Rapid urbanization and migration have been driving the growth of cities in India, attracting people with the promise of better employment, living standards, educational facilities, and infrastructure. While this trend has brought numerous benefits, such as an increase in the skilled workforce and technological advancements, the negative impact of migration and urbanisation cannot be ignored. The housing shortage in our cities has reached alarming levels, necessitating urgent action and futuristic planning to address the issue.
According to a World Bank report, almost 65.5 million Indians live in urban slums, highlighting the lack of affordable housing options for the millions migrating to cities without a place to reside. The existing slums, particularly on the outskirts of major cities, present significant challenges in terms of infrastructure, basic services, land, housing, and the environment. The scenario calls for a regular supply of ready-to-move-in affordable housing to meet the growing demand.
India’s urban population has been growing at a compound annual growth rate (CAGR) of 7.8 percent from 2012-2021, resulting in an increase in the urbanisation rate to 35.39 percent from 31.28 percent.[i] With over 498 million urban dwellers out of a population of 1.42 billion, and more than 10 million people being added to urban areas every year, the need for housing is critical.
The lower income group (LIG) and economically weaker sections (EWS) of society are the most affected by this housing shortage, with a shortfall of 29 million units. The shift towards nuclear families, with 56 percent of urban households having four or fewer members further increases the demand for housing in urban areas.
The real challenge
One primary challenge in addressing the housing shortage is the cost of construction. The Reserve Bank of India (RBI) sets the criteria that the cost of affordable houses should not exceed Rs 45 lakhs or 4.5 millions (approximately USD 54,795). However, construction cost varies for different housing segments, affecting profit margins for real estate developers. To ensure affordability, controlling construction costs is crucial. Additionally, people in the LIG and EWS segments have limited access to formal finance, as they often lack the documentation required by financial institutions. It results in higher rates of interest and loan rejections due to a lack of income proof. The lack of available land and finance at reasonable interest rates further contributes to the supply-side constraints in the affordable housing segment.
To address these challenges, it is essential to explore alternative solutions. One approach is to provide cheaper construction finance and source adequate long-term funding throughout the project life cycle. Real Estate Investment Trusts (REITs) and Real Estate Mutual Funds (REMFs) can offer excellent funding opportunities for property development, eliminating tax-related ambiguities. Additionally, the adoption of lean construction methods, such as 3D printing, can significantly reduce costs and wastage while increasing efficiency. There are several examples on this aspect. Tvasta Manufacturing Solutions, a start-up founded by IIT-Madras alumni, has successfully constructed India’s first 3D-printed house, showcasing the technology’s economic and environmental benefits.
Government initiatives and public-private partnerships play a crucial role in addressing the housing shortage. Urban Local Bodies (ULBs) and Urban Development Authorities (UDAs) should incentivise private developers in the affordable housing segment by providing economical land, higher floor space index (FSI), single-window clearance for approvals, tax subsidies and by reduced external development charges (EDC) and infrastructure development charges (IDC).
Let’s draw inspiration from global best
Learning from successful global examples, such as Singapore’s housing model, where over 80 percent of the population lives in public flats with ownership opportunities, can provide valuable insights into India’s affordable housing sector.
On the housing front, the results prove that the influx of migrants has contributed to price increases impacting the economy of cities. While citizens may have more choices in terms of living in the long term, housing prices need checking. Regulatory authorities must consider the impact of migration and implement spatial planning based on the demand and supply situations to curb rising housing prices.
In the long term, proper land management and planning need to be aligned with the projected housing demand and population growth.
With the country at the cusp of change, it is crucial to find sustainable and long-term solutions to address the current and future challenges in the housing sector. By focusing on futuristic planning, innovative construction methods, and effective public-private partnerships, we can make our cities resilient and provide affordable housing to all.
The author is executive chairperson at Religare Enterprises Ltd, an Indian investment and financial services holding company, headquartered in New Delhi.