Meeting affordable housing demand in india

1. Meeting affordable housing demand in india Venky Panchapagesan IIM, Bangalore

2. Increasing Demand for Urban Housing • Rapid urbanization fueled by growth opportunities and decline in the role of agriculture • Urban housing needs come from: • Needs of new and migrant population • Changing needs driven by social and economic improvement • Replacement demand due to wear and tear • Not a unique problem to India. • Countries face this issue acutely during their growth stage • Several models have been tried out globally • Need to innovate to take into account local conditions and setup • Need to tackle it NOW!

3. Urbanization and Economic Growth Source: World Bank

4. Urban Growth in India By 2050, 900M people will be added to our cities (FICCI, 2011) Source: KPMG, Census

5. Urban Housing Demand Source: MHUPA, 2011

6. Our Response So Far • Uncoordinated and too small to make an impact • Large and haphazard urban development • Inability to convert “informal settlements” to “formal settlements” in a meaningful scale • Poor enforcement of development codes • Large unmet customer demand especially for small and low-priced houses • Land price speculation, aided by corruption, making houses unaffordable for low and middle income earners • Financing limited to middle and high-end customers and risk sharing is limited. • Housing industry seems “under-developed and over-regulated” • Policies skewed towards “home ownership” as opposed to “seeking reasonable shelter” • Inadequate appreciation of housing investment as a catalyst for economic and social growth (Harris and Arku (2006))

7. House Affordability Source: www.numbeo.com, 2013

8. Why Can’t We Make Low Priced Houses in Large Scale? • Structural causes • Related to land market • Related to financing and risk sharing market • Governance-related causes • Outdated laws/policies • Policies with high negative externalities • Policies that fail to incentivize stakeholders • Procedures whose cost overweigh benefits/redundant procedures

9. Structural Causes • Poorly developed land market • Inelastic land supply • Large and inefficient distribution of government-owned land • Size diseconomies of privately owned land • Risks from uncertain legal title • Slow and time consuming legal process to resolve disputes • Opaque price discovery • Under-reporting to evade taxes and hide sources • Difficulty in getting secondary market price information

10. Structural Causes • Poor financing and risk sharing market • Title risk can be difficult to price • Limited market for distressed investments • Mortgage limited to regular income earners • Limited securitization and refinancing • No borrower default insurance • Default recovery process stacked against lenders

11. Governance-related Causes • Constraining laws • Outdated Rent Control Act • Urban Land Control and Regulation Act • Constraining policies • Issues with land use conversion policies • Issues with floor space creation policies • Constraining procedures • Poor coordination across multiple agencies • Procedures vary by jurisdiction • Redundant procedures

12. Maximum FSI in Different Cities Source: CPR, Bertaud (2010)

13. Recent Developments • Government-driven • New legislations (e.g., Land Acquisition Bill, RE Regulatory Bill) • Changes to policies (e.g., Direct and indirect changes to FSI) • More holistic urban development (e.g. JNNURM) • Market-driven • Market for FSI (e.g., Transfer of development rights) • New entrants in low priced developer segment • Improvements in construction technology • New sources of financing (e.g. FDI) • Still much needs to be done….

14. Focus Areas to Build Capacity • Increase land supply and curb speculation • Develop private enterprise to enhance efficiency • Bolster property rights and improve transparency

15. Increase Land Supply and Curb Speculation • Unlock government land without losing ownership • Develop rentals/leaseholds on government land (possibly for agencies’ extended stakeholders to start with) • Pilot projects in Tier 2 and Tier 3 cities to iron out model • Increase FSI for low price housing projects • Tax additional FSI development and use it to improve infrastructure • Incentivize FSI increases for rental development • Promote land readjustment schemes • Outsource infrastructure work to speed development • Incentivize development on collateral land left with banks by defaulting borrowers (under SARFAESI) • Taxes on vacant housing

16. Unlocking Government Land

17. Develop Private Enterprise • Allow private ecosystem to satisfy those who can afford • Streamline procedures to reduce delay (“single window clearance”, insurance scheme for delays) • Personal liability scheme for delays (“Sakala” guaranteed services program in Karnataka) • Provide financial and tax breaks for better technology • Breaks for Green and Sustainable housing development • Provide incentives to corporates to finance development of infrastructure as part of CSR • Incentives for undertaking certain functions • Underwrite risk in mortgages (for customers) and in bond issuances (for developers) through Risk Fund • Underwriting price risk • Certification of developers that can be used to claim subsidies

18. Delays in Approvals Source: KPMG, Corruption and Transparency in Realty – The Reality

19. Improve Property Rights and Transparency • Digitize land surveying and titling • Start with urban centres and move to rural areas later • Work with the legal system to quickly clear disputes • Digitize property transaction records • Link land ownership data with national IDs like Aadhaar, PAN card etc. • Make all this information available to public without cost and within reasonable time