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Effectiveness of housing and habitat policy – the reality bites!!!


Affordable houses, real estate market, cost effectiveness, public-private partnership,


Affordable housing is generally defined as decent, quality housing that costs no more than 30 percent of a household’s gross monthly income for rent/mortgage and utility payments. In present scenario people susceptible to low or irregular income are likely to find it difficult to buy their own house. Moreover, the rapid increase in house prices and rents in urban centers have pushed the dreams of homeownership beyond the reach of growing number of LIG and EWS. According to the 10th Five-Year Plan, there is a housing shortage of 22.4 million dwelling units, for which the private sector intervention in housing provision for deprived groups is necessary. The National Housing and Habitat Policy in India is slowly moving towards the innovative concept of public-private partnership for housing provision. However, very few examples have emerged that has established a trend in this direction. To establish this concept, a model should be evolved, which is supported by government to facilitate affordable housing provision to LIG and EWS segments.

Housing - A Neglected Social Function

On an average a person lives almost two third of his life in a house, therefore access to a safe, secure, durable and healthy shelter is essential. As per an estimate by National Building Organisation (1991) nearly 75 percent lived in an inappropriate shelter out of which 48% were below poverty line. This stresses the need for appropriate and affordable shelter, which embodies the values of the users, and forms an integral component of the fabric of neighborhood life as well as the entire social milieu. Thus shelter has many connotations, which includes cost, choice, community and conservation aspects of a house and its habitat.

In the above context, the pre-independence housing in India was influenced by British imperial philosophy of town planning, which neglected LIG and EWS segments. After the independence India’s policies have been very democratic, socialist and republic, which has represented public sector’s image as grossly inefficient to provide shelter to all. However, the interventions of neo-liberalised economist have resulted in realisation of potential role of private sector in housing provision. Nevertheless, it took a long time to emerge with a platform for private sector’s entry into affordable housing market in an efficient and practical way.

The Present Housing Scenario

India’s population has already crossed a mark of 1 billion and it is estimated that by the year 2021, 350 million people will be added with further concentration of population in urban center up to 12 percent. According to Census of 2001, India had total residential housing stock of 187 million with only 51 percent permanent dwelling units. Furthermore, out of this housing stock 54% have no sanitation facility, nearly 85% do not have electricity and more than 22% do not have drainage facility. The lack of basic infrastructure facilities in present housing stock and the shortfall indicates chronic shortage of dwelling units with basic needs. Moreover, it is estimated that by the year 2021 the population of urban poor will be nearly 180 million.

This indicates that with present pace of growth, urban centers will face chaotic conditions for housing provision and the shanty image of our cities will create a question over environmental sustainability of human settlements. To ameliorate housing conditions in deteriorating slums radical changes are required in present land policies assuring tenure security. However, by and large government strategies on slum relocation or redevelopment have failed. Furthermore, it was recognised that private sector housing market excludes a large segment of population under poverty line in the urban centers due to limited profitability. This implies that there is a need for a reorientation in the present notions of housing provision by public intervention, which becomes an urgent need to provide housing for all.

According to an estimate India had a chronic shortage of 21.23 million dwelling units, out of which 36% are required in urban centers. The Ninth Five-Year plan suggests that there is a need to build / upgrade 10 million dwelling units for urban poor or EWS and 5 million for LIG in the urban centers alone. Considering the present rate of supply of urban housing, the future rate of supply has to be accelerated three times to eradicate housing problem in urban areas. However, it seems to be difficult for public sector agencies to accelerate rate of housing provision looking at limited financial resources of Rs. 34,000 crore in comparison to required investment of Rs. 1,21,370 crore for urban centers.

The present crisis in the housing sector and dilapidated living condition of LIG and EWS segments is largely due to inappropriate government interventions. Although, government has used various strategies to fulfill housing demand, the current state of affair indicates alarming level of backlog in affordable housing especially to LIG and EWS segments. This along with ever increasing shortfall leads to exponential growth in housing demand. To eradicate housing shortage the National Housing and Habitat Policy (1998) aimed at providing shelter to all by 2010, which seems to be a dream rather than a reality.

The Real Estate Market

In such scenario, government relied upon private real estate developers to fill the gap in housing demand; however, the recession in the last decade affected it largely. After seven years of downside since 1993, housing market in India has witnessed upswing registering five to eight percent increase in the first quarter of this year. However, according to Colliers international, the rise has been primarily in newly constructed properties due to activation of actual users. A property investment review by Knight Frank reports that the residential market has been activated due to low interest rates and competition among housing finance companies and budgetary soaps. When interest rates have fallen dramatically over the last three years, there is a possibility that borrowers would prepay their loans to take advantage of lower margins on fresh loan.

According to Business Line (2003) customers would gain more by prepaying housing loans rather than investing any surplus as interest rate for loan disbursed by HDFC from 1993 to 2000 was much higher than what prevails now. This syndrome suspects probability of a higher level of repayment in the range of 12-14 percent. As a result the housing finance industry has witnessed high portfolio growth rates of 36 percent and 40 percent in last two years respectively as reported by the Credit Rating and Information Services of India Ltd (CRISIL). Furthermore, the amendments in the Finance Bill 2001 allow deduction of an amount equivalent to the total interest paid on housing loan from the taxable income up to a limit of Rs. 1,50,000 in case of self occupied properties and for rental properties there is no ceiling. This suggests that to take advantage of government incentives under the section 88 and section 24 of the Income Tax Act, prospective buyers will consider option of housing loan rather than self-financing.

The lower interest rate offers substitution of rentals with EMI with a possibility of increased purchasing power of buyers and has lead to active real estate market. The Knight Frank survey of property trends in Mumbai, Delhi, Banglore, and Pune reveals that after recent stabilisation in real estate market, individuals and institutions look forwards to invest in order to yield returns between 12-18 percent. For example, HDFC has invested around Rs. 1,000 crore in commercial real estate in Banglore, Pune and Hyderabad totaling 329,000 sq.ft, while ICICI has bought 300,000 sq.ft in Banglore and Hyderabad to lease it out. Confirming the trend a report of Knight Frank estimates that 90% of all commercial property transactions in the last five years have been leasehold. The average yield from commercial property’s leave-and-license agreement with a lengthy lock-in period can yield as high as 17-23% returns outstripping the return from equity or gilds. A strategy integral to a decision whether to own or lease involve minimum capital investment, maximum flexibility and easier exit possibility in response to volatile real estate market.

While the budget made all kinds of concessions to boost the housing sector, many urban centers face slag in market due to over supply of inappropriate housing stock. For example, despite one million sq.ft of commercial space lying vacant in Gurgaon, there is a demand for another two million sq.ft just because the prior is designed for traditional corporate offices, whereas the later demands larger floor-plates and higher ceilings for call centers. This indicates that other than pricing criteria, customer needs and design specifications play a vital role in back clearing the housing stock in the real estate market. Another example suggests that housing prices in Mumbai would remain subdued with continuing over-supply of MIG and HIG housing. Furthermore, it is perceived that the retail property market in four major metros will not have significant appreciation over the next one year due to around five million sq.ft of housing stock expected to come out into the market. Besides MIG and HIG, real estate developers are least attracted to housing for LIG and EWS due to lower profit margins. However, there is no doubt that the housing demand in the LIG and EWS segment also exist and offers massive opportunity when government is liberalising on every aspects of housing urban poor and deprived. This demands a reorientation and reforms in present government policies for sharing responsibility with private developers to provide housing to urban poor and deprived.

The Need for Reform

Housing has been one of the prime concerns for Indian government through all its Five-Year Plans. The role of public sector in regards of housing provision was framed in the first five year plan – “The private enterprise is not in a position to do the job so far as the low income groups are concerned. They can not afford to pay the economic rent for housing accommodation of even the minimum standards”. With this conception government adopted mass housing strategies for slum dwellers and other target groups with highly subsidised houses during 1960s. However, to the large extent benefits of these efforts were limited to certain target groups and it was a drop in the ocean. During 1970s many aspects of public housing were recognised and radical changes were adapted to reform land policies in order to provide housing finance, improving environment of slums by providing better environment, infrastructure and social amenities rather than slum clearance. The emerging institutions were Urban Development Authorities, Housing and Urban Development Corporation (HUDCO) and Housing Development Finance Company (HDFC). However, set-up of these institutions has hardly helped urban poor.

With the intention to help urban poor, government had enacted Urban Land Ceiling and Regulation Act (ULCRA) in 1976, which aimed to pass on the surplus land to urban poor. Despite its wide objectives, very recently the act has been reenacted because of its failure at large. The only significant change in this decade was introduction of Site and Services Schemes and Self-help housing with tenure rights, which also contributed meagerly to the total housing demand. By the 1980s government started realising that with limited resources it can not address the mammoth housing problem and a strong need was felt for the private sector participation. The Seventh Five-Year Plan recognised radical reorientation of all housing policies and stated that “major responsibility of house construction would have to be left to the private sector, in particular the household sector”. Furthermore it stated that the government should be involved in housing “not so much to build but to promote housing activity”.

This way the gradual shift in the role of government from provider to facilitator was realised and the first generation of reforms were initiated during 1991 by evolving Public-Private Partnership mechanisms of housing provision to achieve efficiency and effectiveness. After 1991 the first generation of reforms began, which increased private sector’s investment in housing and had direct implications on the Gross Domestic Product (GDP). The research carried out by Indian Institute of management, Ahmedabad revealed that 10 percent increase in the investment in the construction sector contributes up to 3 percent rise in the GDP. In this direction, the National Housing Policy provided enabling environment for housing policy to provide access to serviced urban land, housing finance and innovative technologies for affordable housing. The suo-motu statement of current privatisation policy indicates that “main policy of privatisation is to put national resources and assets to optimal use and in particularly to unleash the productive potential inherent in our public sector enterprise”. However, the sluggish speed of reforms has hardly realised any thing to the quantum of the task - `Housing for all’.

The Emerging Option

The National Housing and Habitat Policy aimed towards a housing revolution by reforms in central and state government’s role. The central government was expected to carry out legislative reforms by adopting macro-economics to increase flow of informal sector finance in housing and improve environmental standards of human settlements, whereas the state government was expected to liberalise housing regulations to encourage private sector’s participation in housing and training human resources to cater future needs. The overall emphasis of National Housing and Habitat Policy was about public-private partnership for housing provision.

The public-private partnership concept for housing provision was put to test bed during 1990s. In this direction the Eighth Plan envisaged “housing essentially as a private activity” but also recognises the need for state intervention “to meet the housing requirements of a majority of vulnerable sections as well as to create an enabling environment for accomplishing the goal of `shelter for all’ on a self-sustaining basis”. The international agencies such as UNCHS, USAID, World Bank and many NGOs & CBOs came forward to share burden of housing provision under the public-private partnership mechanism. Initially Slum Networking Program (SNP) was adopted to improve conditions and environment of slums by providing comprehensive services and legal right to tenure. The success of SNP in Indore and Ahmedabad has reinstated confidence of government in public-private partnership to tackle housing problems of slum dwellers but affordable housing needs of LIG and EWS was unattended.

The national agenda for governance has identified `Housing for all’ as priority area with a target of 2 million dwelling units every year with special emphasis on poor and the deprived. However, the progress on this line seems to be very limited and slow as the primary objective of private sector is perceived to be profit making rather than a social cause. For example, The public-private partnership program in Ahmedabad, Gurgaon, and Ghaziabad have share of LIG and EWS sectors to the order of only 10, 6 and very minimal percentage respectively. This proportion will hardly cater to the city level requirements of housing for urban poor. The inaccessibility of LIG and EWS to the private sector housing implies a big question towards the National Housing Policy. To improve upon the stake of private sector in housing for urban poor and make it effectively affordable, the housing policy should be more facilitating and evolve with more lucrative equations for private sector to join the challenge of `Housing to all’.

Imperative Requirements for Improvisation

The growth of real estate market in the last decade has not been impressive mainly due to two reasons – one, the overall recession in the economy and second, lack of government initiatives in the direction streamlining, refining and facilitating legislation in order to excel the housing sector. In this scenario futile provision of present housing policies receives poor response from the private sector for housing LIG and EWS segments. To increase participation of private sector to provide housing to these strata of society radical changes needs to be considered as suggested here:

1. Housing policies enabling supply of serviced urban land at right location, at right time and at affordable price as cost of land constitute large component of cost of a house.

2. Affordability to the LIG and EWS implies structural reform of the land market, land tenure, taxation, housing finance, and subsidisation of infrastructure services.

3. Amendments to · Income Tax Act, 1961 for fiscal concessions; · Transfer of Property Act, 1882 for simpler land transactions and facilitating securitization; · Registration Act for easier land transactions; · Stamp Duty Act for rationalisation of stamp-duty should be considered.

4. For the target group under poverty line, work shed-cum-shelter should be considered as best alternative to take care of housing as well as employment.

5. Considering specific requirements of EWS and LIG segments some relaxation in development control regulations such as higher ground coverage and moderate margins should be considered with a ceiling on overall density.

6. Legal supportive measures such as reduction in charges for services and stamp duty would lead to a considerable increase in the buying capacity of deprived segment.

7. Promotion of model rent control act in all states to facilitate rental housing and fiscal incentives for rental housing is necessary as nearly 37% household live in a rented house.

8. Technology and science can be considered as an instrument to provide housing for all, where appropriate and sustainable technologies provide cost-effective means for housing trade-off with an overall saving of upto 30 percent.

9. The motto of real estate developers should be profitability with social justice. In this direction real estate developers should be rated towards their social liability through NAREDCO’s initiatives.

10. The initiatives such as Real Estate Mutual Fund (REMF) and Real Estate Investment Trust (REIT) should be encouraged and replicated to unlock the potential of real estate market.

11. The coverage and depth of the housing provision can be enhanced through public-private-people’s partnership (PPPP) rather than public-private partnership (PPP).


It emerges from the above discussion that to effectively facilitate `Housing to all’ the National Housing and Habitat Policy has to address affordability of LIG and EWS. The poor achievements of the policy indicate need for radical changes in the present approach to make it more facilitating, enabling and pragmatic policy. To summarise government’s comprehensive role as facilitator should be to offer a package of land + services + finance + technology. The present form of public-private partnership (PPP) has shown some limitations and hence public-private-people’s partnership (PPPP) can only turn the dreams of millions of poor and deprived to have their own house. In order to achieve `Housing for all’ the national priority should be to target low- and moderate-income households under the public-private-people’s partnership (PPPP) mechanism by improvising above imperatives. The pragmatic approach of reforms in the National Housing and Habitat Policy can only turn dreams into realities.

Hetal A. Patel

MPhil (Built Environment) – LSA, UK M. Tech. (Urban Planning) – CEPT, Ahmedabad B. Tech. (Construction Technology) – CEPT, Ahmedabad

Real Estate Developer Visiting Faculty - School of Planning Center for Environmental Planning & technology (CEPT) Ahmedabad, India

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