Housing policy: noble intentions, but improvements needed

The new policy expands housing possibilities, but falls short of addressing some fundamental issues

After staying long in the making, the first Tamil Nadu Affordable Urban Housing and Habitat Policy has been finally notified and it has been in the public realm for a few weeks now. Coming as it does, at a time when housing prices are steeply increasing, and owning or renting a house is possible only in far peripheries, the policy is a significant step. It has noble intentions and expands housing possibilities, including transit and rental housing for migrant workers. While this is a plus, in the absence of any reliable stock-taking, a clear statement of the problem and reassuring solutions, there are serious questions about the policy’s effectiveness.

Avowed objectives of the policy are three — first, the government will henceforth provide housing only for the very poor and ease its financial burden; second, it will nudge the private sector to provide affordable housing for the low and middle-income groups, particularly rental units; and third, using a shelter fund as a critical financial tool, it will support private developers to provide affordable housing and create a viable market for them. The policy rightly identifies that, besides building units, affordable housing, economically, requires the provision of social amenities, built sustainably and designed for climate resilience.

The ideas appear significant, but the problem is that they flounder on the fundamentals. A policy on affordable housing would usually first define affordability, estimate the demand and supply, work out the shortage, and spell out strategies to bridge them. However, the Tamil Nadu policy fails on this count. In the absence of a factual basis, a quantification of the problem and empirical measures to review the policy outcomes, good intentions could remain mere platitudes.

The fundamentals

Housing studies show that four factors affect affordability — the price of the house and income of the buyer; unit size; location; and availability of serviced land. The price-to-income ratio, in case of ownership, and rent-to-income in case of rental housing indicates how much an income group can pay for housing. When the ratio exceeds four in case of purchase or 30% of monthly income in case of renting, the house becomes unaffordable for lower-income groups. Over the last five years, in Chennai, as the previous year’s RBI study shows, this ratio has been increasing, making housing less and less affordable.

How does the new policy address this fundamental problem? It is silent. Not that the State is unaware of it. A draft housing policy study note in 2018 listed affordability housing prices for many districts. For example, in Chennai and Tiruvannamalai, where the median annual income of a household is ₹3.5 lakh and ₹2.25 lakh respectively, the affordable housing price is about ₹14 lakh and ₹9 lakh. Secondly, it ignores the vast differences between cities, and appears to view the entire State through the lens of Chennai.

A related issue is the scale of the housing problem. For instance, at ₹14 lakh as the affordability price in Chennai, about 56% of households or 7.55 lakh households are below the mark. Hence, it becomes imperative to estimate the housing demand and supply, against each income group, and work out strategies accordingly.

On the face of it, the three policy objectives appear meaningful. However, they seem to overlook ground realities. The State has decided to limit its direct provisions only to the economically-weaker sections (EWS), leaving out the lower-income groups (LIG). It will become evident, when the income figures are considered, that LIG also deserves equal attention. A study by MIDS in 2019, to which the author contributed, shows that the affordable housing price for LIG is about ₹16 lakh. Even if we assume personal savings could be mobilised, prices above ₹18 lakh-₹20 lakh, or rent beyond ₹10,000 would be unaffordable. For the rest of Tamil Nadu, the figures would be a lot lower.

The MIDS study also shows that in Chennai, private builders find ₹30 lakh-₹50 lakh as the lowest financially viable price segment to build, that too at a distance. Rentals within the city and close to job markets are steep. The policy seems to think that through financial incentives and higher FSI, it can convince private developers to supply houses at around ₹20 lakh, and that will lead to lower rents. This is going to be difficult, as the study mentioned above points out, as the FSI increase from 1.5 to 2 has had a marginal impact. Relatively low interest rates also will have a limited influence on price. A thriving, high-priced housing market requires more efforts.

Shelter fund

The policy holds the creation of a shelter fund as one of its flagship ideas. The government proposes tier I, a government-controlled fund, and tier II, an alternate investment fund, made up of contributions from the State and potential investors. Both are meant to enhance investment in affordable housing.

The tier-I fund is not entirely a new proposal. Since 2017, the government has provided an option for paying shelter charges for private projects exceeding 3,000 sq m, in place of reserving housing units for low-income groups. So far, it has collected about ₹181 crore. Not much has happened with this fund. When it comes to tier-II fund, meant to support private builders to take up mixed-income housing, there are no details about utilisation, selection of developers for funding and guarantees that the housing produced will be sold at affordable prices.

To make the policy useful and practical, first, data on housing demand and supply must be compiled, affordability has to be defined and shortage estimated. In the process, besides price, parameters such as location, unit size and job markets are to be factored in. Apart from supply-side incentives, demand-side support, particularly to LIG is necessary.

Land is central to addressing the affordable housing problem, and, hence, extensive investment in peri-urban areas to enhance the supply of serviced land is critical. To begin with, vast improvements can be made to transparency and public consultations, since as much as an acceptable policy, one also needs credible processes leading to it.

(The author is a professor at CEPT University, Ahmedabad. Opinions are personal.)

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