Location issues keep targeted buyers away, but bring in enough investors wanting to park their money in low-cost housing
It’s easy to measure how the housing prices drop the farther you go out. As one quote puts it – “Keep driving until you can afford it.” The stories about those struggling to find housing close to their jobs are numerous, and it’s becoming a bigger concern as younger families join the local workforce. From Srinagar to Siliguri, people are stuck in inadequate homes or pay so much of their incomes for housing that they forego other necessities. High housing costs squeeze middle-income families, and in costly cities, even households earning far more than the median income can be financially stretched by mortgage payments, thus limiting the growth of the local economy. For decades, policy makers and private sector leaders have tried to solve the affordable housing problem, yet it has only grown more severe and today, one-third of the entire urban population worldwide is stuck in slums or inadequate housing or are paying too much of their incomes for housing. Noida offices report a lot of young professionals who are coming in (to work), but most of them can’t find an affordable place close. “Though these homes are meant for the EWS and LIG segments of the society, the so-called low-cost housing across India is finding mostly investors,” says a Noida broker, adding, “These are not people who plan to stay in them because these houses are located too far away from offices and have little support infrastructure.” That he says is defeating attempts by the government to increase the accessibility of housing through tax breaks and other incentives, the benefits of which are therefore going towards those more interested in turning a profit. To be sure, investors are also taking a gamble for the same reasons of connectivity and support infrastructure. “Most projects are not affordable in terms of living and these projects are bought by investors who park their money. If it is a wrong product, their investment gets stuck,” he says. “Frankly, nobody in the lower income group can afford to live far enough outside the city where housing costs are lower, and also commute in everyday,” says Deepak Sharma, who works as a fabricator with a Noida steel manufacturing unit at Sector-9. “Nor would many people want to commute two or three hours each way for work.” Ask private developers why they would not build for this segment and they tell you that their entire business model was built around mortgage financing or take-out financing. Their existing customers have the ability to get a mortgage from a bank, or a financial firm. The banks, of course, won’t finance houses for customers, like vegetable vendors, autorickshaw drivers or even those working in small, private firms. Says a Noida developer: “It can be expected that people from the EWS and LIG segments will need to take loans from banks in order to pay for the houses. Most of them, however, find it difficult to get housing loans sanctioned by banks because they do not meet the eligibility criteria in terms of either their net worth or the financial status of their employer organisation.” While eligibility criteria vary between banks, anecdotal evidence indicates that it is difficult for someone running a small business (such as a small beauty parlour) to get a loan from a nationalized bank. For employees to get a loan, banks often require that the borrower be a permanent employee for at least three years in an organisation that has a good, minimum paid up capital, has been in existence for at least five years, has at least 100 employees, and provides superannuation benefit to its employees – conditions that would be difficult for many of the borrowers to satisfy since they might be working in the unorganised sector or small scale industries. Another significant challenge, peculiar to this housing segment, comes in the process of acquiring the customer from the targeted segment. Since there is a shortage of supply and high demand for affordable houses in the market, even the economically well-off are attracted towards purchasing low cost houses that are meant for the EWS and LIG as an investment option in anticipation of price escalation.” This group of people has greater ability to get loans from banks and often own vehicles for commuting, thereby overcoming many of the challenges that the EWS/LIG customers face. In order to manage affordable housing delivery, the authority must find land at the right cost, reduce operations and management costs, adopt more efficient construction processes, and improve access to financing for home buyers and builders. Together, these approaches can reduce the cost of a finished housing unit by 20% to 50%. They can be applied anywhere in the world and can make housing affordable (without subsidies) for households earning 50% to 80% or more of local median income. Affordable housing programmes must be designed and implemented as part of a comprehensive housing plan that considers the needs of people up and down the housing ladder, not just the lowest-income segments (new luxury and middle-income homes can free up older stock for affordable housing). It should also be viewed as an important component of a broad effort to integrate low-income groups into the economy. So new affordable housing must be in places from which residents can commute to centers of employment and reach vital services such as schools and
healthcare facilities.
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