The government has set itself a laudable goal with the “housing for all” initiative. If it is to achieve its stated aspiration, it will mean building 25-30 million houses by 2022—roughly over 3 million annually in urban India alone. India’s slum population is expected to touch 104 million in 2017, in addition to millions living in dilapidated structures.
Reform governance: A big failing of the affordable housing sector is legislative vacuum. Housing is not enshrined in the 74th Constitutional Amendment as one of the 18 functions for transfer from state to local governments. As a result, there is no one agency at the city level truly responsible for delivery of housing. This vacuum, in turn, has created many problems. States have invented various methods, albeit unsuccessfully, to fill this void either through the establishment of state housing boards and/or slum rehabilitation authorities. Unfortunately, both have failed, as testified by the sharp rise in India’s slum population from 52 million in 2001 to 65 million in 2011.
Second is the ineffective utilisation of the existing stock. For example, in the Mumbai Metropolitan Region (MMR), 12,000 units of affordable housing units to relocate slum dwellers around the airport are lying vacant because of a dispute between HDIL and MIAL, while 41.3% of the population lives in slums. Ideally, the local government should have the ability to adjudicate and settle this matter.
Third is the low quality of new stock created, as evident through the collapse of structures across urban India.
Fourth is that the occupants of such houses are not organised into a society that has the ability to maintain such structures. This is unlike the city councils in London that do so.
Fifth is the lack of coordinated planning, leading to missing trunk infrastructure and/or connectivity to inner city areas, resulting in a high rate of non-occupancy coupled with regressive rent control laws in some instances. Plans pay scant attention to long-term land-use and expansion of city boundaries for the metropolitan region as a whole. The result is the rise of illegal tenements on the outskirts. Adopting a holistic metropolitan planning process that also demarcates city boundaries for the next 40 years is essential.
Equally important is the need to amend the 74th Constitutional Amendment to add housing as a function to the existing list and to introduce “metropolitan government” as a tier of the government. With such accountability, local governments could develop simple systems to manage inventory and build well-informed, functioning information kiosks across the city to direct migrant labour and others to decent accommodation and, in turn, arrest slum proliferation.
Three more areas deserve attention from the ministry of housing & urban poverty alleviation. One, develop and notify a range of cost and quality benchmarks for affordable housing. With the planned rollout of GST in 2016, such benchmarks will be easy to enforce. States could be compelled to follow suit to eliminate arbitrariness associated with construction costs, provide some consistency to the urban form of cities, block rent-seeking vents, and provide safe and functional housing structures to millions.
Two, announce a time-bound plan to streamline building plan approvals at the central level. Debt servicing costs typically constitute 30% of the total project cost given India’s high interest rate regime, delays in securing approvals and the burden of rent-seeking. Moving to an approval system similar to Singapore’s self-certification by architects and the establishment of an online portal for approvals from the various central government ministries in a time-bound manner would reduce costs.
Three, design central schemes for success so they create millions in direct and indirect taxes and equal numbers of jobs and housing for all. Learnings from Brazil’s “My House My Life” programme are instructive. It focused on constructing 1 million houses through a series of efforts—establishment of a $20 billion fund, interest rates of 5-8% to finance 90% of the housing cost, incentives to suppliers, and 30-40% lower cost of finance to developers. Caixa, a central agency, acts as the approver and financer for projects and undertakes commercialisation of the stock through buyback schemes. Thus far, the failure of Indian schemes has stunted the growth of this sector in India. To achieve the above stated outcome, staffing the ministry with interested, knowledgeable and motivated bureaucrats is vital, as is the need to be consultative, recognise local preferences and encourage community participation. After all, cities are made of people, by people and for people. Simply allocating 2-5% funds for capacity building activities is ineffective as the experience of JNNURM has shown.
Fix land market distortions: Soaring housing prices are symptomatic of distorted land markets in urban India. What has led to this? First is the ownership of vast tracts of vacant land by the government. A recent presentation by the housing ministry suggests that large numbers of slums are distributed across a staggering 15,000 acres of land owned by the ministries of railways, defence, steel, heavy industries and shipping. The Delhi Development Authority alone has 7,000 acres of vacant land and the Mumbai Port Trust owns a staggering 752 hectares of land in the island city, India’s most expensive real estate market. Little has been done to improve the productivity of these lands. Setting-up SPVs to monetise and undertake mixed-used developments of these lands would be one way to address this challenge. It could also generate funds not just as land auction proceeds but billions in direct and indirect taxes. The housing ministry should have no direct role in such endeavours and instead the states in which these lands are situated must be co-opted on the boards of these SPVs to ensure linkages with the local authorities and parastatals to provide on-ground support to develop trunk infrastructure. Another dissuasion technique is to introduce “vacant land tax”, a variant of property tax. Latin American countries levy about 3% of the capital value.
Second, archaic draconian policies such as the ULCRA which have been repealed in virtually all states have left several large tracts of land in dispute with no redressal system in place. Interventions by the law ministry to set-up fast-track courts to unlock this impasse and free up disputed lands is necessary.
Third and most important is the absence of a well-functioning system of land records. A telling example is the discovery of an additional 1,500 acres of land by the DDA in January this year, after it completed its internal survey in November 2014. In August 2008, the government launched the National Land Records Modernisation Programme (NLRMP) in mission mode. It was to be administered by the Department of Land Resources, but little is publicly discussed or known about its progress. In the absence of land records, it is unclear how fast-tracking of building permits including deemed layouts and building permissions can be granted for pre-approved designs at scale.
Fourth, the Cabinet Secretariat recently shortened the lease tenure for government-owned lands to 35 years, inhibiting the sale of commercial and residential developments on such land tracts. In India, the uncertainty associated with policymaking provides scant certainty that such leases will be renewed on expiry. People are hesitant to put lifetime savings into such properties constructed on leasehold lands. Introducing clauses that support suo motu renewal of leasehold agreements or extending the tenure of these agreements similar to those in the UK is one way to overcome this issue. In short, although complex and politically challenging, unencumbering the lands is essential as it constitutes the bedrock of success.
Unrestrained focus on these areas could perhaps help make “Housing for All by 2022” somewhat of a reality. Relentless efforts akin to those undertaken for GST are needed to fix a challenge of this scale and size. After all, developing urban India is not for the weak hearted.
Rohra is an expert who co-leads McKinsey’s work on urbanisation in India. Maitra is a partner who leads McKinsey’s Strategy and Corporate Finance practices in India.
Sunali Rohra & Barnik Maitra