Additional 25m Affordable Units Required by 2030 Estimates New Report
In a new report, Brick by Brick — Moving Towards “Housing for All”, RICS, in association with international property consultant Knight Frank, estimates that the current housing shortage in India’s urban areas is around 10 million units.
Most of the housing shortage lies in the Economically Weaker Section (EWS) and Lower Income Group Segment (LIG). It quotes that as of July 2019, 8.36 million houses have been sanctioned under the “Housing for All by 2022” initiative. Construction for 4.9 million units has begun and 2.6 million units of which have been completed. Given the past trend, an additional 1.64 million houses are likely to be sanctioned by December 2019, making it highly possible to achieve the 10 million houses target by 2022. Projected subsidy disbursement over the next three year for the same is projected to INR 1 trillion.
The latest RICS-Knight Frank report estimates that by the year 2030 greater than 40% of the Indian population will live in urban India — compared to the current figure of 34% — which is likely to create a demand for 25 million additional affordable units. However, to address the huge demand, a subsidy-based approach may not be enough for maintaining sustained growth in the affordable housing segment. India’s urban housing shortage is being primarily driven by the EWS and LIG categories.
An analysis of the demand-supply shows that, on average, nearly 0.6 million homes are required every year in the top eight cities versus supply of 0.2 million units per year. There is a huge supply gap for urban housing and more so in the EWS and LIG category, ie houses with a ticket size of less than 2.5 million. Whereas, the demand in the EWS and LIG category is around 0.34 million. Shortcomings leading to shortages of affordable housing are unavailability of urban land for affordable housing and lengthy statutory clearance and approval processes Financing for affordable housing can be broadly classified into debt, equity and subsidy. From fresh disbursals of HFCs and Scheduled Commercial Banks (SCBs), it is evident that the share of EWS sector in new disbursals has come down each financial year from 21% in FY 2013 to just 10% in FY 2018. Moreover, even the share of LIG sector in fresh disbursals has also declined from 39% in FY 2013 to 33% in FY 2018. Since 2014, around USD 34 billion has been invested in Indian real estate across debt and equity. Commercial segments, which comprises office, retail and warehousing, has garnered majority share of this in the form of equity investments. The residential segment had a 31% share and most of it was in the form of debt.
Rental housing market: The missing piece of the puzzle
The report also touches on the rental housing market and, as per Census 2011, over 21 million (27.5%) urban households live in rented accommodations. The rental housing market is therefore projected to grow at a faster rate than the rate of urbanisation over the next 20 years. The population living in rental housing has no willingness to own and landowners find rental housing unattractive due to low residential yields, a high risk of property litigation, and the cost of the transaction, which leads to a greater number of vacant houses in large urban centres. The report further goes to suggest strategies that can be adapted for developing rental housing in urban India.
• Channelising Government-Owned Land for Rental Housing Development: The government has significant volumes of underutilised lands, if a portion of these landmasses is utilised by the government or its agency for the development of rental housing properties, the incremental cost to the government would be limited to only the construction cost.
• Rental Management Companies to Pool Private Houses: There is an opportunity for promoting public/private rental housing management companies, who in turn pool private properties to a common marketplace, where prospective tenants can select the properties of their choice, this would significantly bring down the risks through professional management and lower pooled risks. Knight Frank experts highlight that with “Housing for All” insight and the government moving to achieve the target, it is imperative to address the root cause of future housing shortage and suggests some counters to attack the challenge.
• Transitional buffer housing stock: Metro cities in India welcome thousands of migrants every day who come to urban centres for job opportunities, education or simply for a better lifestyle. Migrants belonging to lower-income groups find it very difficult to find a shelter in the city due to the high price of urban houses. Transitional buffer housing or short-term housing can be an appropriate solution to address this issue.
• Shorter tenure titles: Properties, if offered with an initial tenure of 30 years with an option to extend the lease for an additional period of 30 years on payment of renewal premium, can be priced 20% lower than a similar long tenure property. Such a tool can be effectively used in subsidised housing on the principle of government subsidising the housing need of a household for a period of 30 years, post which the housing unit can revert to a common pool of public housing.
• Rent to own: Often the prospective buyers do not have sufficient funds to complete the equity component of a transaction. In all such situations, rent to own contracts can come in handy. They allow a person, even if one is unable to afford a mortgage on the whole of the current house value, to purchase a partial share of the house and pay rent on the remaining share.
• Housing boards 2.0 — rental development and management companies: Prime government-owned land parcels continue to be under sub-optimal usage in the hands of port trusts and agricultural colleges. If housing boards are able to mobilise a fraction of these underutilised lands for the development of rental housing developments, the incremental cost to the government would be restricted to the construction cost of these properties.
• Zoning reforms to address land market imperfections: Land use zoning can be used as a successful tool to create an inclusive urban fabric. Inclusionary Zoning (IZ) is a land-use planning tool which reserves land or earmarks zone to be exclusively used for affordable housing purpose.
It is heartening to note that the government is set to achieve the target 10 million by 2022, which is an unparalleled achievement globally. Going by the rate of urbanisation, this requirement will grow two and a half times to 25 million urban affordable houses. Hence, the sector has to devise a sustainable growth model, with private and public development agencies collaborating to create an ideal ecosystem. The proposed mechanism should provide the ideal bridge between the demand for housing and the willingness of the developers to meet that in the regulated environment through professional practices.
Nimish Gupta FRICS, Managing Director, South Asia, RICS
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