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What Is Holding Back India's Affordable Housing Supply?

Addressing the issue of housing supply will be key to determining whether the government is able to deliver on its promise to achieve housing for all. We know what the hurdles are - now is the time to introduce measures to overcome them

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The government's flagship policy to achieve housing for all by 2022 has thrust the affordable housing sector into the spotlight. Headline changes to the industry, such as PMAY and RERA, have grabbed the public's attention and made home-ownership a real possibility for more families. Yet, while this issue may be gathering unstoppable momentum in terms of housing demand, the question of how to increase supply has been cast into the shadows.

Why is housing supply so important? 
Delivering on the government's promise will require homes to be built on an unprecedented scale. With more than 10 million people migrating to cities and towns each year, India's urban population is expected to reach an unprecedented 810 million by 2050. To house this population by 2022, 110 million houses will likely be required, estimated to cost approximately $2 trillion.

To supply homes on this scale, there needs to be a surge in the supply of affordable housing - so why does house building remain sluggish? The reality is that private developers face hurdles at every step of the building process, rendering them unable to respond to ever-growing demand.

What is holding back developers? 

The first hurdle developers face is finding a plot of land to build on. Limited availability within city limits lead to high costs which, coupled with lengthy approval processes and red tape, make the cost of securing a piece of land expensive and time-consuming. This is then compounded by building density restrictions and undeveloped infrastructure at the development stage of a project -  tempting developers to play it safe and cater to the luxury segment of the market.

Even if developers manage to secure a plot to which to build, additional obstacles arise when projects reach execution stage. For example, while prefabricated techniques can dramatically speed up construction and reduce cost, a lack of technology and labour skilled in these techniques holds back efficiency. The cost benefits of building at scale are also curtailed when developers are unable to secure credit and funding at reasonable rates.

How can government help? 
Private developer participation is vital to addressing India's affordable housing challenge. Fortunately, the government can introduce relatively simple measures to  kickstart supply. Firstly, to address the issue of land supply, the government could release land parcels specifically for affordable housing projects and ease density restrictions where possible - opening up space for affordable homes in areas where they are needed most.

In the longer term, investment in infrastructure is vital to open up more spaces that people want to live. Indeed, we can already see transformations taking place across the country as a result of infrastructure investment. Chembur, for example, was once perceived of as far outside the city centre, yet now finds itself at the heart of a new, better connected, Mumbai. With people, businesses and restaurants all following in the wake of new infrastructure, this up-and-coming location has become a vibrant community for people to live and an irresistible investment hotspot for forward-thinking buyers.

To enable developers to build at scale, efforts must also be made to reduce the cost of financing affordable housing projects. A tax exemption for Indian investors in Real Estate Investment Trusts (REITs) is one way to ease investment concerns, as is granting the sector infrastructure status which would enable the sector to obtain funds at reduced rates of interest.

Finally, the sector needs to embrace technology to build at scale -something Xrbia has championed for many years. Using prefabrication techniques, for example, Xrbia  is able to build homes three times faster. Multiple-level buildings can now be built within 90 days and use approximately 20% less material and space than traditional construction techniques. Innovative construction techniques such as these save time and space, and government should facilitate their use wherever possible.

Addressing the issue of housing supply will be key to determining whether the government is able to deliver on its promise to achieve housing for all. We know what the hurdles are - now is the time to introduce measures to overcome them.

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.

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affordable housing opinion

Rahul Nahar

The author is Founder, XRBIA Developers

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