What is the ‘Housing for all by 2022’ initiative?
The United Nations World Urbanisation Prospects Report 2014 projects that India will add 404 million people to its urban population between 2014 and 2050. As per the report, the annual growth in urban population in India between 2010 and 2015 was 1.1%, the highest among all major economies. The rapid increase in urbanisation would mean that 50% of India’s population will be living in urban areas by 2050 from 32% in 2014. Four of India’s cities with 5 to 10 million inhabitants in 2014 i.e. Ahmedabad, Bangalore, Chennai and Hyderabad are projected to become megacities by 2030.
The urban population growth is attributable to natural increase, expansion of geographical boundaries of cities and rural to urban migration. Lack of opportunities in rural India, susceptibility of agricultural income (the main source of income for rural population) to the vagaries of nature, higher job and better education prospects in urban areas and opportunities in entrepreneurship has driven this population shift.
The consequences of urbanisation are huge. The continuous influx of migrants has put severe pressure on urban infrastructure and created huge shortages of housing in cities across India. Many of these migrants are homeless, whereas others stay in overcrowded slums in hazardous locations prone to floods and exposed to garbage dumps / toxic waste. These settlements are normally close to busy roads, railway tracks or other sources of particulate and noise pollution. The homeless and slum dwellers have poor access to safe water and good sanitation, exposing them to diseases such as diarrhoea, cholera, intestinal worms, dengue and malaria. As per the 2011 National Census data, 65 million people (or 17% of urban India) live in slums and 0.9 million are homeless in urban India. The technical group commissioned by the Government of India to study the urban housing shortage has estimated that urban India has a shortage of 18.78 million houses in 2012. It is noteworthy that over 95% of the housing shortage in urban areas is in economically weak and lower income group categories.
Exhibit 1: Housing Shortage in Urban India (2012)
The ‘Housing for All by 2022’ project, locally termed Pradhan Mantri Awas Yojana (translated as Prime Minister’s Housing Scheme) aims to breach the above gap in housing requirement and provide every household in urban India a permanent house of about 30 square meters carpet with water connection, toilet facilities and 24×7 electricity supply by 2022, by the time India completes 75 years of its Independence. The scheme earlier was meant to cover the EWS and LIG sections, but now cover the MIG section too.
The scheme seeks to address the housing requirement of urban poor in India through following 4 initiatives:
- Slum rehabilitation: transform slums areas by building homes for slum dwellers in collaboration with private developers, using land as a resource
- Credit linked subsidy: provide credit linked subsidy to weaker and mid income sections on loans taken for new construction or renovation of existing homes
- Partnership model: The Government will provide financial assistance for affordable housing projects for the EWS done in partnership with public and private sector
- Subsidy: The Government will provide direct financial assistance for beneficiary-led individual house construction
Exhibit 2: Four Key Aspects of Housing for All Scheme
Benefits of Housing for All by 2022
Affordable housing access provided through the government’s ‘Housing for All’ initiative is at the centre of building inclusive cities promising to provide a better lifestyle for all its residents. Some of the benefits of the initiative are
- Provide better and hygienic living conditions for the residents, lowering the risks of infectious and chronic diseases
- Ensure balanced growth and lower mortality rates amongst young children
- Provide sufficient living space and privacy for couples
- Provide Better protection against extreme weather conditions
- Lower accidents and vulnerability to natural disasters
- Provide security and protection from forced eviction
- Reduce insecurity and exploitation by corrupt officials
- Bring down crime and alcohol / drug abuse, which are normally exacerbated by relative deprivation in urban areas.
- Investment of over AU$215bn over the next 4 years providing strong boost to economic activity (has potential of increasing GDP growth by 1.5%)
- With linkages to multiple ancillary industries the initiative has potential to generate significant employment opportunities for low skilled labour
- Propel strong demand for building and construction material and allied industries
- Increase government earnings as 30% of housing costs are in fees and taxes
- The ‘Housing for All’ scheme which envisages a better lifestyle for all its citizens will improve India’s image globally further enhancing India’s position as a place to travel and do business
The Central Government has sanctioned over 3.1 million houses for the affordable housing segment in urban regions till November 2017. Of this, about 1.6 million houses are at various stages of construction, and about 0.4 million houses have been built. The progress of the scheme has been slow in comparison to the target of completing 1.2 million houses in FY18. A significant pick up in implementation pace will be required to achieve the target of 18 million houses by 2022. If the Government has to achieve its objective of housing for all by 2022, it along with private players will have to build about 4.1 million affordable houses every year over the next 4 years!
While the scheme provides a massive opportunity, there have been many implementation challenges. Some of the key challenges are
- Title Documents: Slum dwellers, the target beneficiaries of the scheme are unlikely to have title documents, a requirement for availing subsidy under the scheme
- Financing of the Scheme: Given the fact that this is a revenue expenditure, government budget allocation and private financing have been tepid and delayed. Ability to finance the scheme will be critical for completion of targets
- Real Estate Headwinds: Headwinds in India’s real estate sector i.e. demand slowdown, high land prices, rising cost pressures, expensive capital, difficult regulatory scenario and wafer-thin margins in the affordable housing segment, holds back private developer’s participation
- High Gestation Period: The cumbersome and least transparent approval process, which takes nearly two to three years to get approvals for commencing construction after land purchase and high fees and taxes increases the cost of development
- Economics of Projects Beyond Mega Cities: The Government’s efforts to unlock land potential through various incentives have worked in large mega cities like Mumbai. However, the economics breaks down in smaller cities where land values are not as high, and developers are unable to recover their costs
- Margin Funding: Economically weak beneficiaries normally do not have the money to give the margin for taking a housing loan
- Time Consuming Pre-Commencement Work: Ground level preparation such as creating the list of eligible beneficiaries, verification with the urban local bodies, verification of bank accounts and geo-tagging of the location has been time consuming, initially delaying the scheme
Besides the push provided by the Government, the RBI has also supported the affordable housing initiative by lowering the risk weights on loans for affordable housing. Financial institutions have pledged their support by raising funds for affordable housing. The International Finance Corporation (IFC) and HDFC, a large mortgage lender in India have partnered to create a US$800m fund to finance construction of affordable houses in India. IFC is also partnering with PNB Housing Finance to mobilise another US$800m for affordable housing.
The Government’s push for affordable housing has started yielding some positive results. More developers including some large ones like Shaporji Pallonji, Tata Housing, Mahindra Life Space Developers, Raheja group, Poddar group, etc., are foraying into affordable housing segment. Existing affordable housing developers are also scaling up their plans. A notable rise was observed in the number of affordable housing projects launched in FY18.
We view ‘Housing for All by 2022’ as another key step taken by the Modi Government to transform India from a developing to a developed nation, wherein everyone in India lives in a good and comfortable house in a hygienic environment. While the progress of the initiative so far has been tepid, we believe that the steps taken by the Government to address this issue will improve the pace of implementation moving forward. The grant of infrastructure status to affordable housing will rejuvenate the interest in this segment. The willingness of banks to lend to this segment will increase and banks will lend at lower interest rates. Benefits of lower borrowing cost, if passed on to the buyers will spur demand. Higher budget allocation from FY19 is likely to result in a notable pick-up in execution since funding availability will no longer be a constraint. Some more steps which will help further speed up the implementation are:
- Simplification of procedure for updating property records
- Extending the facility of online approvals to all cities in India
- Facilitating easy access to infrastructure like road, water and sewerage to affordable housing projects
- Provide security of tenure or even a no eviction guarantee for individual households who wish to upgrade their house but don’t have legal titles
Exhibit 3: Investment opportunities emanating from Housing for All by 2022