Promote private sector initiatives to bridge housing gap

The housing shortage in India is a formidable challenge as the country is expected to have a shortage of 26 million homes by 2012. A key point to note is that most of these homes are needed by households in the economically weaker sections (EWS) and lower income group (LIG).

This growing housing shortage is the result of a combination of factors such as low purchasing power, high cost of housing loans, high poverty levels, increasing population and growing urbanisation rates.

As per industry research, nearly 28% of the country’s population lives in cities and urban areas - double the level of urbanisation at the time of Independence in 1947, and is expected to rise to 40% by 2020.

Whilst the recent downturn did bring affordable/budget housing segment in focus, that was more on account of reduced salability of luxury housing projects.

Given the scale of the housing shortage coupled with the budgetary constraints of the government, it is apparent that public sector efforts will not suffice in fulfilling the housing demand.
While the government has been making efforts to encourage the private sector to step in for developing households for the poor, these players have been expressing concerns regarding margins and infrastructure support by the public sector.

Even though a few private businesses have ventured into this segment, majority are still reluctant to cater to the mass housing demand, given the low profit margins.

Mass housing projects remain unviable for large number of private players, in light of the high risks involved, which arise as a consequence of restrictive laws and regulations, high transaction costs, lack of clear land titles, bureaucracy and lack of single window clearance.

The huge gap in supply and demand is not only on account of inadequate supply but also due to the pressure on availability of land.

The total land supply available for development has not increased at the same pace as the growth in the urban population. The heavily regulated land sector has made it difficult to get clear land for housing development which makes the cost of transactions relatively high, thereby making the provision of affordable housing even more difficult.

Going by these trends and the pace of additions in housing stock in the country, the existing housing shortage is only expected to increase in the near future. This is a key focus point for the government, as it presents a significant challenge to its policy formulation and implementation channels. However, focusing away from roadblocks, mass housing investment still offers an untapped market for housing development from a private developer’s perspective.

Hence, it has become imperative for the government to intervene and actively promote private sector initiatives at fulfilling the housing gap. Core to this support should be provision of land at affordable rates, free from litigation or ownership issues.

Affordable housing should be made a priority sector by the government and suitable measures must be taken to increase participation by developers, as well as funding agencies. The state needs to provide infrastructure, land, funding and development support to developers to help them delve extensively into budget housing construction.

The writer is chairman & MD at CB Richard Ellis South Asia Pvt Ltd