Housing for All and smart cities missions must converge to use the benefits given to each other
The year 2016 turned out to be a year of transition, particularly for real estate – a sector that has been directly or indirectly affected or altered by most policy reforms introduced by the state or Central governments. Some of these policy changes might seem disadvantageous in the short run; however, they will render the entire system more mature, organised and transparent.
The recently-announced Union Budget 2017-18 has yet again emphasised the importance of housing, and has accorded infrastructure status to this sector. It is important to attract the attention of all stakeholders to this sector, particularly those who influence supply – developers and banks. Given the benefits offered in the budget, the clearer definition of affordable housing in terms of area, relaxation of construction timelines for affordable housing projects, and tax incentives, it is evident that India is moving towards significantly reducing its share of homeless people.
The traditional factors influencing housing demand keep fluctuating due to policy interventions; yet, consumers keep investing in real estate. This is evidenced by the fact that housing sales velocity has not dropped significantly anywhere in India due the various policy reforms. Moreover, today’s market primarily consists of buyers (as much as 80%) who depend on loans for financing their housing needs.
Of all the policy initiatives, the Housing for All (Pradhan Mantri Awas Yojana) and the Smart Cities Mission are two major flagship policies that have affected the demand and supply trends of residential real estate, and have a huge impact on addressing the issues of informal housing/housing for the urban poor. The recent Real Estate Regulatory Act does not concentrate on incentives to promote informal housing, though it increases transparency in the formal residential market.Affordable housing shortage continues to be a major concern in the country today, and can be correlated with the rate of urbanisation taking place. According to the Census of India 2011, India’s urban population increased to 377 million, reflecting the rise in urbanisation from 27.8% to 31.2% between 2001 and 2011. This rate of urbanisation has led to many issues such as land shortage, housing shortfall, severe pressure on available infrastructure, transportation deficits and stress on basic amenities like water, sanitation and health care.
The Housing for All and smart cities missions, through convergence, use the benefits given to each other and also compensate for shortcomings by leveraging their advantages. While Housing for All concentrates on funding and incentives for developers and buyers, the Smart Cities mission focuses on leveraging land availability, implementation under single entity SPVs (special purpose vehicles), and strengthening basic infrastructure facilities.
As part of the smart city initiatives, some Indian cities have planned convergence with the Housing for All scheme to address the informal housing sector. Some of these initiatives would include housing for economically weaker sections or affordable housing, slum redevelopment, rental housing, working women’s hostels, shelters for the homeless, etc as part of the smart city plan. All these would be developed through the PPP model with the involvement of private developers. This has been successfully adopted in Bhubaneswar Smart City, which ranked number 1 in the Smart Cities Challenge competition by the ministry of urban development. There is a huge opportunity for private developers to get involved in the development of housing for the informal sector.
Aspects which would form the basis for the success of the convergence agenda and will address the housing shortage issue of India in a big way through private participation are:
Land as a resource: Land price is the major component of any housing project in urban areas, and currently forms an average of 30% to 50% of the cost of a project within city limits (depending on the location and applicable FSI). This cost plays a major role in the pricing and affordability of residential units. Smart cities leverage available government-owned land parcels within the specified areas for development for housing for the urban poor and the informal sector. Utilising such land parcels at a subsidised rate will drastically reduce the pricing of the resultant housing units.
Technology intervention in construction: Another major component is the cost of construction and escalation of the cost during the construction period. To address this issue and make housing for the informal sector more feasible, it is important to reduce construction costs and construction timelines.
Redevelopment within city limits: Most of the smart cities in India have adopted the redevelopment model for ABD (area based development). Redevelopment of various other areas could also have housing as one of the options, or as one among various products, with the cross-subsidisation model to provide more housing units and reduce the existing shortage.
Improved infrastructure: The Smart Cities Mission aims to create and maintain high-quality, 100% efficient civic infrastructure. The efficiency of the utilities in our cities has been an elusive factor so far, thanks largely to inadequate monitoring and responsiveness. Electricity, sewerage, storm water drainage and water supply will be strengthened in smart cities, relieving the stress that large-scale housing projects invariably create on a city’s infrastructure.