Affordable housing has long been a cornerstone of sustainable urban development and social stability. As the global population continues to urbanize, the need for affordable housing solutions has become more pressing. This article sheds light on the intricacies of affordable housing in India and China, two of the world’s most populous countries, and examines how their respective governments are addressing the challenges and opportunities in this sector. The article will also explore the perspective of CREDAI-MCHI, a leading Indian real estate body, and their long-standing request to remove the price cap of Rs 4.5 million and declare all houses of 60 sq m as affordable to ensure more people can own homes.
The Indian Context: Affordable Housing Challenges
The Housing Shortfall
India faces a significant shortfall in affordable housing. According to the Ministry of Housing and Urban Affairs, India has a housing deficit of around 10 million units in urban areas, with the majority needed for low-income groups. The government’s ambitious Pradhan Mantri Awas Yojana (PMAY) aims to address this by providing affordable housing to all by 2022, a deadline that has been extended due to various challenges.
CREDAI-MCHI has been advocating for policy changes to spur the affordable housing market. The proposal of removing the price cap of Rs 4.5 million on affordable housing units and categorizing all houses of 60 sq m as affordable is the need of the time. This policy shift, would make homeownership more attainable for a larger segment of the population and stimulate economic growth through increased construction activity.
Government Initiatives
The Indian government has introduced several initiatives to promote affordable housing:
1. Pradhan Mantri Awas Yojana (PMAY): Launched in 2015, PMAY aims to provide affordable housing to urban poor by 2022. The scheme offers interest subsidies for home loans to make housing finance more accessible.
2. Credit Linked Subsidy Scheme (CLSS): Under PMAY, this scheme provides interest subsidies on home loans for the economically weaker section (EWS), low-income group (LIG), and middle-income group (MIG).
3. Incentives for Developers: The government offers various incentives to developers, such as tax benefits and faster approvals, to encourage the construction of affordable housing. Statistical Overview According to the research of CREDAI-MCHI, about more than 50% of the housing demand in India is for affordable housing. However, only 15-20% of the new housing supply caters to this segment. The gap is stark, highlighting the need for more focused policies and innovative solutions.
The Chinese Approach: Innovative Policies and Economic Impact
Addressing the Property Crisis
China has been grappling with a prolonged property crisis, characterized by a glut of unsold apartments, which has severely impacted developers’ cash flows and weighed heavily on home prices, consumer confidence, and economic activity. In response, Beijing issued a directive in May 2023, instructing cities to buy newly completed apartments and convert them into affordable housing. Under this directive, the government first identifies newly completed but unsold apartments which are often part of larger residential complexes built by developers facing cash flow issues due to the sluggish property market. Municipal governments negotiate with developers to purchase these apartments, often at a discounted rate due to the bulk buying and the developers’ need to liquidate assets quickly. The government assesses the current state of the apartments. Since these units are newly constructed, they are typically in good condition and require minimal structural changes. Apartments are then standardized to meet the criteria for affordable housing. This might involve ensuring the units are equipped with basic amenities and meet safety and quality standards. The cost of converting these apartments into affordable housing is relatively low compared to building new units from scratch. The primary costs are associated with ensuring compliance with affordable housing standards and possibly minor modifications or upgrades. The initial cost involves the government buying the unsold apartments from developers. The price is negotiated to be lower than the market rate due to the volume of units being purchased and the developers’ urgency to sell. The cost of purchasing and converting these apartments is primarily borne by the government. Beijing has facilitated 500 billion yuan ($69 billion) in funding for this initiative, with expectations for future increases. This move aims to alleviate the property crisis and stimulate economic growth by increasing household consumption.
Expanding Eligibility
Chinese cities have unveiled plans to broaden eligibility for subsidized housing to include a wider range of demographics, such as doctors, teachers, migrant factory workers, and scientific researchers. This approach aims to address labor shortages, retain talent, and reduce population outflows to mega-cities like Shanghai and Shenzhen.
Economic and Social Benefits
Economists suggest that developing affordable housing in smaller cities can ease labor shortages, strengthen healthcare and education, and reduce economic and social pressures. This strategy can also broaden the tax base and boost economic activity in these regions.
Funding and Subsidies
The Chinese government is facilitating 500 billion yuan ($69 billion) in funding for this nationwide scheme. Cities like Hangzhou and Jinhua are offering substantial rent discounts, making housing more accessible to low- and middle-income groups. Analysts believe that scaling up this scheme could significantly boost household consumption and drive sustainable economic growth.
Comparative Statistics
China’s affordable housing stock currently accounts for about 5% of the total housing stock. Boosting this to 20%-30% could have a massive impact, requiring an estimated 3 to 4 trillion yuan in financing. This level of investment underscores the scale and ambition of China’s affordable housing initiatives.
Comparative Analysis: India vs. China
Policy Approaches
While both India and China recognize the importance of affordable housing, their approaches differ significantly. India’s focus has been on providing interest subsidies and incentivizing developers, whereas China is directly purchasing and converting unsold apartments into affordable housing units.
Economic Implications
China’s approach of converting unsold apartments addresses multiple issues simultaneously: reducing the inventory of unsold properties, providing affordable housing, and stimulating economic activity. India’s strategy, on the other hand, relies heavily on private sector participation and faces challenges related to project execution and financing.
Social Impact
China’s inclusive approach, targeting a broader demographic for affordable housing, aims to address brain drain and labor shortages. India’s efforts, while significant, are primarily focused on low-income groups, which may limit the broader social and economic benefits that could be achieved through a more inclusive strategy.
Recommendations to boost affordable housing in India
To align with the government’s vision of “Housing for All” and to boost affordable housing, the following measures are recommended:
1. Policy Reforms: The proposal to remove the price cap and classify all houses of 60 sq m as affordable must be explored and considered. This would expand the market for affordable housing and attract more developers to participate. If that is a far-fetched idea, a separate metro cities affordable housing index to be created with no price cap and all houses of 60 sqm in metro cities shall be defined as affordable homes.
2. Public-Private Partnerships: Enhance public-private partnerships to leverage private sector efficiency and innovation in affordable housing projects. If affordable housing projects are offered subsidies and lower premiums or approval charges, more developers will come forward for taking up affordable housing projects. By offering PPP, the government can provide land or subsidies, while private developers bring in expertise and additional capital required. Developers engaged in the affordable housing projects can be provided with tax breaks or subsidies to develop affordable housing. This move can include reduction in stamp duty, property taxes, tax credits or grants for construction costs.
3.Financing Solutions: Develop new financing mechanisms, similar to SWAMIH fund, such as housing bonds which can provide a large pool of funds dedicated to affordable housing and can attract private investments by offering tax exempt interest on bonds, or Real Estate Investment Trusts (REITs) which offers liquidity and regular income to investors and can attract investment from individuals or institutions that might not directly invest in real estate.
4. Broaden Eligibility: Expand the eligibility criteria for affordable housing to include middle-income groups, essential workers, and young professionals, thereby addressing labor shortages and retaining talent.
5. Urban Planning and Infrastructure: Integrate affordable housing projects with broader urban planning and infrastructure development to ensure they are located in areas with good connectivity and amenities.
6. Monitoring and Transparency: Establish robust monitoring mechanisms to ensure transparency and accountability in the allocation and utilization of funds for affordable housing projects. This can be achieved by developing comprehensive and mandatory framework outlining the responsibilities of all stake holders. Also, digital platforms and online portals where all project related information can be uploaded including finding details, project progress and timelines. These platforms can be used for submitting application, approvals, fund disbursement and reporting.
Affordable housing is a critical component of sustainable urban development and economic stability. By analyzing China’s innovative policies and adopting a more inclusive and comprehensive approach, India can make significant strides towards achieving its goal of “Housing for All.” With the right policy reforms, financing solutions, and collaborative efforts between the public and private sectors, affordable housing can become a reality for millions of Indians, driving economic growth and enhancing social well-being.
It is important and the need of the time for India to address the challenges head on and implement such recommendations to bridge the housing deficit and to create a vibrant, all-inclusive communities that contributes to the nation’s overall prosperity.