As the shortage of 33 million dwelling units shows, the unsatisfied hunger for housing all over the country is huge. Supply has fallen far behind demand for a whole host of interlocking reasons chiefly to do with the policy environment over the years which has offered more disincentives than incentives to the private sector.

Vested interests thrived under the licence raj and blocked reform but change is occurring. Over the last few years, there has been halting but discernible movement towards removing restrictions such as rent control and land ceilings on the one hand. On the other, deregulation of industry has meant the lifting of controls on essential building materials such as steel and cement, lowering of costs, improvementin supplies and a wider range of products.

New investment in housing has received a boost from proposals in the budget. Finally, if Union Minister for Urban Development Ram Jethmalani succeeds in his efforts, there should be substantial FDI inflows to housing. Of course, civic infrastructure and municipal building codes are still in need of serious attention and will prove to be a drag on new development until reform is undertaken there as well. But even these sluggish areas could feel the winds of change when domestic and foreign developers start pursuing the opportunities that lie before them.

All this suggests a more promising environment for housing than has been the case ever before. But there is some way to go before dreams are realised. Certainly the potential for growth is huge. But housing costs will have to be brought down drastically before even part of it can be realised. Although NRIs have had the opportunity since 1993 to repatriate 100 per cent of profits after a three-year lock in period,it was not enough to set the housing sector on fire. A miserly Rs 500 crore came in through this route.

New tax incentives and the push behind low interest loans from banks will encourage house purchases. But the kind of returns that are whetting the appetite of foreign investors, and no doubt domestic ones as well, will come essentially from the broad middle sector rather than the top end of the market.

The scenario is similar to what prevailed in the early days of liberalisation vis-a-vis the consumer durables sector. Looking back now it can be said that assumptions of the size of the Indian middle class were based on wild estimates ranging from 250 to 350 million. Pent up demand was met far sooner than expected and industry was left with large inventories when demand petered out.

The cost factor, therefore, will be critical for the growth of housing. Low income housing needs will have to be met by the public sector for the foreseeable future. The scenario here is grim given not only the backlog ofdemand and resource constraints but also the fact that the freeing of the private sector takes away the option of cross-subsidising costs.