What is affordable housing?
Affordable housing refers to housing units that are affordable for those with income below the average household income. In India, affordable housing is provided for low income people, middle income people and economically weaker sections who have considerably low levels of income (urban areas).
Affordable housing is a key issue in developing countries like India where majority of the population isn’t able to buy houses because if the high market price.
Affordable housing in rural and urban housing sector need differently tailored policies as land is the main constraint in the urban areas.
Need for the promotion of affordable housing in India
As our country is going through an economic transition characterised by demand for better housing facilities, there is a widening gap between the demand for houses and its availability. Both in the urban and rural areas, there is lack of proper housing facilities.
As per the Report of the Technical Group on Estimation of Urban Housing Shortage (2012), there is a huge gap in demand and supply of urban housing both in the urban and rural areas.
According to the Technical Group Report, two low income categories – economically weaker sections (EWS) and low-income group (LIG) accounted for 96 per cent of the total housing shortage in India.
Given the need for houses and increasing trend of urbanisation, housing facilities in urban areas has to be expanded. With the current progress of urbanisation, around 40% of the country’s population is expected to live in urban areas by 2030.
In the context of the estimation of affordable housing needs, housing shortages are calculated (Planning Commission methodology) by adding:
(a) excess of households over housing stock,
(b) the number of households residing in unacceptable dwelling units
(c) those residing in unacceptable physical and social conditions due to overcrowding and congestion factor and
(d) the houseless households.
Hence, it means that there is obsolescence (of houses), congestion factor and homeless factor in estimating new housing demand.
Initiatives for affordable housing
Recognising the importance of providing housing to the poor sections, government has initiated a group of measures over the last fifteen years. As a beginning, the National Urban Housing and Habitat Policy (NUHHP), 2007 has set the objective of Affordable Housing for All as a key focus.
Later, the government has set 2022 as the target year to realize this objective by making specific initiatives for the promotion of housing. Two components under Pradhan Mantri Awas Yojana – the PMAY (Urban) and PMAY (Rural) were launched by the government for achieving housing for all by 2022.
PMAY (Urban): affordable housing for the urban poor
For the urban poor, the government target is to construct 20 million houses by March 31, 2022 under Pradhan Mantri Awas Yojana-Urban, that was launched in June 2015.
The scheme gives financial assistance to States/Union Territories (UTs) in to support housing requirements of three identified income categories: Economically Weaker Sections (EWS), Lower Income Group (LIG) and Middle-Income Group (MIG) in urban areas.
According to the Ministry of Ministry of Housing and Urban Affairs, as on January 2019, nearly 69 lakh houses were approved while13.59 lakh of these were completed.
PMAY (Rural) -affordable housing for the rural poor
The PMAY – Gramin was launched in 2016 to construct affordable houses in rural areas and complete it by 2022 (date extended). As on end January 2019, nearly 1.25 crore houses were constructed under the scheme.
In February 2019, the Cabinet has redefined target for PMAY-G to 1.95 crore houses under PMAY-G Phase-II upto 2022.
Construction of affordable housing under the both programme goes well and the government has constructed nearly 1.53 crore houses under the two programmes as on end January 2019.
Government measures to support affordable housing
There are several government initiatives some of them working for helping poor people to build new houses. Many of the supporting measures were launched in the past budgets. In the Union Budget 2017-18 the government:
- Granted infrastructure status to affordable housing- Infrastructural status will help affordable housing developers to avail funds from different channels, like external commercial borrowings (ECB), foreign venture capital investors (FVCI) and foreign portfolio investors (FPIs).
- Increased the time for project completion to affordable housing promoters from earlier three years to five years;
- Provided one-year time to developers to pay tax on notional rental income on completed but unsold units;
- Reduced the tenure for long-term capital gains for affordable housing from three to two years;
- Revised the qualifying criteria for affordable housing from saleable area to the carpet area;
- Enhanced the refinancing facility by National Housing Bank (NHB) for individual loans for the affordable housing segment.
Encouraging Developers in affordable housing sector
For the developers several incentives including subsidies, tax benefits and most importantly, institutional funding were provided.
Government has created a dedicated Affordable Housing Fund (AHF) in the National Housing Bank. The dedicated fund will be funded from priority sector lending shortfall and fully serviced bonds authorised by the government of India.
In the budget 2019, the government made several supportive measures for the housing sector including exemption on levy of income tax on notional rent on a second self-occupied house and increased the TDS threshold on rent to Rs.2,40,000.
GST rates reduced for affordable housing
The GST Council has reduced tax rates for affordable housing, the rate has been brought down from 8% to just 1%.
The Council also enhanced the ceiling value of affordable housing to Rs 45 lakh. Implication is that houses below Rs 45 lakh will be exchanged with a GST rate of 1%.
New carpet area limit:
Affordable houses in terms of carpet area is defined as 90 sq m in non-metropolitan cities and 60 sq m in metropolitan cities with a ceiling value of Rs 45 lakh in both cases.
Affordable housing RBI efforts
As per the RBI incentive measures, the cost of affordable residential property should be less than Rs 65 lakh in metro cities and Rs 50 lakh in non-metros.
The central bank’s definition is based on the loans given by banks to people for building a house and buying flats.
The RBI also gives loans to affordable housing under priority sector lending.
RBI allowed banks to issue long term bonds (of minimum 7 years maturity) to finance loans to affordable housing.