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Home Truth

House of cards?


The government is pushing mixed housing to cater to the needs of the economically underprivileged. But experts say innovative solutions like rental housing and mortgage finance may be a better option.

The government via forced legislation is aiming an inclusive society, be it in education or housing. Recently, the Housing Ministry urged state governments to amend development control norms. Private developers would be required to reserve at least 30-35 per cent of their housing units or 15-20 per cent of the floor area ratio (FAR) in each project, whichever is higher, for the economically weaker section (EWS). If state governments comply, they will be eligible for central government dole outs under urban planning programs such as the Rajiv Awas Yojna.

As of 2010, there was a need for at least 2. 6 crore affordable homes and the gap is ever widening, according to Ashoka, a global conglomerate of social entrepreneurs that has launched the 'Housing for All' (HFA) initiative in India.
Centre for Emerging Markets Solutions (CEMS) at the Indian School of Business (ISB) in its research report, 'New Frontiers in Affordable Housing' says that India has 53 cities and towns with a population exceeding 10 lakh. It predicts that over the next two decades a staggering number of 25-30 crore people will migrate to urban areas. With this, the complexity of providing affordable housing will further increase. Yet, even proponents of affordable housing say that the government's mixed housing proposal is not an ideal solution as the government appears to be passing the buck and there is a need for innovative solutions.

Alok Misra, independent director, Value & Budget Housing Corporation, is candid about his reservations. "It is a well-meaning decision - much like any other 'reservation', but perhaps not well thought out and from a practical standpoint I don't see how it will work. Fifty per cent or more of the project cost is related to land and reserving one-third would push up the costs of the remaining two-third. It amounts to nothing but cross subsidy, " he says.

Difficulties in monitoring by the state governments and possibilities of corruption could be some of the drawbacks of the proposed policy. Nikhilesh Sinha, lead author of the ISB-CEMS report has many questions, ranging from how will the policy define EWS and Lower Income Group (LIG) housing? Is it by size? The standard size recommended has been 300 sq ft carpet area for EWS housing. A scrupulous middle-class buyer could purchase two adjoining units knock the walls down and have a comfortable 600 sq ft flat. Even assuming that transparency and tight regulations will avoid misuse, the moot question is whether these housing units will be sold in the open market or allotted. "If the housing units are to be sold, unless massive subsidies are provided, they will continue to be out of reach of many of the intended beneficiaries - even assuming that such beneficiaries have obtained housing loans. You need to earn at least Rs 20, 000 per month to afford to pay an EMI on 300 sq ft on the outskirts of cities like Bangalore or Pune, " says Sinha.


Builders have varying definitions of affordable housing, distinct from government benchmarks. "Ashoka after working through many projects decided to adopt a simple method of defining what was affordable, " says Vishnu Swaminathan, country representative & director, HFA. This international organisation classifies affordable homes in the urban areas as those that are between 220-600 sq ft and are priced at Rs 10 lakh or lower, which cater specifically to the informal segment of society (clustered at the bottom-base of the societal pyramid). As Sinha illustrated, not everyone in this bottombase, can buy affordable homes. Thus, organisations like ISB's CEMS or Ashoka call for different solutions to meet different needs which vary from heavily subsidised housing, to rental housing, to affordable homes via mortgage loans. "Most suited for owning affordable houses are those who are at the top of the bottom-base of the pyramid. These families earn a gross monthly income of Rs 12, 000 to 30, 000 and either several members contribute to the kitty or one or more have a steady job (say a driver) or a small business (say vending vegetables ). They are able to make a down payment and afford mortgage interest, " says Swaminathan.


"A targeted set of policy interventions could widen the scope for private sector participation and extend the accessibility of private affordable housing to a larger segment, " says Reuben Abraham, executive director, CEMS. Developers catering to the affordable housing segment earn slimmer margins yet project plan under group housing are the same for them as they are for developers of independent villas.

"Tweaking of some town planning rules could help reduce costs without impairing the quality of the flats, " adds Abraham and illustrates various solutions.

Affordable housing projects, could be exempted from the requirement of having wide roads (mandated by several state legislation), people in this vicinity do not own motor-cars but cycles and two-wheelers and do not need wide roads. Amenities that do nothing to improve their lifestyle but only add to the cost are unnecessary. Further, if developers catering to this segment also have to bear trunk infrastructure costs such as water, sewage, street lights etc, it eats into their margins and makes participation in such projects unattractive.

ISB and CEMS acted as knowledge partners in a pilot affordable housing project in Rajkot, Gujarat. Their research reflected market needs and provided business and financial models, thereafter an external company and private investors successfully commercialised the Rajkot housing project.

Here, Type 2 units of 272 sq ft were sold for Rs 3. 11 lakh. The trunk infrastructure costs (which included roads, water and sanitation) were around 12 per cent of the total. Had the government taken care of this, the cost per unit could drop by Rs 32, 000 - a huge sum for EWS/LIG families, and many more could have possibly afforded to buy it.

Dinesh Nagar project (Garg group) is a participant in Ashoka's HVC model. Situated on the outskirts of Delhi, each flat measures up to 500 sq ft and the price ranges between Rs 6. 26 lakh and Rs 9 lakh. This project is subjected to very strict norms relating to density, FAR, ground coverage, road width, parking etc. To illustrate - requirements such as a car park for every two housing units, instead of a two-wheeler park and a 70 feet road in the middle of the project resulted in cost escalations. "A separate set of more realistic norms for low income housing projects would be more beneficial for society, " says Raghav Garg, director, Dinesh Nagar project.

There is a separate scheme which permits construction of houses for the EWS and LIGs and it provides for greater density owing to various relaxations such as no car parks and reduced open spaces. On a hectare, under the EWS scheme, 650 units can be constructed as against 200 in group housing.

However, this scheme is not tenable for private players as buyers are to be those approved by the government and also the pricing is to be decided by the government. "Private developers should be given clearances under the EWS/LIG schemes without any restrictions. The nature of the product is such that only the poor will buy it and market forces will ensure fair prices for potential buyers, " says Garg.

Quicker development clearances would also ease the cash crunch for developers and also encourage more participants. At ISB's CEMS the focus of research has shifted to mortgage finance and rental housing in search for more alternate solutions.

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