Classifying low cost housing as infrastructure may spur builders,but buyers need help too
Infrastructure status for low-cost housing,reportedly under consideration,can help provide affordable housing to middle and low income sections by giving concessions to companies involved in building houses for the poor. In a rapidly urbanising economy,the availability of affordable housing for the increasing population of those migrating from rural to urban areas is already a serious problem that will become larger over the years. There is,at present a shortage of nearly
20 million housing units in urban India in the low income segment. This demand needs to be met by increasing the supply.
Private solutions have so far not been successful. There may be many reasons for this. The lack of good public transport systems that would encourage the use of cheaper land and low-cost housing in areas surrounding cities might have played a role. Further,the structure of the construction sector itself,which is largely dominated by small contractors,and which has a few builders catering to luxury housing in big cities,has not created adequate companies building low-cost houses. The high margins of the luxury housing business have kept most builders away from low-cost housing. The opacity of the land market and the case-by-case clearance required for change in land use are also problems that have kept the business uncompetitive and in the hands of a few players. These issues will need to be addressed before the housing market becomes competitive and efficient,catering to different sections.
While providing infrastructure status may give some incentive to builders,the next question to be addressed is access to finance for house buyers. The financial structure of the house building business that has involved payment upfront by house buyers has made housing unaffordable for a large proportion of the low and middle class population with inadequate savings or borrowing capacity to be able to buy houses. The proposition of a single down payment will also not be feasible.
The regulatory framework for home loans and mortgages has to be such that it does not preclude the bulk of the population from home loans. While we do not want to go the way
of the US and bring on a sub-prime crisis,today we are standing at the other extreme,where home loans for the poor are so difficult that there does not exist a market for low-cost housing. The solution thus has to
go beyond providing infrastructure status to low-cost housing and also deal with the question of how buyers will get housing finance. Only then will a reasonably sized market for such housing develop.