Is housing really the business of government?

Rahul Nahar

India is the grip of a housing crisis. The country’s urban housing shortage is estimated at approximately 19 million households, and, with another 230 million Indians projected to move to urban centres within the next 20 years, this shortage is set to deteriorate further. This problem is replicated on a global scale. If nothing is done to tackle the shortage, this will leave the next generation priced out of the market and an estimated 889 million people living in slums by 2020.

Why are we facing such a dire situation? Put simply, we are not building enough affordable homes. Urbanisation and changing demographics have pushed the demand for housing far beyond current supply. This situation has been exacerbated by the widening gap between the promises of governments to address the housing crisis, and their continued inability to do so.

One reason successive governments have failed to adequately solve the housing crisis has been a failure to think beyond the age-old old policy for the government to build more social homes. This policy has been proven to fail time and time again, however. In the UK, for example, where the supply of social housing is greater than anywhere in Europe, there remains a shortage of 240,000 homes every year.

Saying a lack of affordable housing supply necessitates an increase in government building is as absurd as suggesting rising food prices necessitate state-run farms. Worldwide, private sector building is the norm, and it is this market segment that need to be incentivised if housing supply is going to increase in any meaningful way.

An overhaul of existing housing policy that stifles private sector development is a promising starting point. In this regard, the initial policy reforms that Prime Minister Modi has put in place as part of the vision to create “housing for all by 2022” represent a step in the right direction. On the supply-side, granting infrastructure status to affordable housing and introducing RERA have opened up new avenues of finance for cash-strapped affordable housing developers.

This has been complemented by demand-side initiatives such as the PMAY scheme which, by providing a credit-linked subsidy for those wishing to buy affordable homes, has created a greater pool of buyers for affordable housing projects.

The initiatives alone, however, are not enough to alleviate the scale of India’s housing shortage and the government's reforms need to go further. Land acquisition remains a major challenge for developers, and the shortage of buildable land across Indian cities has steadily pushed up land prices. In the short-term, the government can help alleviate these costs by easing building density restrictions. In the long-term, the government can help ease this land squeeze by investing in infrastructure that makes suburbs more accessible.

A lack of affordable housing is an issue that, if left unaddressed, could have a paralysing effect on social cohesion and economic growth. Governments across the globe need to accept that the outdated and failed policy of social housing simply doesn’t work. Rather than trying to build more social homes as an inadequate substitute for private housing, the government should focus on developing a plan to encourage the private sector to build more affordable homes.

Author is Chairman of XRBIA Developers Ltd