India News and Features Alliance (INFA) - Acute Housing Shortage:MORE INVESTMENTS NEEDED, by Vinod Mehta, 13 December 2007

In spite of the fact that interest rates on housing loans have been almost halved in the past five years and the urban middle class has now more access to bank finance for housing, the housing problem remains as acute as ever. In fact, in the past more than five decades the gap between the demand for housing and the supply for housing has been steadily widening.

The Seventh and the Eighth Five Year Plans had laid some emphasis on meeting the housing needs of the people. However, the subsequent plans have not laid any emphasis on housing.

It is estimated that more than 500 million people in the developing countries have no proper housing and India is one among them. The developed countries invest about 5 per cent of the Gross Domestic Produce (GDP) in housing compared to a negligible amount in India.

Currently less than four dwelling units per 1000 population per annum get constructed in the country. As against this, the UN recommendation is 8 to 10 dwelling units per 1000 per annum in the next 20 to 30 years to arrest the deterioration of the housing situation. No wonder then the shortfall in housing is increasing day by day.

Think. Over 350 million people in India still need homes. The reported slum population in 607 towns and cities in the country is over 40 million, living in sub-standard living conditions. Worse, there number is all the time increasingly putting pressure on public amenities like water supply, sewage, public transport, power supply, education, health care etc. In the rural areas the problem is somewhat different.

The shortfall in housing is estimated to be more than 41 million units. The problem is more acute in the rural areas than in the urban areas. Besides, the reduction in institutional (bank) interest rates on housing loans is mainly beneficial to the urban people.

This is only the number of houses which are in short supply. But there are houses which are dilapidated, kutcha houses, houses without amenities or little amenities like drinking water and sewage. In some of the metropolitan cities there are housing complexes especially in the industrial areas where there is only one toilet and one bathroom per one 100 people.

Thus, if were to take the quality aspect of housing into account then the shortage of housing would assume gigantic proportions. According to the 1991 census only 41.6 per cent of the population lived in pucca houses, while 30.9 per cent lived in semi-pucca houses and 27.4 per cent in kutcha houses.

As for toilet facilities, the less said the better. Only 23.55 per cent of the households had toilet facilities. In this respect also the urban households scored over the rural households. In the urban areas 63.8 per cent of the households had toilet facility while in the rural areas only 8.84 per cent of the households had any access to the toilet facility.

Again, according to the 1991 census only 42.98 per cent of the households had electricity. The figure for availability of electricity for the urban sector was 75.93 per cent and for the rural sector 31.10 per cent.

Certain things are very clear from the data quoted above. Firstly, the problem of housing is quite acute, but it is relatively more acute in the rural areas than in the urban areas. Secondly, the basic amenities like safe drinking water, toilet and electricity which generally go with housing are concentrated mainly in the urban areas only.

It is reported that Rs.1,000 billion are needed to provide shelter to all. It works out to roughly ten per cent of the Gross Domestic Product (GDP). This is no doubt a huge amount in absolute terms but if people could be helped to raise funds for building houses the housing problem could be surmounted between the next one-and-a- half decade.

For starters, the people would have to be helped with generous funding for building purposes as family savings might not be enough for the construction of a house. True, the Life Insurance Corporation (LIC) and other housing finance companies are extending a helping hand to those who wish to construct their houses, but the funds supplied by them fall short of the total financing requirements of the people. For the simple reason that most of these funds are locked up in Government securities. Besides, the LIC house building advances hover around 3 to 4 per cent of its investible funds.

This effort on the part of the LIC, however, needs to be supplemented by making housing finance available through other financing organizations. One such source could be the specific mutual funds schemes to finance construction of houses by the household sector (as distinct from the construction for commercial purposes).at is imperative, however, is to make large amounts of funds available both in the rural and the urban areas at reasonable rates of interest. More and more organizations like the LIC, the General Insurance Corporation etc. must be allowed to lend funds for the construction of houses instead of investing them in low interest-bearing Government securities. In the rural areas, the panchayats could play an important role in canalizing funds for construction purposes.

Apart from this, the Government would have to take other supplementary measures to encourage the construction of housing. In the urban areas it must regulate the real estate market for housing for residential purposes. Because of lax regulation, the prices of real estate are rising at a very fast pace thus making it difficult for an average household to construct a house.

Again, the prices of building raw materials are skyrocketing because of the mis-match between the demand and the supply of building raw materials. The Government must develop an appropriate policy to increase the supply of the building materials.

In most countries large blocks of flats are built by using the pre-fabricated technology. The country can, however, develop its own technology which makes use of the locally available building materials at least in the rural areas.

The cost of construction can be considerably reduced if the use of black money is eliminated from the construction activity. But this would first require eliminating the black market transactions in the real estate and house building business.

It is true that the interest paid on the house building advance up to a certain level is deductible from the current income, but that is not sufficient. We should learn from the American experience which has provided great impetus to the house building activity there.

Importantly, buying a house in the US is one of the best tax-free investments available. Any gain on the sale of a house is excluded from the taxable income if one has lived in that house for two out of the past five years. The exclusion can be used as many times as one wants in one's life time, the only restriction being that the exclusion can only be used once every two years. Can we have this policy in India? ---- INFA