Challenges in Building affordable housing

Urbanization is generating a massive housing shortage and this growing concentration of people in urban areas has led to problems of land shortage, housing shortfall and congested transit and has also severely stressed the existing basic amenities such as water, power and open spaces of the towns and cities. This is primarily due to the skyrocketing prices of land and real estate in urban areas. Development of large-scale affordable housing is the greatest necessity of urban India today. The objective of creating affordable housing is to provide adequate Affordable Housing shelter to all. Creation of affordable housing should encompass both – enabling people to buy and to rent, for which there is a need to put an institutional structure in place. While the concept of affordable housing seems to be a simple solution to current housing woes, its execution remains complicated due to the unclear policy framework. To make affordable housing work in India, it would require “will” from all the stakeholders by slightly adjusting their interests towards a wider social cause.

Ever since the first National Housing Policy in 1988, the government has tried to reform the housing and real estate sector yet many affordable housing schemes have underachieved. With infrastructure and investment being two of the pillars to transform India, the RERA Bill has built a road for real estate development. 

Affordable housing is a sector that has stood of late the test of time when large scale housing projects have failed to attract buyers and investors. Today, realty majors who previously focused only on mid-income and high-end housing projects are seriously looking at building up their presence in affordable housing as well. According to estimates, around 600 million people are expected to make urban India their home by 2031, a whopping 59% growth over 2011.

As announced by Ministry of Finance in his recent budget speech, India faces an urban housing shortage of approximately 20 million units, of which housing for so-called Economically Weaker Sections (EWS) and Lower Income Groups (LIG) – families with a monthly income of up to Rs 16,000 – accounts for over 90% of the gap. A number of schemes were introduced by previous governments to address the issue of affordable housing, including the Jawaharlal Nehru National Urban Renewal Mission (JNNURM), Rajiv Gandhi Awas Yojana and Affordable Housing in Partnership (AHIP) scheme

With the growing demand for affordable housing come the various challenges in building them. The biggest challenge is the lack of a clear definition and separate class for affordable housing as it is a relative concept and could have several implied meanings in different contexts. For some developers in tier 1 Cities, a unit worth Rs. 50 Lac is also considered to be affordable. And on other hand, few developers who actually build the so called affordable houses are selling the units in the price band of Rs. 10 Lac – Rs. 20 Lac. Developing affordable housing in Indian cities faces significant challenges due to several economic, regulatory and urban issues. Whilst the lack of availability of urban land, rising threshold costs of construction and regulatory issues are supply side constraints, lack of access to home finance is a serious demand side constraint, which impacts the ability of low income groups to buy housing. ‘Affordable Housing’ is an idea whose time has come, and sooner rather than later, planned sustainable urbanization will have to be by default and not by choice.

The Current Modi government has big plans to provide housing for all Indians by 2022. It recently announced that 2,508 cities in 26 states have been selected under ‘Pradhan Mantri Awas Yojana’ for providing affordable houses to low income families.

Meanwhile the need will continue to expand with increased migration to urban areas and development of smart cities. The central government and state housing boards will continue to be major providers of affordable housing. But they cannot do so on their own given the enormous scale of the problem. They thus need to recognize the imminent need to bring in the private sector in the form of Public Private Partnership (PPP), which can only happen when regulations are streamlined and made more effective.  It is heartening to see that the issue of housing finally finding national resonance and being a major priority of the Prime Minister. The time has come for the affordable housing policy framework to become rationalized and for the government and private sector to work together to unlock the potential of this enormous market and achieve the promise of a decent house for every Indian.

Another challenge that works as a hindrance for the affordable housing by private players is the high cost of land. As a developer they prefer to build high priced apartments to cover their cost as the low cost properties does not provide easy returns for their land investments. Also due to this high priced land options and lack of financing for developers, the burden is shared onto the customer by increasing the prices. Also due to the lack of Single Window clearance for various approvals required by the builder, the delay in approvals lead to higher interests paid by developers that ultimately leads to price increase and the properties no more remains within the affordable housing price band.

As India’s population continues to grow and more people move to its cities, affordable housing is going to become ever more important. Only by getting the foundations right now can the country cope with future pressures of rapid urbanization