Putting Affordable Housing on Fast Track

Affordable housing is the need of the hour in several Tier I cities, where land values have reached sky limit. Though these cities are witnessing new projects, the inventory pile up is still high due to the gap in demand and supply of affordable housing. Finding a solution to reduce this gap and putting affordable housing on the fast lane is important.

Present situation

While on one hand, the country’s economy hasn’t been doing so well, on the other hand, several cities witness launch of new projects. For example, Mumbai has seen a good supply of projects in the last five years. However, most of them are not in the affordability range and hence, Mumbai has a piled up inventory of almost 4 years. Similar situation, though not at the same level, may be seen in other cities such as Delhi-NCR and Bengaluru where property values are reaching new heights. This shows a clear shortage of affordable housing in the country and a huge gap in demand and supply for affordable housing, which needs to be reduced.

Challenges

Cracking the affordability segment has not been easy for developers as there are certain challenges. Affordable housing is a volumes game and building budget houses on a large scale requires huge land parcel, which is not easily available. Land parcels within the urban area are highly expensive and hence, developers are forced to look for land parcel on the outskirts of the cities. However, infrastructure and connectivity in these areas are not much developed. This makes the locations unattractive to people.

The current approval system for construction is time consuming and challenging. Construction becomes more expensive as the time goes by, making it difficult for developers to cut down on costs. There are several costs involved in the construction costs such as labour costs, raw material costs and transportation costs. Most of these costs go up with time and inflation.

Another major challenge is that there is no policy specifically for affordable housing, hence offering no respite for people of lower income groups. Similarly, access of home finance to lower income groups is also a challenge.

Solutions

A single approval window is the need of the hour to expedite approvals, thus reducing time consumption in approval and hence combating price increase due to inflation. Policies also need to be formed keeping in mind the lower income segment, which is the major segment looking for affordable housing. Some of these policies may include increased FSI and ground coverage, waiver of certain statutory charges such as stamp duty and land conversion charges can help bring down costs. Improving connectivity and infrastructure in the peripheral areas of cities is also important, if one needs to attract customers here.

Financial assistance must be provided to the lower income segment to make affordable housing more reachable. Certain costs may be reduced by using more new-age construction technology. For example, raw material costs may be brought down by using pre-fab material in large volumes.

The Central Ministry of Housing and Urban Poverty Alleviation has drafted a policy and sent it to various states for feedback. The policy will allow a household with an annual income of about Rs.2 lakh to apply for subsidized homes. These houses will have a proposed carpet area of 220-290 sq. ft. and 310-645 sq. ft. for EWS and LIG categories respectively. They would also be developed in partnership with either private developers or the state housing boards at an estimated cost of Rs 4-10 lakh. These houses will be sold at rates fixed by the states, while the beneficiaries will be selected through a lottery system. This policy is expected to put a correct perspective in place if it comes through.

PPPP to become a game changer

Public private people participation (PPPP) can make affordable housing a huge success. States such as Rajasthan, Gujarat and Haryana have successfully implemented this model for affordable housing. While some states are offering incentives to developers in terms of more FSI, other states are allowing the unused FSI to be used for developing low-income housing projects. The model is well received in these states. This can be another leaf from these states that may be taken by the Centre and other states to put affordable housing on fast track.