Role of Private Sector in Making Value Addition to Housing

Housing being a basic human necessity, is needed and required by the human beings for reasons of security, safety, identity, quality of life etc. Housing needs vary largely and remain individual/family centric based on income, affordability, resources available, family size, availability of the basic inputs of life, cost of house etc. Accordingly, providing appropriate housing has been largely an individual initiative. Over the period with rapid urbanization, industrialization and rapid migration/mobility from rural to urban and urban to urban, led by opportunities for gainful employment, making use of higher order of infrastructures involving education, healthcare, trade and leisure, paradigm of housing demand shifted from rural and became largely urban biased. Rapidly increasing demand of housing led by urbanization, migration, infrastructures, employment and limited supply of the housing stock, led to shortage of housing in the urban areas. Limited availability of resources with the migrants ,coupled with high cost of creating shelter, led to creation of temporary and sub-standard housing on large scale in the urban areas. These houses , being of temporary nature, made of waste/temporary materials and devoid of basic amenities, led to creations of numerous problems of health, hygiene, safety and quality of life. Looking at the role and importance of housing as determinant of quality of human living, health and happiness, Governments operating at national level took up the agenda of providing housing to all, as the goal to be achieved.

Looking at the entire housing related scenario in the country and studies made/ analysis carried out, by various committees set up by the government, agencies/institutions involved in construction/ promotion of housing and experts, have come to the conclusion that there exists large gap between demand and supply in the housing sector and majority of gap has been found to be in the housing related to economically weaker sections of the society. Considering the fact that these sections do not have the capacity, resources and options for creating appropriate shelter themselves, accordingly different strategies are required to be put in place for creating housing in affordable category, where majority of demand exists. Considering the enormous housing shortage there exists tremendous opportunities waiting for the private sector to be tapped.

In the past, housing for the weaker sections of the society was basically and essentially catered by the government/parastatal agencies, but considering the large gap/ volume of the housing in the affordable category, coupled with the limited resources and capacity available, government/parastatal agencies alone cannot fill this gap, accordingly it will be desirable that private sector and individual beneficiaries must be actively involved and empowered to play active role in creating appropriate housing . Private sectors, both in formal and informal categories ,have been known to provide over 90 per cent of the housing stock in the country. There exists wide gap between the housing need and supply due to slow response of supply to demand. According to Rottenburg & Edel (1972), the housing market often suffers from lags in supply adjustment due to considerable time taken to build a new house.

Housing market remains distinct and unique for number of features that distinguishes it from other markets. These features include: Immobility of housing units: Durability: Heterogeneity: Capital intensity ; Capital appreciation: Labour intensity, Land focused; Technology driven; Externalities etc. Considering these peculiarities and externalities, role of private sector assumes importance due to limitation existing on the part of the government agencies to effectively, efficiently and appropriately address the issues related to housing. Globally, national government in many countries have in recent times introduced large number of reforms and supportive policies and programs, aimed at stimulating and assisting the private sector to play leading roles in housing.

Rationale for Private Sector involvement in the Housing Sector

  • Reason , rationale and logic governing the large scale involvement of private sector besides the government/parastatal agencies, in the creation of large housing stock in general and in the affordable category of housing in particular, emanates from the facts that besides limitations imposed by the enormous backlog and limited availability of resources with the parastatal agencies, private sector holds distinct advantages over the public sector in creating large volume of housing stock. However, it has to be understood and appreciated that creating adequate housing, without the support of the government will not be possible due to large number of prevailing externalities which are controlled and regulated by the government policies and approach to housing. Accordingly, government need to create an enabling and supportive environment for the private sector to operate efficiently to meet the housing needs of the people. Involving private sector in housing on large scale has genesis in the following reasons;
  • Historically, housing development has largely been the private driven- with private sector, (comprising of individuals, co-operative and corporate organizations) contributing large proportion of housing stock in the country.
  • Private sector has shown and proven capacity, capability, efficiency and understanding the house needs/ requirements of the beneficiaries in the production of appropriate housing, as compared to the public sector agencies.
  • Private sector has shown its capacity and efficiency in sourcing and assembling appropriate land, design/construct the houses besides generating resources for the completion of the housing.
  • The private sector involvement goes beyond direct housing construction to manufacturing of all types of building materials, supply of labour and capital (Windapo, 2007).
  • UN (1976), observes that if the national housing goals are to be met, government should encourage, orient and where necessary, supervise the private housing sector.
  • Private sector is known to have capacity and capability to source cost- effective and time efficient global/local technologies, to minimize the cost of construction and reduce time frame for construction of houses.
  • Private sector is known for achieving high order of operational efficiencies duly supported with efficient and innovative management capacities/capabilities /techniques, which remain critical in creating large volume of housing stock at minimal cost.
  • Private sector holds distinct advantages in cost-cutting without compromising with the quality , by adopting processes and approaches based on mass production.
  • Private sector has shown its capacity and proved its worth for sourcing materials in bulk at a mutually agreed cost( generally much lower than prevailing market price) directly from the manufactures , at minimal cost for minimizing cost-escalation due to increase in the cost of inputs during the project time.
  • Private sector is known for its innovations, capacity and capability in project planning, designing , construction and completion of the projects without involving any time-overrun and cost- overrun.
  • Private sector unlike public sector holds the distinct advantage of raising resources, organizing manpower, involving new and innovative technologies , infrastructure, and machinery in the minimum possible time .
  • Contemporary developments worldwide practices, approaches and strategies distinctly favour the private sector driven housing development.
  • Government in India, in its National Housing Policy and current flagship housing program- Prime minister Awas Yojna , both urban and rural, have emphasized the role and importance of involving the private sector in creating affordable housing on large scale. The flagship program provides the option of taking up such schemes either on standalone basis by the private sector or jointly by both private sector and the parastatal agencies operating in the housing sector. In different states , private sector is also allowed to plan and develop housing colonies/construction of apartments by giving licensing of the housing colonies. State of Haryana, is known to be pioneer in involving private sector through the mechanism of licensing of residential colonies.

Limitations and Approach

For appropriately involving the private sector, numerous problems and road blocks that limit the housing delivery has to be clearly understood and appreciated. Involving private sector would require on the part of government/parastatal agencies to not only put in place a supportive and enabling environment/regime but also appropriate strategies to address the following factors, which largely impact the construction and delivery of houses.

  1. Cost of labour
  2. Accessibility to land
  3. Cost of building materials
  4. Accessibility to housing finance facilities
  5. Hindrances posed by government policies, regulations and bye-laws;
  6. Access / provision to infrastructure
  7. Inflation
  8. Corruption/greed

Private sector would expect that; Government should facilitate the private sector in sourcing land at an affordable cost; grant appropriate permissions on time bound basis; create an option of single window based system of project approvals; minimize the number of approvals required; grant time bound completion/occupation of the project; make available basic/supportive infrastructures like water supply/ electric connection on time bound basis; make available financial resources at affordable cost; incentivize sourcing/ innovating state of art construction technologies; promote industries producing of cost-effective construction materials/ materials produced from industrial and agricultural waste; reusing the construction and demolition waste; reducing government taxes and levies on land/ materials/ technologies involved in construction/transfer of land/houses ; rationalizing building bye-laws and development controls and granting higher floor area ratio/densities and incentivizing the completion of houses within the prescribed time frame and within the defined cost.

Public sector would expect that; Private sector should minimize profit and make houses both cost-effective and qualitative ; deliver houses within defined time, defined quality, defined specifications and approved terms of conditions ; create large housing stock in the affordable category where exists large demand/shortage; involve beneficiaries actively in the planning, designing and construction of houses; create state of art architectural design of houses; bring innovative speeder and cost-effective construction technologies; bring professional management in the housing sector; create large variety of affordable housing options; create large stock of rental housing and make housing sector affordable, qualitative and vibrant.

However, it needs to be understood and appreciated , that despite distinct advantages private sector offers in creating large stock of housing, involvement of private sector has to be done with care and caution. Since the operation of the private sector is largely driven by the motive of making large profit, with little concern of promoting public welfare, accordingly, appropriate checks and balances need to be put in place so that beneficiaries seeking houses are not fleeced, manipulated and exploited by the private sector. This would call for putting in place an appropriate policy/operational framework besides creating an independent regulatory mechanism so as to ensure that private sector behaves and operates in a professional manner and delivers all the promises made while launching any housing related scheme. Looking at the performance of private sector, with few builders cheating thousands of applicants without providing the promise apartments in Noida and other cities, even after receiving full payments for the promised houses, calls for appropriate mechanism to regulate their operations so that such incidents do not get repeated. Government must put in place an effective, efficient and dedicated framework for registering of only reputed builders /colonisers , who have appropriate knowledge, expertise, skill, resource, reputation and manpower to undertake the construction and deliver the promised houses. All fly-by-night developers must not be permitted to be involved in creating housing/ real estate sector. In addition, no private builder should be allowed to launch any scheme and receive money from the public for any house, unless the project is approved by the competent authority. Details of all the applicants registered with the developers for buying houses/flats must be displayed by the developers. All the approvals/ names of the applicants should be put on the specially created website/ through any other system, so as to bring into the knowledge domain of the of the people/community at large. Further, the progress of the project should be appropriately monitored periodically. Role of RERA ( Real estate Regulatory Authority), has to be made more effective and efficient. Government should also undertake and launch dedicated programs, focusing on empowering and building capacity of the private developers on sustained basis by handholding., to make the sector more effective, efficient and productive .

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