Why does India need more houses?

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Even as 12 million houses lie vacant in India, it is often advocated that India needs increased housing supply to tackle the growing housing crisis. Here’s why…

If you travel through the suburbs of Mumbai, you will likely pass by row after row of completed houses with nobody living in them. Indeed, according to the property consultancy firm CBRE South Asia, there are approximately twelve million houses lying vacant across urban India. Paradoxically, India is simultaneously facing an acute housing crisis. Unparalleled urbanisation, increased life expectancy and changing living patterns have all contributed to the current shortage of 20 million homes that are needed across India. How should the government tackle this crisis? While the call to build more may at first seem counterintuitive as empty homes pile up, increasing the housing supply is precisely what is needed.

Understandingly this contradiction requires us to look at the reasons for this large vacancy. For the wealthy minority with cash to spare, purchasing real estate represents a sound investment that promises spectacular returns. Many newly built homes are therefore targeted towards this wealthy elite, who buy them without any intention of living in them. The speculative nature of the real estate market in India has meant that it would now take 580 years of an average Indian annual income to buy a flat in central Mumbai. And, for the 65 million Indians who now call slums their home, this gulf between the demand for affordable housing and the supply of luxury property is lived out on a daily basis.

What can the government do to ease the housing pressures faced by low and middle income households? If the government is serious about its commitment to create “housing for all by 2020”, it needs to create credible incentives for the private sector to increase the supply of affordable housing. The first step towards achieving this goal is to increase the availability of land that can be used to construct affordable homes. In densely populated cities such as Mumbai, where there exists just 200 sq km of buildable area to play with, regulations that restrict the density of housing developments are creating unnecessary barriers for affordable real estate developers. For example, easing density restrictions has been shown to facilitate slum rehabilitation projects that rehouse slum dwellers on the same site at no additional cost, by cross-subsidising the project through the creation of additional market-rate homes on the same site. Easing regulation on density restrictions will increase the potential sites available to affordable housing providers, rather than adding to glut of homes that cater for “buy to leave” investors.

Another way that the government can increase the supply of affordable homes is by facilitating greater public-private sector collaboration. Developing a new category of private developers, for instance, that build exclusively for the government could be advantageous for both the sectors. For the developers, the fixed contracts would alleviate the risks that typically push them to aim for high-value properties by creating a guaranteed buyer for their projects and increasing their long-term security. For the government, the competitive practices of the private sector would likely minimise costs, while increasing supply of the much needed affordable housing.

The undersupply of affordable homes is the root cause of India’s affordable housing crisis. As the current glut of luxury homes shows, however, market forces alone will not supply this demand. The government must do more to tackle this by making investment in affordable housing a possible, and profitable, option for private sector developers. 

Disclaimer: The views expressed in the article are solely of the author and may not represent 99acres.com's opinions on the subject. 99acres.com does not take responsibility for any actions taken based on the information shared by the author.

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