Government's failed Stimuli for Affordable Housing

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What is considered affordable housing has changed dramatically over the years in India. Real estate prices in India have shot up over the years - especially in the metros. Even a well-salaried person looking to buy a house in a metro city would struggle for a decent apartment with amenities. And if you opt for a home loan, your equated monthly installment (EMI) is likely to take a big chunk out of your disposable income. Not to mention that the loan burden might stay with you for the better part of your life.

The above trend has led to a rise in demand for affordable housing segment. The segment saw an increase in new launches in 2016. On the other hand, high-end residential unit launches declined, thanks to the inventory build-up. Government initiatives such as 'Housing for All by 2022' has also aided the momentum for affordable housing.

The above developments have also made things merrier for housing finance companies. Stocks of many housing finance companies, for example, surged after the government announced interest rate subvention recently. Mr Modi, in his address to the nation on December 31, 2016, announced an interest rate subvention of 3% and 4% for loans up to Rs 12 lakh and Rs 9 lakh under the Prime Minister Awas Yojana. Also, falling interest rates coupled with demonetisation has meant affordable housing look like a rising segment in the markets.

In fact, in the recent budget, Arun Jaitely gave 'Infrastructure status' to the affordable housing. This meant that, affordable housing would now qualify for priority sector lending for the banks.

However, there are many challenges before India will see affordable housing pick up. Problem such as high land prices, high state-level taxes, and lack of builders are core problems that plague this segment currently. The "Housing for All" initiative by the government still seems a distant dream.

Now, land typically constitutes around 70% of the project cost. This essentially means, the land prices largely define the cost of the project and hence affordability.

For affordable housing to gain traction, the cost of constructing homes needs to fall. For this to happen, first and foremost, the cost of land in and around cities needs to fall.

For the cost of land to fall, the government needs to increase supply. This can be done by increasing the FSI allowed on buildings. Further, the government needs to increase supply of land by trying to sell some of the land that it owns in and around cities, land that it inherited from the British colonial administration.

Furthermore, as Vivek Kaul said, there should be a formal rental market for the above initiatives to succeed.

These will be the first few steps towards affordable housing and the government's dream of "Housing for All by 2022".

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