Developing EWS flats in cities tougher than households building own homes

The biggest challenge for India’s housing policy has been enabling the development of adequate formal housing for the urban poor and low-income households in the country’s million-plus cities. India’s urban housing policy bundles these households into the economically weaker section (EWS) income group — defined as households with an annual income of ₹3 lakh or less, and housing programmes of the Union and state governments mostly target this group. This focus is spot on. Empirical studies show that the share of EWS households among inadequately housed households has been increasing — from 96 per cent in 2012, according to the technical group constituted to estimate the urban housing shortage for the Twelfth Five-Year Plan, to 99 per cent in 2018, according to another study using the same methodology.

 

An independent study finds that the long-running Pradhan Mantri Awas Yojana-Urban (PMAY-U) programme has shown the way for addressing this challenge in non-million cities (under 1 million population). Supported by PMAY-U’s subsidy for self-construction of independent houses, more than 6 million EWS households in these cities have either completed or are in the process of self-constructing houses on land they own. But self-constructed houses as a policy solution don’t work in million plus cities, since land is costly and its ownership by households rare. So, one has to turn to flats. But developing flats is far more complex than households building their own homes.

 

To address this, states, under their “affordable housing” policies, have been trying to spur both public and private developers to develop flats. Relaxations in floor area ratio, higher ground coverage and density norms, and incentives such as transferable development rights allow developers to not only build more EWS flats but also more offices, malls, and high-income housing than normally allowed on a given land parcel. The idea being profits from the latter will cross-subsidise the EWS flats. Slum redevelopment schemes also work in much the same way. 

 

Additional incentives include tax rebates in income tax and goods and services tax to developers, and construction and home loans for affordable housing under the priority sector lending window. Besides these, direct cash subsidies for the development of EWS flats also provide support. Yet, developing these flats remains easier said than done. Despite higher subsidies, the number of EWS flats sanctioned under PMAY-U is less than a quarter of the independent houses sanctioned for EWS households. Why so? 

 

First, developing EWS flats requires a hefty quantum of direct subsidies as well as cross-subsidisation. The minimum cost of developing a 400 sq ft flat at a realistic construction cost of ₹ 3,000 per sq ft is ₹12 lakh, excluding land. Households usually contribute around ₹3 lakh, leaving a subsidy gap of ₹9 lakh. The subsidy required increases when land cost is factored in. The required subsidy has to come from government funding and/or cross-subsidisation supported through the “affordable housing” policies and slum redevelopment schemes. But the quantum of subsidy required is daunting and hence EWS flats are not developed at scale. It deters private developers from venturing into EWS projects. Public developers have limited bandwidth, and government coffers have limited funds. As a result, few EWS flat projects are sanctioned and undertaken.

 

Second, delays, which are commonplace in India, increase the already huge subsidy requirement. As a result, projects get cancelled. It is not surprising that close to half of the originally sanctioned PMAY-U EWS flats were cancelled. Land-related disputes and litigation, time required for land and construction-related approvals, and the perennial challenge in procuring affordable land at suitable locations are common causes for delays.

 

Third, the housing shortage doesn’t necessarily translate into demand for flats among EWS households. The lack of beneficiary household interest was cited as a cause for PMAY-U flat project cancellations. This is not surprising: EWS households living in poor-quality but well-located slums or unauthorised settlements are reluctant to relocate to flats built on city outskirts, which increase their travel time and costs. Accustomed to single-storey homes, many are also hesitant to live in high-rises.

 

In light of these challenges, what can be done for EWS housing in big cities? Firstly, EWS housing must be recognised as distinct from “affordable housing” across all central and state policies — not just in subsidy-based programmes. Otherwise, the importance that EWS housing needs gets obscured within the “affordable housing” umbrella, which encompasses housing priced up to ₹50 lakh or more. Focussed targeting of EWS flats through various developmental incentives through state government housing policies, alongside direct subsidies, should be ensured.

 

Secondly, explore whether small serviced plots of land, instead of flats, are feasible — both for households and in terms of the subsidy required. The viability of this approach, along the lines of World Bank’s 1980s sites and services scheme, should be examined for EWS housing, in all big cities.

 

Thirdly, encourage rental housing. Many EWS households in big cities are in search of livelihoods, not a permanent address. Their housing needs are best served by individual landlords. But insecurity of tenure is common. So, what can the states do? Reviewing existing state rental laws, along the lines of the Model Tenancy Act, 2021, can be a good starting point.

 

The growth of India’s economy is driven by its million-plus cities. It’s high time their housing policy is set right — and for that, EWS housing needs special focus from all stakeholders.

 

 

The author is an economist. The views are personal