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Time to rethink public housing?

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The private sector cannot solve India’s housing problem

India’s real estate sector is in the doldrums. Of course, you already knew that if you were trying to sell property. ‘Quoted rates’ are just that — for conversation purposes — while real rates have already fallen by a fifth, with buyers still not showing up.

According to a recent report in The Hindu Business Line, new project launches in urban India — or at least in the major markets of the National Capital Region, Mumbai, Pune, Ahmedabad, Bengaluru, Chennai, Kolkata and Hyderabad — have fallen to a seven-year low, with just one lakh units being started this year compared to the average of over five lakh units between 2010 and 2013.

Unsold houses everywhere

The reason is not difficult to see. There is a huge pile-up of unsold inventory. The outer stretches of almost every major Indian city are littered with the skeletons of completed and partially completed projects. According to real estate consultancy Knight Frank, in the first six months of the current financial year, barely 17,000-odd sales of residential units were recorded across the country — in a country of over 1.2 billion people!

Unsold inventory levels are staggering. While the industry itself admits to unsold inventory levels of around 48 months across India, that is based on average sales during the golden years. If you extrapolate on current levels, the unsold inventory of built (or nearly ready) housing units across the eight top markets, estimated at 5.96 lakh units by Knight Frank, translates into a decade and a half’s worth.

Further, the introduction of the Real Estate (Regulation and Development) Act, 2016 (RERDA) — albeit by just a handful of States so far — promises to make the situation worse. Most of the under-construction projects in RERDA States are stuck because the developers cannot meet the new, stricter provisions of the Act, and cannot sell them without RERDA approval.

This, in a country where there is still a staggering shortage of housing, particularly in urban areas. According to the Ministry of Housing and Urban Affairs, housing shortage across urban India was estimated at 18.78 million units during the 12th Plan period (which ended, along with the era of planned development, on March 31 this year). But that may be a serious underestimate. According to a white paper ‘Indian Housing Industry’ by research and consultancy firm RNCOS, the housing shortage is expected to rise to 34.8 million units by 2022.

The developers we need

Of course, the private sector has woken up to the so-called ‘affordable housing’ segment and has been pushing it. The problem is, its definition of affordable is limited to price. But just because the price is lower doesn’t mean those needing houses buy them, because most of these houses are unliveable from a practical point of view — too far away from economic or employment hubs, poorly connected, and lacking social and soft infrastructure like education and entertainment.

So the private sector’s solution isn’t really working. The only other option is the state as developer. Here, the track record is very poor. Most of the State Housing Boards have built very little. The Gujarat Housing Board has built around 1.76 lakh units so far in over half a century. The Odisha State Housing Board, set up in 1968, has built around 28,500 houses. The Madhya Pradesh Housing Board manages around 6,000 houses a year.

This is way too little. And increasingly, of late, these housing boards have also gone the way of the private sector, jacking up prices. So much so that earlier this year, the Delhi Development Authority, which has a monopoly in Delhi, attracted only around 8,000 applications for 11,000 flats in the economically weaker section category, because of its high prices and shoddy construction in past projects.

Purpose of building

Housing, despite all the noise the government makes about it, does not get either policy bandwidth or adequate funding, particularly when it comes to mass housing in urban areas for the not-poor (they’re not rich either) middle class. This needs to change. Governments – both at the Central and State levels – need to lead the way as developers of affordable and liveable housing stock in cities. And they need to look seriously at not only building to sell, which is what they have been doing, but building to let. In other words, publicly owned housing which is available for use by private individuals.

Since the government is also the largest land owner in the country, it can manage this and control prices, both in the sale and rental markets, if it abjures from riding on the coat-tails of the private sector and avoids profiteering. This will also dampen inflation in the private sector.

Of course, for this to become a policy imperative, the political class needs to see the urban lower middle and middle classes as viable vote banks. Which, so far, only the Aam Aadmi Party has done, and we all know how far it actually got poor Arvind Kejriwal.

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Printable version | Jan 19, 2020 1:20:13 PM | https://www.thehindu.com/opinion/columns/time-to-rethink-public-housing/article19982617.ece

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