Affordable Housing in India- We’re Running Out Of Reasonably Priced Houses

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With increasing concentration of economic and commercial activities and influx of population in Indian cities, the pressure on affordable housing delivery is mounting, resulting in the proliferation of slums.

Consider the case of Mumbai, it is estimated that at the present income distribution and institutional rates, only 5–6 percent of households can afford a house in Mumbai. There is a clear mismatch between the household’s stock (the house price-wealth) and flow (income of the household). The supply of affordable housing is limited in Mumbai due to severely regulated land markets. “Affordability needs to have a larger meaning in its coverage,” says Acharya. “Does it mean I get a house where I want, or does it mean I get a house at price I want or I am getting a house at a place and price I want? All may not go together.” (HT Mint)

Housing Affordability in Mumbai

A balance of home price, mortgage interest rate and household income will determine housing affordability. First, formal housing in Mumbai is unaffordable to the bulk of its population. Around 60 percent of Mumbai’s population lives in slums. Majority of households have incomes that are not in correspondence with the market price of the potential affordable houses. Secondly, providing low cost housing in Mumbai, even at construction rates, does not achieve the target of 70 percent households in formal housing sector. Given the income distribution curve and institutional rates (loan to value, interest rates, savings rate) for the house price has to be 2 lakhs to 2.6 lakhs. Getting a house at that price would be nothing short of magical.

In such a highly regulated housing market, developers find it viable to supply luxury and semi-luxury housing and have little incentive to provide affordable housing; thus catering to the demand of a small segment of the population. This structure of Mumbai’s housing market and the skewness of the income distribution imply that the property prices are affected by a small segment of the population. The justification given by the government is that Mumbai cannot absorb the excess FSI owing to its crumbling infrastructure.

Given the tremendous infrastructure investment being carried out in Mumbai, there is scope for easing FSI restrictions. There is a need to move from Commercial FSI to FSI determined by infrastructure supply.

For the government to provide subsidies it requires the data on incomes of households who cannot afford the minimum standards. Hence a prerequisite is a data base. There is also a need to define a minimum benchmark based on differences of land prices. Suburbs versus an inner city. If there is only one yardstick set then it would lead to a poverty trap.

The land component of total cost shouldn’t be too high. Plausibly, that means affordable houses will come up well outside the city, where employment opportunities are usually non-existent. It is foreseen that affordable housing projects would be Public Private Partnership ventures with the private sector handling the development and construction of the houses and the public sector concerning itself with supplying or acquiring land and selling the housing units.

The policy of locating projects in the surrounding area could be met with the disapproval that it would lead to ghettoization of the poor communities, however given the alternative of living in slums; the opportunity of better quality of life for the poor seems far more attractive. Accessibility to the cities’ business districts has to be made easier by providing adequate rapid transport networks. To make such a project self-financing one requires a policy of implementing a development charge whose incidence would be on the new home buyers.

Unlocking land is another way to create affordable housing. Consider this- The Arthur Road Jail in Mumbai is located in the heart of the city. This valuable piece of land can be used for affordable housing. Having a prison in the city centre makes little sense since it can be used for other important functions.

All great cities came into being through the interaction of migrants. People will continue coming to Mumbai and other metropolitan regions as long as there are economic opportunities to better themselves and hence accommodating the slum dwellers in clean, spatial houses must be considered as a top priority.

Somesh Chandran

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