing the unused FSI to be transferred to low-income housing projects in the heart of the city. These schemes have received overwhelming response. Taking a cue from this, the Government can take up the PPPP model to change the future of affordable housing. Properly planned PPPP model supported by foresighted policies and fast-tracking of clearance process can make affordable housing segment an attractive business option for the private developers, which in turn will benefit the 22 million households who are currently living in cramped, poorly constructed houses with inadequate sanitary conditions and lack of access to basic neighborhood amenities.