A home of one’s own

Institutions must evolve to meet the affordable housing challenge

Published:May 28, 2013 12:56 am

Institutions must evolve to meet the affordable housing challenge

Cynthia Kroll

The challenge of maintaining an affordable stock of housing is felt in rich countries and poor,in central cities and at the urban fringe. Yet,the definition of housing need and approaches to affordable housing policy vary widely even among countries of similar levels of development and wealth.

Housing affordability refers to more than the ratio of home prices to income that are commonly used to compare countries. In the US,for government purposes,the focus of affordability is on the share of income spent on housing. A low to moderate income household in the US that spends more than 30 per cent of its income on housing is considered “burdened”. Other considerations closely aligned to affordability include a basic level of quality,as well as accessibility to employment and services. Indeed,the newest “affordability” measures in the US incorporate travel as well as housing costs.


India has the opportunity to leapfrog past earlier models to build sustainability features into new housing.


The US public sector makes little direct investment in housing. Yet,multiple levels of go-vernment affect affordability. At the national level,fewer than 1 per cent of housing units are owned by the federal government. Several different types of rental subsidy programmes (including vouchers,tenant rental assistance,project subsidies,tax credits and bond financing) serve around 7 million households. Some 150 million households have home ownership subsidised through mortgage interest tax credits — which extends beyond needy households.

Two other layers of government affect the affordable housing picture. State governments authorise local governments to regulate land use and may set requirements for housing provision at the local level,administer some forms of federal subsidies and develop their own housing subsidy programmes. In some cases,local governments contribute to both the problem of affordable housing and its solutions.

The US model for affordable housing is a market model,with actions of individuals and private and nonprofit builders modified by incentives and tax credits and state and local regulations. Even the poorest household is not guaranteed an affordable home. The results are mixed — the quality of all housing has steadily risen over the past six decades,and much of the population is well housed. Yet issues remain. Estimates show over 6,00,000 homeless in the US at any point in time,and more than one-fourth of all renters spend at least half of their income on housing.

In contrast,Singapore has more universal housing assistance programmes. The majority of new homes have been built by the public sector and are purchased by citizens using saving accounts drawn from salaries as down payments. Resale restrictions allow some equity accumulation over time,with the expectation that at a later stage,the homeowner may chose to use some of the equity to move up to private housing or finance the costs of retirement. Housing programmes take advantage of public ownership of land. Compared to large emerging or developed economies,its simpler governmental status as well as government ownership of land make providing public sector housing a less complex process. Yet it is particularly vulnerable to global pressures in the private housing market that raise prices above levels affordable by the local workforce.

Lessons and experiences borrowed from other countries can be of use to India,but must be tailored to the country size,income distribution and level of urbanisation. In urban India,housing demand has increased from an expanding middle class,as well as from the urban poor and rural migrants seeking income opportunities in the urban setting,who may be living on the streets or in informal settlements. The high cost of land and new infrastructure in many cities,especially compared to the incomes of those seeking housing,means that the private sector can provide these units only with heavy subsidy,while the poorest may require still further assistance.

Yet,the institutional framework for implementing housing policy is both complex and relatively weak. Land titles may be poorly documented,and overlapping government requirements from multiple jurisdictions and agencies may increase time to construction,land costs,and otherwise impede efforts and raise the costs of adding new housing units. Design of units and communities also needs to be tailored to match cost of production to the ability to pay. Programmes that coordinate national and state goals and efforts while providing financial and operational resources to local government can help streamline new housing production. India has the opportunity to leapfrog earlier models to build sustainability features into new housing. This would involve not only multifamily structure and unit design,but also consideration of density,location,and transportation facilities in affordable housing programmes. Perhaps the biggest question is whether its institutions can also evolve to make such projects possible.

Cross-country experiences offer many lessons for affordable housing policy. First,a country’s definition of “affordability” is fluid and may evolve as the country’s economy advances. Second,urbanisation becomes a tipping point for new types of housing demand and raises issues on the financing of both housing production and ownership. Third,national governments may provide direction and resources,but ultimately the construction of affordable housing is likely to be implemented at the local level. Fourth,effective housing policies generally address both supply and demand sides of the problem,enabling the construction of affordable units that market forces are not producing,while levelling the cost of rent or ownership for families at the lower end of the income scale. Fifth,as urban areas increase in size,location becomes an increasingly important factor in defining housing availability. Finally,affordability problems may not disappear with affluence,especially if rising incomes also bring a growing interest in preserving quality of life and if affluence does not bring a more equitable distribution of income.

The writer is senior regional economist and executive director for staff research,Fisher Centre for Real Estate and Urban Economics,University of California,Berkeley

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