Any discussion on hous- ing generates interest among aspirational ho- useholds, developers, builders, construction agencies, their work force, financiers, and, of course, the economy as a whole. Housing as a sector is a driver of economic growth. A well performing housing sector and its recovery drives GDP gro- wth in an upward trajectory. The housing sector is associated with strong forward and backward linkages, largely on account of the multiplier effects of the construction sec- tor on GDP, the employment multiplier having been estimat- ed at about 8. A 2023 report on Housing Prices, prepared by the Centre for Social and Economic Policy (CESP), adds credence to this contention in their estimation that housing is positively corre- lated with GDP demonstrating that a rise in housing prices by 9.3 per cent between 1991 to 2021 sparked up GDP growth to 5.8 per cent, which, however, fell to 3.9 per cent when rise in hou- sing prices lowered to 3.2 per cent between 2017 to 2021. Any boom in housing con- struction generates demand for labour, calls for raw materials as well as makes a demand for updated construction technolo- gy, thereby causing ripples in more labour engagement as well as higher production and manu- facture of construction materi- als. Hence housing as a sector would be of interest to policy makers in general and econo- mists in particular. Housing as a commodity is largely market driven. Being an income elastic good, its demand is triggered by investments of aspirational households, absen- ce of formal rental housing mar- kets and availability of easy/ soft housing loans. Supply, on the other hand, is influenced by the level of con- struction costs and potential movement of housing prices, all culminating in expectations of high profits. Housing prices, however, are subject to market imperfec- tions and the housing market does not operate under perfectly competitive situations. The aberrations which affect the housing market are, inter alia, limited supply of land in urban areas, lack of credible disclosures in land use planning, imperfect adherence of land use plans, absence of pragmatic and location-specific building regu- lations as well as the absence of strict implementa- tion of land use norms. Added to the- se are the non- granularity and lack of concomi- tant financing of Master plans, low level of competi- tiveness in the housing sector, entry barriers to new developer/ investors on ac- count of lack of knowledge of av- ailability and land use and a tenden- cy of the dominant suppliers to control supply so as to raise prices with an intent to reap high level of profits which even rises to 20 per cent in the long run. Having said this, however, housing affordability is a relative concept. NRIs, HNIs and upwar- dly mobile double income cou- ples have been opting for houses costing Rs 4 crore or more either as secure and rewarding invest- ment prospects, or to meet the need for more post-pandemic living spaces and incentives such as smart apartments. A Coldwell Banker Richard Ellis (CBRE) report of November 2023 reveals that between the period January to September 2023, the demand for luxury housing has attained a 10 year high, registering a rise almost of 97 per cent. While most of the buzz is expected to be self-correcting, as evidenced by Delhi NCR, the affordability of such luxury seg- ment has largely been propelled by encouraging housing loans, aspiration for improved living standards, higher disposable incomes of the aspirational cat- egories of buyers and for all those looking for an attractive investment opportunity in the absence of safe and rewarding options. The Housing Purchase affordability Index (HPAI) is the ratio of the average household income to eligible household income, where eligibility is qual- ification for a home loan for a 1000 sq ft apart- ment at prevailing market prices. A Times of India report of June 23 ranks Ahmedabad as the most affordable city in terms of its housing afford- ability ratio of 21 per cent, with Kol- kata and Pune fol- lowing closely at 24 per cent. Delhi NCR records the affordability ratio at 27 per cent and Bangalore at 26 per cent. The most expensive city, Mumbai, reports an affordability index of 51 per cent, followed by Hyder- abad with an index of 30 per cent. A 2016 Research gate pub- lication reports that the BPL, defined as those whose monthly income is less than Rs 2690, has 5 per cent affordability in terms of rent paid/EMI as a proportion of monthly income. The EWS, defined as house- holds with income up to Rs 3300 pm have an affordability of 20 per cent, the LIG (with monthly income less than Rs 7300) re- ports an affordability of 30 per cent. The MIG, on the other hand, with income less than Rs 14500 had an affordability of 30 to 40 per cent. The same affordability is reported by the HMIG with income less than Rs 25,829 while the HIG, defined as those with a monthly income of Rs 85,152 reported a similar ratio of 30 to 40 per cent. A recent survey report by Knight Frank reveals that cur- rently, houses/ apartments cost- ing less than Rs 50 lakh, primari- ly purchased by the low/ low middle income households has recorded a down slide of 16 per cent. The aftermath of Corona and the increase of 250 bps to housing loans has largely contributed to the downward movement. The CSEP report, after studying the time series data of HDFC, RBI’s House Price Index and the National Housing Bank’s Residex, estimates the metrics of Price to income ratio (PTI) of 11 in India as compared to the affordability benchmark of 5 to conclude that higher PTIs are associated with low transparen- cy in the housing sector. One of the State interven- tions in the area of affordable urban housing was launched in 2015 with the Pradhan Mantri Awas Yojana (Shahari). It aimed to enable house- holds with income ranging from Rs 3 lakh to 18 lakh (EWS, LIG, MIG I and MIG II respectively) and with no dwelling houses in their name to afford their own houses through four verticals. These were Beneficiary led construction (BLC), In situ Slum development (ISSD), Affordable housing projects with PPP initia- tive (AHP) and the Credit linked subsidy scheme (CLSS), which subsidized the interest payment amount so as to encourage soft financing , primarily intended to facilitate the low and middle in- come group households towards house ownership. Recent reports from the Ministry of MoHUA reveal that, vertical wise, construction of 25,04,220 houses have been completed with loan under CLSS; 4,97,793 houses have been completed while initiating in situ Slum redevelopment, 8,08,604 in the PPP AHP and 40,41, 596 in the BLC, clearly demonstrating that property rights are a prime trigger in pro- viding affordable urban hous- ing to the low and middle in- come groups. (To Be Concluded)
The writer, a former Secretary to the Government of India, is Member of the International Advisory Group of the Secretary General of the United Nations