Straight from the Specialists
An affordable house for Mr Aspirer
(The views expressed in this column are the author’s own and do not represent those of Reuters)
Can the aspirations of 100 million people be ignored?
Consider this. The 2011 Census said 31 percent of India’s population is classified as urban. That’s 380 million people. The Census also said 18 percent of Indian households lack basic amenities — no access to electricity, water, drainage and toilets.
What is also significant is that out of every 100 households, only three are built of concrete, 48 from burnt bricks and 24 from mud. The Planning Commission pegs the total housing shortage in our cities at 26.53 million. If an average of three people live in a house, this shortage affects the lives of at least 106 million urban Indians.
While food, shelter and clothing are universally accepted as key ingredients for survival, the importance of one over the other can be argued. For a billion-plus population, it will be shelter.
A bulk of this population is made up of the so-called ‘Aspirers’. The Aspirer constitutes 14 percent of the population and can be divided into two categories — Urban Aspirers and Rural Aspirers.
Urban Aspirers are characterized by their urbaneness, higher income levels ($7400 – $18,500) and willingness to spend compared to their rural counterparts. For example, they tend to own more basic durable goods and are more optimistic about the future than their rural counterparts. More than 66 percent of Urban Aspirers own a television, single-door refrigerator or an LPG stove, compared to less than 50 percent of rural households.
Urban Aspirers dream of owning an affordable residential unit. While affordability is relative to a household’s income, spending and saving behaviour, there is consensus that a residential unit within urban limits across the metros will cost 2.5 million rupees or more.
The year 2012 arguably represents a good time for Urban Aspirers to buy a house. The affordability ratio, which takes into account annual household income and expenditure, declined to 4.6 during FY2012 from as high as 22 in FY1995. This means that a person needed an amount nearly 22 times his annual income to buy a house in 1995 and only 4.6 times today.
But are there enough affordable houses out there? According to a recent Jones Lang LaSalle report on affordable housing, private developers primarily look at luxury, high-end and upper-mid housing segments as these fetch a premium vis-à-vis the affordable housing units. However, to be fair to the builder community, restrictive civic laws limiting floor space index levels and high realty rates in cities have actually made affordable housing unviable for builders.
With the consumption pattern of this aspirer class set to triple (from $110 billion to $360 billion) by the end of this decade, it is imperative that all interested parties realise the importance of this class. Affordable housing and urban aspirers go hand in hand. The demand for the former is driven in hordes by the latter.
States play a large role in releasing land for development. A Deepak Parekh committee report on affordable housing says the focus of state governments was limited to auctioning land to private players. However, this practice has contributed to the escalation of land prices, which is detrimental to the concept of affordable housing. State governments should establish a single-window clearance system, which serves the objectives of realistic price discovery, land allotment and granting approvals in a time-bound manner.
It is also important to distinguish between affordable housing and low-cost housing. While the latter — primarily targeted towards the economically weaker sections of society — has been the largely driven by the government for welfare purposes, the former represents a sustainable business model for private developers.