April 30, 2022

What is Affordable Housing?

Affordable housing comprises dwelling units which are affordable to those earning wages below the average household income or the median income as quantified by the national or state government or any other appropriate housing affordability index. In our country, affordable housing stocks are set aside for low-income, middle-income and economically weaker sections with extremely low income levels.

The concept of affordable housing is absolutely critical for developing countries like India where buying a house remains a pipe dream for most people who struggle every day simply to make ends meet and can’t think of acquiring their own property at prevailing market prices. Affordable housing policies should be differently oriented to cater to urban and rural areas, considering that the main constraint in urban areas is land.

The government’s role.
While determining affordability, one of the critical factors considered is disposable income, which squarely shifts the onus of providing affordable housing to those who need it, to the government, given our average per capita income. The silver lining is that the Central government has woken up to this burning need and has taken several measures to boost the stocks of affordable dwelling units across the country, including taking private real estate developers on board and working out PPP models.

The Affordable Housing Scheme was rolled out in June 2015, which makes affordable housing units eligible for substantially lower GST, thus lessening the burden on the buyer considerably. The parameters for qualifying as an affordable housing unit in metro cities like Delhi NCR, Mumbai, Kolkata, Bengaluru, Chennai, Hyderabad, etc are a price of or below INR 45 lakh and carpet area of or less than 60 sq m. In non-metro cities, the ceilings are INR 45 lakh and 90 sq m, respectively.

The growing economy in India has triggered a higher demand for better housing facilities, leading to a mismatch between demand and supply of dwelling units, more so in the affordable segment. A report by the Technical Group on Estimation of Urban Housing Shortage in 2012 highlighted the massive demand-supply chasm in both urban and rural segments. The report pegged the contribution of the two low-income categories – the EWS and LIG – to the total housing shortage at a whopping 96%.
Given the rapid pace of urbanization, Pioneer Property Management estimates that more than 40% of India’s population will live in cities by the end of this decade.

The Planning Commission calculates affordable housing needs by putting together:
# Number of households over existing housing stock
# Number of families residing in “unacceptable” dwelling units
# Families living in “unacceptable social conditions” due to congestion
# Number of homeless families

Government initiatives for affordable housing:
The government has introduced a clutch of measures to address the needs of affordable housing, including:
# National Urban Housing and Habitat Policy (NUHHP), 2007
# Pradhan Mantri Awas Yojana or PMAY (Urban), 2015
# Pradhan Mantri Awas Yojana or PMAY (Rural), 2016
# GST on affordable housing whittled down from 8% to 1%
# To combat the impact of Covid-related reverse migration, the Affordable Rental Housing Complex (ARHC) was created under PMAY (U) to provide rental housing at affordable rates at work sites

Sops for real estate developers:
A number of steps have been taken to encourage private developers to enter the affordable housing segment, like
# Subsidies, tax benefits and institutional funding
# Creation of a dedicated Affordable Housing Fund (AHF) in the National Housing Bank
# Exemption of IT levy on notional rent on a second self-occupied house
# TDS threshold on rent increased to INR 2,40,000

What has been the impact of affordable housing on our economy?
# Employment generated for over 6 crore workers across several sectors, upstream and downstream
# Massive boost for steel and cement industries
# Demand surge across ancillary sectors including furniture, transport, iron & steel, electrical, paints, plumbing equipment, etc

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