IIMB Management Review (2015) 27, 129e140

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ROUND TABLE

Affordable housing: Policy and practice

in India
Kalpana Gopalan*,1, Madalasa Venkataraman
IIMB-Century Real Estate Research Initiative, Indian Institute of Management Bangalore, Bangalore, Karnataka, India
Available online 19 May 2015

KEYWORDS
Affordable housing;
Public policy;
Stakeholder
participation;
State subsidies;
Low-income housing;
India

Abstract Affordable housing is a problem that many countries are taking stock of, world
over. In India, the problem is much more stark with an estimated shortage of around 18 million
houses, with 99% of this in the economically weaker sections of society. This paper sets out the
definitions of affordable housing in India and across the world; the issues with the various definitions of affordable housing; the institutions and agencies responsible for formulating and implementing affordable housing policies in the state; the opportunities and challenges in
affordable housing as well as a discussion on learnings from international experience in this
sector.
2015 Indian Institute of Management Bangalore. Production and hosting by Elsevier Ltd.
All rights reserved.

Introduction
Affordable housing is fast taking centre stage internationally as well as in the national agenda in India. With housing
recognized as a basic need, governments at every level are
discussing ways and means to provide access to housing for
their citizenry. The importance of affordable housing is
neatly captured in the following statement by the Affordable Housing Institute quoting Rakesh Mohan, Deputy

* Corresponding author. Tel.: 91 80 26993740.

E-mail address: [email protected] (K. Gopalan).
1
The views expressed by the author are personal and academic in
nature.
Peer-review under responsibility of Indian Institute of Management
Bangalore.

Governor of the RBI, in 2007 .future national competitiveness and economic success will depend on the
comparative efficiency of cities. Because housing is where
jobs go to sleep at night, the quantity, quality, availability
and affordability of housing becomes a key component in
national economic competitiveness.2
The role and function of housing is multifaceted e
housing choices impact access to infrastructure, employment, household wealth, health, education, poverty levels,
maternal and child mortality, womens participation in
workforce, and many other wellbeing indicators. As India

The growing crisis of affordable housing in MENA (2012) available at http://www.affordablehousinginstitute.org/wp-content/

uploads/2012/10/The-Growing-Crisis-of-Affordable-Housing-inthe-MENA-by-EY-and-AHI.pdf, p. 6.

http://dx.doi.org/10.1016/j.iimb.2015.03.003
0970-3896 2015 Indian Institute of Management Bangalore. Production and hosting by Elsevier Ltd. All rights reserved.

130
seeks to improve its living conditions on a large scale, access to affordable housing becomes a major stumbling
block for its citizens.
This article first examines the issue of affordable housing
(AH) and sets the context for the panel discussion which
follows on the state of the AH market in India and policy
interventions required to improve it. The current note lays
out the academic perspective on AH: first, by defining the
term affordable housing; second, by describing the need for
focus on AH; third, by analysing the institutional structure
of AH delivery in India. The later part of this note analyses
policy responses by various governments, international
experience, and lacunae that still exist.

Defining affordable housing

Before framing an affordable housing policy, it is important
to delineate the contours of this problem by defining the
term affordable housing. Defining AH is also important to
create targetted policies aimed at making financing more
accessible, providing interest rate subsidies, or favourable
terms on par with infrastructure financing.
Internationally, housing affordability is defined in multiple ways. One of the most commonly accepted definitions
of affordability refers to housing affordability which is
taken as a measure of expenditure on housing to income of
the household. This is also accepted by the Indian Government, which states Affordable housing refers to any
housing that meets some form of affordability criterion,
which could be income level of the family, size of the
dwelling unit or affordability in terms of EMI size or ratio of
house price to annual income (High Level Task Force on
Affordable Housing for All, December 2008, p. 7).
The Ministry of Housing and Urban Poverty Alleviation
(MoHUPA) in its 2011 report takes note of both income and
size criteria to define the concept (Table 1). Multiple
studies in the Indian context have also suggested other
metrics of affordability.3
Housing affordability is a multi-faceted measure, and
while affordability is commonly defined using the expenditure method, there are other perspectives to affordability as well, as discussed in the next sections.

Demand for affordable housing in India

The demand drivers for AH in India are several. First is the
progressive urbanization, going hand in hand with a growing
urban population, which increased from 109 million in 1971
to 377 million in 2011, and is projected to grow to 600
million by 2030. The consequence of the growing concentration of people in urban spaces is felt in land and housing
shortages and congested transit, besides the stress on basic
amenities such as water, power, and lung space. The Ministry of Housing estimated a housing shortage of 18.78
million houses during the 12th plan period, with 99 percent
in the economically weaker and lower income groups.

3
Studies by Monitor Inclusive Markets (Deloitte), KPMG, JLL, Knight
Frank, etc define affordable housing through multiple parameters.

K. Gopalan, M. Venkataraman
Slums and informal tenements are estimated at 65
million as per Census 2011.
Second, alongside the growth of the urban population,
rising incomes have led to the expansion of the middle
class. This has led to a spike in demand for housing that is
affordable but includes basic amenities.
Third, the real estate sector is a major component of the
Indian economy. It is estimated that the real estate sector
contributed to 6.3% of the GDP in 2013e14, at an estimated
3.7 lakh crores and employed about 7.6 million people
(CREDAI, 2013) Housing is the largest component of the
financial as well as the construction sector (High Level Task
Force on Affordable Housing for All, December 2008, p. 6).
A thrust on AH will not only lead to better quality of life,
but also significantly provide a boost to the GDP of the
country.

Impact of affordable housing on households e

international experience
Affordable housing provisions are important at the national
level, the city level, as well as the individual level. Cities are
engines of economic growth, and housing that can be afforded by the median wage-earner is a pre-requisite for the city
to attract and retain the labour force required to ensure its
economic success. From a national perspective, AH is one of
the indicators of balanced growth in the country. When
housing becomes unaffordable, there is either a bubble in
the housing market with serious repercussions to economic
policy, or other imbalances in the economy.
Affordable housing has multiple linkages to other aspects of the individuals well-being. Mueller and Tighe
(2007) consider evidence on the relationship between AH
and benefits to the larger community in education and
health. Similar to Lubell, Crain, and Cohen (2007), they find
there is a positive externality to health due to AH provisions. Affordable housing has led to better access to
health care, to education, and to perceived control and
life-satisfaction (Rohe & Stegman, 1994). Affordable housing also serves to reduce crime (Horner, 2009), and has
significant wealth effects on the residents due to employment stability (Berry, 2003; Rohe & Stewart, 1996).

Institutional framework for affordable housing

delivery in India
Public sector institutions and practice
In India, AH is a term largely used in the urban context. At
the national level, the rural housing sector falls within the
purview of the Ministry of Rural Development, while housing and human settlements in urban areas is the jurisdiction
of the Ministry of Housing and Urban Poverty Alleviation. It
is the latter ministry that has spearheaded AH as a concept
and policy.
The policy framework for affordable housing is provided
by the National Urban Housing & Habitat Policy (NUHHP2007), along with the Jawaharlal Nehru National Urban
Renewal Mission (JNNURM-2005), Basic Services for the
Urban Poor (BSUP), Integrated Housing & Slum Development Programme (IHSDP) and the Rajiv Awas Yojana. The

Affordable housing: Policy and practice in India

Table 1

EWS
LIG
MIG

131

Ministry of Housing and Urban Poverty Alleviation criteria for affordable housing.
Size

EMI or rent

Minimum of 300 sq ft super built up area

Minimum of 269 sq ft (25 sq m) carpet area
Minimum of 500 sq ft super built up area
Maximum of 517 sq ft (48 sq m) carpet area
600e1200 sq ft super built up area
Maximum of 861 sq ft (80 sq m) carpet area

Not exceeding 30e40% gross monthly income of buyer

EWS: economically weaker sections; LIG: low income group; MIG: middle income group.
Source: MoHUPA, 2011

NUHHP 2007 lists a number of objectives that include urban

planning, land availability, special provisions for women,
public private partnerships, management information systems and so on (MoHUPA, 2007). With respect to AH, it aims
to: accelerate the pace of development of housing and
related infrastructure; create adequate rental and ownership housing stock while improving affordability through
capital or interest subsidies; and use technology to
modernize the housing sector for energy and cost efficiency, productivity and quality, green and intelligent
building, and mitigate disaster impacts.
The JNNURM 2005 was launched with the objective of
encouraging and expediting urban reform, and includes
within its ambit construction of 1.5 million houses for the
urban poor in 65 mission cities between 2005 and 2012. The
BSUP is managed by the Ministry of Urban Development,
and seeks to provide seven entitlements: security of
tenure, AH, water, sanitation, health, education and social
security to low income segments in 65 mission cities. The
IHSDP covers those cities/towns that are not covered by
BSUP, and conceives of an 80:20 sharing ratio between the
national and state governments/urban local bodies (ULBs)/
beneficiaries.

prominent developers include Tata Housing (Shubh Griha),

VBHC, Foliage, DBS Affordable Home, Nirman Group, HDIL,
TVS Housing, S.Raheja, Mahindra Lifespaces and Usha Breco
Realty (Monitor Deloitte, 2013). Typically, the projects are
located 20e25 km from the city centre, cover 15e35 acres
and have 1500e3500 units. The projects are characterized
by limited options, closeness to industrial or commercial
hubs, reduced area, low construction cost, shorter period
of construction and provision of basic social amenities. The
pre-tax internal rate of returns (IRRs) in a low cost housing
project can range from 40 to 45 percent with gross profit
margins of 15e20 percent, which is slightly reduced
compared to the 30e40 percent margins available in highend real estate projects. While there are instances of
several AH projects that were sold out within days or weeks
of launch, unavailability of suitable land, low value of
returns, and scarce financing make it imperative for developers to shorten construction time, lower cost, de risk
from land acquisition costs and adopt a working capital
model with assured and faster cash inflows (Jones Long
Laselle, 2012).

Private sector players and practice

Scarcity of land

Affordable housing has traditionally been the purview of

the state: it is only recently that the private sector has
entered into building houses for the lower-middle and
middle-class segments. Several factors propelled this
development. The demand slowdown of 2008e09 in the
high-end residential real estate sector led to exploration of
diversification options for developers in the affordable
segment.
Easier availability of land in the suburban areas along
with infrastructural connectivity, availability of facilitating
and financing agencies such as the National Housing Bank,
international developmental organizations, international
NGOs, micro finance institutions and private equity players,
economies of scale and first mover advantages have also
propelled this interest. From 2009 onwards, real estate
developers have launched projects across Indian cities in
locations which are away from the core central business/
secondary business districts where land prices are affordable Such targetted growth is seen in over 15 projects
including Karjat, Palghar and Boisar in Mumbai; Narol and
Vatwa in Ahmadabad; and Anekal in Bangalore. The more

The high population density, rapid urbanization, and poorly

conceived regulations have created shortage in land parcels
capable of development. This is exacerbated by excessive
controls over central districts of cities and difficulties in
land recycling, which results in a push toward the periphery. Land acquisition has been a thorny issue, giving rise to
land mafias and illegal encroachments, and reducing
availability of land at an affordable price.

Critical issues in the affordable housing sector

Scarcity of marketable land parcels

Large tracts of centrally located urban land are owned by
public entities such as the railways, ports, and defence
authorities. These are non-marketable pockets, and lend
themselves to the proliferation of slums and squatter settlements as the authorities are often unable to monitor
their holdings. Further, scattered and poorly planned settlements make it difficult to provide land for mass housing.
Property buyers take many factors other than project
quality and cost into consideration, such as basic utilities,
connectivity, infrastructure and so on. Thus AH demands

132
adequate supply of well-serviced land and this in turn influences prices and willingness to pay.

Titling issues
As of now, India lacks a robust system to protect land rights.
There are two aspects to land title: first, a formal recognition of property rights by the state through a system of
titles; and second, facilitation by the state, of efficient
trade in rights, through a process of registration. Both of
these elements exist in India, but in incomplete form. First,
not all land transactions require registration, for example
land acquisition, court decrees, mortgages, agreements
and so on. Second, while Indian law requires compulsory
registration of land sale, the registration authority is not
mandated to verify history or ownership; thus it is the
transaction and not the title that is registered.

Rising costs
Both land and construction costs have increased, compounded by price appreciation of construction materials
and labour. Financing AH is constrained because of
different construction indices and incomes across the
country. From the customers angle, obtaining finance is
difficult even if the customers have regular incomes when
they are employed in the unorganized sector or lack income
proof as required in the loan process.

Regulatory constraints
Project sanctions can take several years, and need to be
cleared by as many as forty departments across the national and sub-national levels, including the environment,
fire, revenue and water departments, the traffic police and
so on. The consequent time and transaction costs deter
many entrepreneurs. Further, lack of transparent and clear
regulation aggravates the situation. For example, building
bye laws, rules for floor space index, and zoning and
development plans of urban local bodies often lack clarity
and there are overlapping guidelines.

International evidence on affordability

International evidence on AH is centred on two broad
themes: a) global definitions of affordability, and b) international best practices and policy interventions in AH.

Definitions of affordability
1. The expenditure approach to housing affordability
considers whether households are able to afford a
house based on their income levels. The metrics vary
depending on whether households consume housing as
renters or purchase housing as an investment and
consumption good.
Rental affordability: This measure historically was based
on affordability based on housing consumption and
was introduced in its earliest form by the United States
National Housing Act of 1937, where a measure of
housing rents to income levels of households was used.

K. Gopalan, M. Venkataraman
The Brooke Amendment to the Housing and Urban
Development Act (1968) in the US, revised in 1981,
recommends a figure of 30% as the maximum proportion
of income available for payment towards rent.
Purchase affordability: Another measure of housing
affordability is purchase affordability which measures
whether households are able to fund the purchase of
their houses. Typically, purchase affordability is
measured as a ratio of housing costs (or monthly mortgage payments) to monthly income of the household.
Purchase affordability is highly influenced by the ability
to access mortgage and other home financing options.
The tenure of the mortgage and the cost of the housing
structure influence purchase affordability.
Rental affordability and purchase affordability assume
that housing and basic non-housing goods are merit
goods, having a socially desirable minimum (Hancock,
1993). Stone (1993) defines affordability as the ability
of households to pay the costs of housing without
imposing constraints on living costs. Freeman, Chaplin,
and Whitehead (1997) uses a relative measure of housing expenditure and household income, and provides a
theoretical basis for relative or absolute measures of
affordability based on the ratio approach of housing
expenditure to household income.
2. Some researchers (Gan & Hill, 2009) also calculate the
repayment affordability measure which acknowledges
that while housing may be affordable at the time of
purchase, the repayments towards housing may
become unaffordable subsequently due to market and
interest rate risk.
A related concept is that of affordability through mortgage provisions. Affordability increases through access
to mortgage financing. The lack of documentation for
meeting know your customer (KYC) norms, inability to
provide salary slips and show income proof, inadequate
information on mortgage choices, and mistrust of the
banking system are all documented as reasons for the
low-income group not accessing mortgages (Lalwani,
Merchant, & Venkatachalam, 2010).
3. A third measure is the HT or location affordability
which takes into account the transportation costs of
housing choice. Affordable housing is a trade-off between land costs, which are lower in the outskirts, and
the transportation costs to the nearest employment
centre, which typically increases as distance from city
centre increases. As housing gets pushed out to the
periphery, land costs are reduced and housing per se is
more affordable, but transportation costs increase and
there is a substitution between transportation and
housing costs. The HT measure of affordability addresses housing affordability from a total cost
perspective.
4. Affordable livability: Affordable livability refers to
the notion that affordable structures should be supported by availability of hard infrastructure (physical
infrastructure) such as water, electricity, communication, and transportation, as well as social infrastructure such as schools, hospitals, police station,
governance mechanisms, and so on. Community characteristics as well as amenities combine to provide
affordable livability.

Affordable housing: Policy and practice in India

A case in point is that of slum dwellers who are relocated
to housing in areas where employment is scarce and/or
infrastructure is poor. In these cases, the livability of the
house is compromised, and beneficiaries either refuse to
move, or let out the affordable houses that have been
constructed for them. For instance, slum dwellers in
Kolkata refused to move since they had no place for
livestock and poultry in their newly constructed apartments (Kundu, 2003).
5. Total cost of housing affordability: Costs of housing
include ongoing/routine maintenance costs as well as
payments for amenities such as water, power etc. Total
costs take into account purchase costs as well as
operational costs.
A recurring issue among low income group dwellers who
move into AH, typically apartments, built as part of
redevelopment efforts, is the cost of maintenance,
property tax and other related costs. Transaction costs
such as stamp duty, holding costs, and so on are
perceived to be higher on formal housing.
If these elements are pieced together, affordability becomes a single static figure that does not account for the
variations in land prices across cities, nor does it take
into account the variations in income and expenditure
(the actual affordability) of the population living in that
specific city. This begs the need for newer measures
which go beyond the affordability ratio and provide
perspectives on peoples willingness to consume housing
as a function of their location choice.
These complexities point to the need for a comprehensive and holistic concept of AH. The inherent complexity
of the term is brought out in the Habitat Agenda definition: Adequate shelter means more than a roof over
ones head: It also means adequate privacy; adequate
space; physical accessibility; adequate security;
adequate lighting, heating and ventilation; adequate
basic infrastructure e all of which should be available at
affordable cost in (High Level Task Force on Affordable
Housing for All, December 2008, p. 7).
However, these issues still need to be debated and discussed in India, and research gaps need to be addressed.
Though the house price to income ratio is mandated by
the MoHUPA to be 30e40% there is no evidence to show
whether the number is a valid one. Arriving at the right
expenditure level would require mining existing data to
enhance evidence-based knowledge of the housing
sector based on fieldwork, and further research is
required to understand the determinants of supply and
demand for AH. This is a research gap on AH in India.

Best practices in affordable housing delivery

Literature differentiates between social housing, which is
provided by governments to the economically weaker sections of society, and AH, which is typically built by not-forprofit or private players with government subsidies. Studies
from Australia (Milligan, Gurran, Lawson, Phibbs, & Phillips,
2009, for example) suggest that in the face of declining
national funding for housing policies, supply-side policies
aimed at incentivizing private players to build housing is
the need of the hour. A large body of work on AH focuses on

133
affordable private housing through a structure of subsidies
and financing options (Holmans, Scanlon, & Whitehead,
2002), creating optimal supply side levers along with
favourable revenue measures. While governments are
focussed on creating viable social housing for at-risk population such as children, senior citizens, vulnerable populations and the disabled, private developers and not-forprofits obtain a range of subsidies for providing AH. Subsidies for AH fall in the planning and land use regime or take
the form of financial incentive mechanisms. In planning
subsidies, AH developers may be provided bonus development entitlements, concessions on development standards,
reduced fees, or reduced regulatory compliance (and
therefore costs of regulation through reduction of red-tape
etc.). Milligan (2009, pp 28) provides a comprehensive
assessment of financing mechanisms for affordable housing
for both buyers and sellers. Buyers incentives include
discounted prices, interest rate subsidies, and public loans
s & Teller, 2004). Providers of
at favourable terms (Hegedu
AH obtain cheaper loans, specialized instruments for
investing in AH and a raft of tax incentives.
Globally, AH initiatives fall into two broad strategic approaches. Countries such as Singapore, the Netherlands,
Sweden and Denmark follow the universal approach,
whereby the entire population is provided with acceptable
and affordable housing. More common is the targetted
approach of countries like Canada, Malaysia, USA and most
of the EU, wherein weaker sections are the focus so that
they would not get excluded from the housing market. Both
supply side (public housing or assistance to developers) and
demand side subsidies (periodic cash allowances or capital
grants to support housing costs) are common practice;
ranging from subsidized rentals in the Netherlands to subsidized ownership in Spain. Many countries combine rental
and ownership schemes. Private participation is encouraged in various ways: density bonuses are provided in the
US, mixed use housing in the UK, and fee waivers and fast
tracking procedures in Malaysia and Canada. Malaysia has
also established public-private partnerships (PPPs) with
role definitions for the public (land and procedures) and
private players (finance and execution). California has
emerged as a leading state in the US with a comprehensive
legislative package for low income housing with inclusionary zoning. Singapore and Hong Kong have experimented
successfully with commercial-low cost cross subsidization.

The road ahead: challenges and potential

Developing AH on a large scale is the greatest challenge in
urban India today, promising a solution to the proliferation
of slums, unorganized real estate development, unplanned
growth and transit congestion. It is vital that certain critical
issues are addressed urgently to make AH a possibility.
On the demand side, the critical issues include identification of the right clientele, increasing reach through micro
mortgage financing mechanisms and self help groups, and
flexible paying mechanisms to cater to variable income flows.
On the supply side, incentivizing through policy (extra
floor space index, free sale areas and so on), schemes for
slum redevelopment and rehabilitation, ensuring adequate
availability of land, streamlining of land records, inclusion

134
of mass housing zones in comprehensive development plans
(CDPs), encouragement to private participation and partnership, and single window clearance for smaller projects
on the lines of large township projects are necessary. Developers need to focus on the marketability of small formats
with reduced down payments. Success in the AH segment
demands management of project cost and timelines so as to
prevent cost-time overruns. Inadequate infrastructure is a
challenge. As developments increasingly tend for suburban
and semi urban locations, the concomitant development of
connectivity and access becomes vital.
The state has a special responsibility to create an
enabling environment for AH developers, not necessarily
through subsidies but also by fast tracking approval processes, demystifying land laws, deconstructing the
financing and land assembling processes, and through
innovative mechanisms such as earmarking areas for
development, encouraging public private partnerships, and
rethinking floor space index (FSI) limits.
In respect of subsidies, while continuation of targetted
subsidies to low income segments is advisable, in addition,
enabling low cost credit to low income developers and
housing finance companies (HFCs) would be beneficial.
A robust industry calls for better customer education,
more transparency, and better communication. Industry
associations, international development agencies, and
practitioners should collaborate periodically to monitor the
market, disseminate information, and provide feedback to
both industry and the general public.
Affordable housing thus calls for collaborative, multi
pronged and concerted effort from all stakeholders.
The panel discussion that follows touches upon the
practitioners experiences with affordable housing delivery.
The discussion revolves around the definitions of affordable
housing, the difficulties faced by developers in providing
affordable housing, the adequacy of the nature and quantum of subsidies available for affordable housing, and the
policy interventions needed to make the affordable housing
market dynamic and responsive. The role of the state and
the governance mechanism, and the regulatory bottlenecks
that developers face are dealt with in detail. Practitioners
also shed light on their experience of marketing affordable
homes to the public, and the issues buyers face in owning,
renting, and augmenting their affordable homes.

Policy imperatives to promote innovation

along the value chain for housing e improving
affordability, transparency, sustainability and
growth: Discussion4

4
The panel discussion was part of the Eighth Annual International
Conference on Public Policy and Management held in August 2013
at the Indian Institute of Management Bangalore. This part of the
article carries edited excerpts of the presentations made at the
panel discussion. The views expressed by the panellists are personal and academic in nature and not necessarily the views of their
organizations. The presentations of the panellists were made in an
academic context in an academic institution.

K. Gopalan, M. Venkataraman

Panellists
V Balasubramanian former Additional Chief Secretary,
Government of Karnataka, and currently Chairman,
Centre for Policy and Practices.
P G Ganapathy, Senior Consultant and Advisor, the
Indian Institute of Human Settlements (Moderator).
Vikram Jain, Monitor Inclusive Markets, Monitor
Deloitte.
S.V. Kamath, General Manager, Projects, Housing and
Urban Development Corporation (HUDCO), Bangalore.
Rajesh Krishnan, Founder and CEO, Brick Eagle.
Pramod Kumar, Director, Value & Budget Housing
Corporation Pvt. Ltd.
Ashok Lall, of Ashok B Lall Architects, New Delhi.
Srinath Mukherji, Management Consultant, Cofounder of India Shelter Finance Corporation.

The discussion centred around three critical points:

land, finance, and urban utilities/amenities.

V Balasubramanian
Rural housing
I was struck by a point made in the mornings session, where
according to the Directorate of Census, 69 percent of Indias
population is in rural areas and 31 percent in urban areas.
However, we seem to be concerned largely with urban
housing affordability. Migration from rural areas to urban
areas is continuing in a slow manner, but because of population increase even in rural areas at around 1.8 percent or 2
percent, this percentage difference will continue. A mention
was made of the architect Laurie Baker in the mornings
session e we would do well to look at his recommendations
for rural housing. Rural housing, and affordable rural housing
in particular, is a very important area. We need to look into
the needs of 69 percent of the rural population.

The criticality of water supply

The second point I want to make is with reference to
Bangalore, where it is said that a large number of houses
and apartments are vacant because there are no takers and
that they have largely been constructed for reasons of
speculation. However, their not being occupied could be for
an entirely different reason e the lack of infrastructure,
the most important of which is water. Unlike other cities,
Bangalore is situated on top of a rock with no perennial
river source. In Bangalore, the per capita per day availability of water is about 75e80 L, whereas the Government
of India norm is 150 L per capita per day. This land was
considered to be the land of a thousand lakes by the East
India Company when the British first came. Now, these
lakes have been contaminated with the sewage that is
flowing into them. And sewage water does not simply stand,
it keeps percolating. There are around four lakh bore wells
which pump out around 3.7 times more water than the rain
water recharge. Therefore, the wells run the risk of drying
up in a few years time. This is the reason behind the water

Affordable housing: Policy and practice in India

levels going down. The vacuum which is being created is
filled up by the sewage water percolating from these lakes.
Around 59 percent of the water supply in Bangalore is not
potable; around 18 percent of the water supply in Bangalore is affected by Escherichia coli (E. coli). Awareness
about these matters is low. These things must be considered before increasing the housing capacity of Bangalore.

Planning of Greater Bangalore

There is still a lot of land in Bangalore under the government. The Bruhat Bangalore Mahanagara Palike (BBMP)
covers about 772 sq km, the Bangalore Development Authority (BDA) covers about 1300 sq km, while Bangalore
urban district is about 2194 sq km. About 1,50,000 acres of
government land is still available as the Bangalore Metropolitan Regional Development Authority area. This land
could be used to create a master plan for housing and small
industries in Bangalore. There are around 8000 tanks and
lakes in this area and since they are outside Bangalore, they
have not been contaminated. They need to be preserved, in
which case housing in this area of Greater Bangalore of
about 8000 sq km can be very well planned.

Vikram Jain
Monitor Inclusive Markets in the affordable housing
sector
Monitor Inclusive Markets has been working on loans for low
income housing to help developers get into the affordable
housing sector. When schemes with houses under Rs. 10
lakh came up, we found that customers in this segment
were not getting housing finance. We built business models
and got a number of housing finance companies to start in
this segment. Today the key housing finance problem for
customers probably is the high pricing. We have worked
with several governments and helped with affordable
housing task force recommendations. Our key strength is
understanding the customer segment which earns Rs.
10,000e25,000 per month, formal or informal income.
What is the impact we are trying to create? We are trying
to help move our customer segment from cramped conditions to a decent house. While the size of the house may not
be much bigger, it is a formal property with utilities. To
differentiate our approach with what the government
focusses on, the government is looking at housing for people who are earning typically under Rs. 16,000 per month.
What we are talking about is the opportunity in which you
can include the 10,000e25,000 per month income group. It
is a slightly higher segment where the private sector can be
a player and if this segment is not addressed, housing
offered to the poor people will be snapped up by the segments above because there is a big shortage even there.

Evidence-based research on affordability: the

supply end
We recently did a study against the background of the
policy debate and the discussion around affordable housing

135
today. We found that while there was a lot of anecdotal
evidence, there were not many facts on the affordable
housing scenario in India.
So, our perspective was to scan where low income was
coming up in India and under what price point. Our definition for affordable housing was housing less than 10 lakh
rupees which can be afforded with a mortgage from a
housing finance company for customers earning Rs.
10,000e25,000. We found that about 30,500 units of low
income housing are coming up in India in 152 projects
across 22 cities. (These figures pertain to supply in June
2011.)
While the supply was encouraging it was still a drop in
the ocean compared to the demand. The market initially
picked up in cities like Ahmedabad and Mumbai, where
clusters were forming. Projects in Ahmedabad such as Om
Shanthi Nagar were hugely successful e 450 units, 9000
application forms sold. Indore is another city where a lot of
affordable housing, well located, is coming up.
We had conducted a similar study in May 2010 and the
change between the 2010 study and the recent one was
that while the amount of housing has not increased significantly, the number of projects has gone up. Initially we
found something like 29 projects in India. Today there are
132 projects. Some cities have over 20 projects offering
housing under Rs. 10 lakhs. The market is picking up and
responding well which means from the customers
perspective, you have a choice not only of the location but
also of the developer.

Housing finance
Between 2007 and the present about eight or nine new
housing finance companies have come up and are serving
low income customers whether they have income proof or
not. A number of banks do not lend to this segment base
because there is no formal documentation of income. Most
of these new housing finance companies have grown; their
portfolio is about Rs. 1000 crores in total, reasonably well
spread across India, though predominantly in western and
central India. They have reasonably good finance level,
good loan portfolio. Their average ticket size is between Rs.
5e10 lakhs.
Their business is based predominantly on low income
customers. Their non-performing assets (NPAs) are near
zero, as also their delayed payment. For the customer this
is the opportunity to access formal housing. The alternative
is to rent housing and face poor living conditions and he
does not want to go back to such housing.

P G Ganapathy
To re-cap, the topic is policy imperatives to promote
innovation along value chain for housing e improving
affordability, growth, sustainability and governance. Two
key points: first, policy imperatives e is it all common from
a policy perspective? Second, to promote innovation, how
do we come up with innovative ideas to solve problems? I
will highlight a few questions important for debate and
then direct them to our panelists. Is the problem one of
policy or is it one of governance/implementation of policy?

136
Land is a big issue especially with respect to affordable
housing projects. We will explore the subject of regulating
land cost and making land more easily available to affordable housing projects. We will also cover financing for
Economically Weaker Sections (EWS), Low Income Group
(LIG)-A, LIG-B and lower than Rs 10,000 income group.
What is the innovative idea here? Is there any policy
question? On product itself, we should focus on methods to
create good, habitable houses for the poor. Are they sustainable in terms of meeting user requirements? How
innovative is product design and construction to make it
more affordable? How do we overcome the huge governance challenges particularly in land, building plans, approvals, etc? How do we view rental housing?
I think all of us would agree that bulk of cost today is
from land. I would like to hear from Pramod and Rajesh
since both have a developer background and they deal with
these issues on a daily basis. Do you have any suggestions on
how to regulate land cost? How to make more reasonably
cost effective land available for affordable housing?

Pramod Kumar
Land availability and pricing
The biggest challenge we face in land acquisition is title
and that is because of lack of proper land records over
generations. We have depended on the village accountant
to testify that these are the owners of the land. There are
situations where one year later, suddenly someone claims
his name did not figure in that list. I dont know how this
can be regulated unless the government machinery maps
land holdings. Some states have done it and there is fair
amount of progress compared to what there was 15 or 20
years back. Land registration is computerized now, but we
still have a long way to go.
Land owners today have become quasi-developers
because they want a share of the developers profit
without going through the risk and the pain of developing a
project and delivering it. While buying land in the periphery
of urban territories of various cities, you are dealing with
so-called villagers who are fully aware of how this business
is done and therefore they are very clear about the price of
land. They compare their land to something located close
to a railway station, bus station or where transportation is
available. Their land may not have the same facilities yet
their aspiration is joint development where the benchmark
is a 40/60 sharing. Now, if it is a 40/60 division, you should
also be able to sell at a certain price. If I am selling an
apartment at Rs. 1500 or Rs. 2000 sq ft, how can I give a 40/
60 division? The math does not add up. These are the
challenges with no definite solution.

P G Ganapathy
Land banking and EWS housing
The Affordable Housing Task Force talks about earmarking and
allotting 10e15 percent of land in the master plan for
affordable housing. There is this idea that government should
start banking land before a new area comes up for

K. Gopalan, M. Venkataraman
development and should release at special rates for affordable housing projects. There is also the new policy about
mandatory 15e20 percent for EWS housing and policy level
interventions.

Pramod Kumar
Affordable housing policy in the states
The Government of Haryana, for example, has announced
an affordable housing policy based on certain size of
apartment and they have fixed a fair selling price. The
lower end was Rs. 3000 sq ft, going up to Rs. 4000 sq ft. I
dont know how affordable these are going to be. Already
one hears that the prices have gone up but its a step in the
right direction. In Karnataka, for example, the Karnataka
Industrial Areas Development Board acquires land and then
allots to industries. Similarly, if the government can step in
and arrive at clear guidelines as to what affordable housing
should be and make land available then yes, developing is
the developers responsibility; the next thing is approval,
which is a different story. If these two things are taken care
of then the onus is on developers to apply ideas and deliver
a truly affordable house to customers.

Rajesh Krishnan
Three critical factors
I agree with Pramod and it would be nice if our wish list came
true. I think land is there in abundance, we just have to know
how to go after it. However, for affordable housing to
happen, three things need to come together. First is capital
in real estate, second is ability to deal with the local reality in
India (land, approvals, sand mafias and so on) and third is
mindset for affordable housing, where low cost and high
volume production is the focus. The disconnect is that front
line developers who have local presence and the capital do
not have the mindset for affordable housing development.
We have several modern developers who have the capital but
struggle to deal with local realities. The bulk of the activity is
coming from local developers, who are doing 20e50 units
each, but are unable to scale. These are the people who have
access to land at the right price. So the important thing is to
connect these three things together.

V Balasubramanian
Some innovative initiatives
If land is in abundance and it is available, then someone has
to locate it and deal with it appropriately. For example,
about 12 years ago, during the regime of the Marxist government in West Bengal, I had an opportunity to visit 20
acres of land in Salt Lake City located on the way to the
airport e it was vacant land. The government wanted to
develop low cost LIG housing but they found that they had
to invest a lot of money. So they approached Ambuja Cements on a PPP model. The company was asked to develop
the land with 50 percent of the 20 acres to be given to LIG

Affordable housing: Policy and practice in India

housing, 5 acres for the MIG (Middle Income Group) housing
and the balance for HIG (High Income Group) housing. In
those days, the LIG was sold for Rs. 1 lakh and you made
money from the HIG. The landscaping was given to the
eminent architect Mr. Doshi. The whole company was
managed by a joint board. The chairman was from the
government, while the managing director was from Ambuja
Cements and that worked very well.
In Bangalore, in BBMP related sites we have about 1800
acres of BDA lands available, excluding the parks, playgrounds, etc. These lands are classified as other lands and if
they have not been encroached upon these lands are still
available. One should identify these lands and then on a policy
basis it has to be taken up as a meaningful joint venture.

P G Ganapathy
Higher FSI as an incentive?
Professor Lall, one way developers try to overcome this
increasing land price is to try and build to higher floor space
index (FSI). Governments also talk about increasing FSI and
making land more affordable. From an architects perspective and a product design perspective, what is your view on
this approach towards high FSI to compensate for land cost
and building high rises for affordable construction?

Ashok Lall
Environmental sustainability and housing design
Housing design and housing in urban areas are subjects of
research globally. Considering environmental sustainability
on one hand and social viability on the other, certain levels of
density are found to be more or less optimal. If you go beyond
those densities you have to take recourse to very high technologies to make those housing systems work. Those are
affordable and also socially viable only in well developed and
richer societies. So if you are talking about affordable housing
I would say an FSI of 1, 1.2 is maximum. It gives you a good
density. There are lots of people willing to share that land at
four storeys high or maximum five storeys in a multi-storey
block since they would be close to ground and have access to
open ground as a compensation for their small home.
In this case, pumping water is not an issue. You are not
dependent on high quality for safety against earthquake,
wind and fire. You can deploy decentralized methods for
utilizing water, treating the waste and re-using it. There is
also sufficient open space and soft ground to facilitate
water to percolate into the ground. It also becomes
cheaper to do it this way and it is robust as a system. As
things stand, 60e70 percent of the cost is related to land
cost. Construction cost is much less, but if you look at just
construction cost, building four to five storeys is optimal.
The moment you go to eight storeys, its another 15
percent, and so on proportionately. Thats an immense
cost, literally moving away from affordability. When you
allow that high an FSI, you are actually pushing up costs. It
goes contrary to the idea of sharing land cost. The clear
indication is high density, low rise.

137

P G Ganapathy
Affordable construction technology
Professor Lall, when you talk about improving affordability
from a planning and design and a construction and
technology perspective, where are the opportunities to
innovate? Are there any policy constraints coming in the
way of innovation, whether it is building bye laws, road
widths, parking norms and so on? As a designer, have you
felt any constraints which could be altered by policy? What
are your thoughts on improving affordability and improving
sustainability for affordable housing?

Ashok Lall
Innovative measures
From the policy standpoint, there is certainly something that
has to be looked at very carefully. All development authorities have building and development controls. One of the
development controls is what we call the set back from the
street. It is a hangover from the idea of a bungalow with a
garden in the front e we never had it in the old cities. It seems
to be a fundamental belief of planners that the bigger the
parcel of land the more space you should leave between the
building and the street. That actually takes away usable
space from community use. There is definitely a need to look
at building regulations and finding regulations to use the
available land much more positively for community purposes
and you could extend it to other aspects of building control.
We found that if you have long buildings like row housing,
three to four storeys, with connecting passages then you
could put a lift at one corner and another at the other corner
shared between fifty homes, instead of having a stair-case for
every four houses or six houses which makes lifts unaffordable. But the building regulations specify a certain distance
between buildings; they say you cant connect the buildings
with a bridge. These regulations, completely against common
sense, come in the way of innovation. There are lots of options for technological innovation, space innovation, and
ways of economizing while giving a lot of flexible space to the
owner. When a developer talks of technology he speaks about
buying a method of production of homes from some company
in Mexico, Thailand or somewhere else. But he never speaks
about evolving a method of construction that is inherently
low capital investment and high return, one that follows the
principle of industrial production but can give greater efficiencies. We need such innovation and we need to work out
the incentivization required for that.

Question and answer session

Consolidation of land fragments
Audience Q: A problem arises when you have parcels of
land that are fragmented e how do you consolidate them?
That is one of the constraints to well planned development
for high density, low rise apartments.

138
Ashok Lall: There is some misconception about high
density, low rise. If you look at the Georgian houses in
England, which are four to five storeys high, with a basement and even an attic, they are actually only 20e25 feet
wide, independently built, exhibiting efficient use of land.
So its actually not about land allocation, its about urban
homes, its about urban grain. If you look at the typologies
of housing form that will get you the densities, I am in
favour of making the smaller man the entrepreneur. Why
become dependent on the larger man here? I think there is
also a contradiction. There is an assumption that the large
scaling up and larger numbers of production will bring down
unit cost. That is done by the larger corporation whose
inherent costs are very high. An analysis of urban housing
typologies enables small entrepreneurs to move into the
affordable housing space more effectively.

Land finance
P G Ganapathy
We will now move from land to financing. The question is
with respect to improving affordability and the policy
enabling it. From a micro financing perspective, how much
financing is actually happening? Is there some solution for
the household income of Rs. 10,000 and below?
The Affordable Housing Task Force visualizes several
possible incentives to improve financing in this space. What
are major issues you face in financing? Mention two or three
policy steps that will improve financing and reduce cost.
Srinath Mukherji
Before I answer that question I raise a question to the
audience. Suppose this gathering had happened in 1998,
what would have been the theme of this discussion about
real estate? How to keep prices up! Prices were falling at
that time in India, including Bangalore. That is the nature
of land. It is a commodity that goes through ups and downs
depending on mass market behaviour which could be
rational or illogical depending on the state of the market.
Governments can try to regulate land prices but they
usually meet with little success. The fundamental driver is
liquidity. There is a strong co-relation between consumer
price inflation (CPIs) and expectation of land prices. People
invest in land, buildings, houses or flats as a hedge against
inflation when inflation is running high. Inflation in India
between 2000 and 2005 was running at around 5 percent.
Nobody talked about land or affordable housing problems
because nobody bought flats, or land as an inflation hedge.
In 2005 it picked up to 10e12 percent and everybody
wanted to buy land, buy apartments even if it meant
keeping them empty. Investors too were in a frenzy. But
this too shall pass. Because this is something that has
artificially been kept up by sentiment. Sentiment cycle
lasts for about 20 years or so. That is in the nature of the
beast. The question is how hard an intervention should the
government do and that is always a dilemma because if the
interventions outlined by the task force were executed,
there would be no need for anything further.
So in answer to your initial question, is it policy or
execution, it is execution. However in that execution, there
are people who are part of this frenzy as well so whether they
will do anything to reduce land prices is open to question.

K. Gopalan, M. Venkataraman
V Balasubramanian
In answer to the question raised by the previous speaker, I
recall a model which combines land and financing with
entrepreneurship of the small man. The members of this
round table must be aware of the Magarpatta Township on
the outskirts of Pune, developed from around 430 acres of
land sold by 120 farmers. One of the farmers, Satish Magar,
organized this as joint stock, sharing the profits in proportion to the land that was contributed. They approached a
professional architect and the model was ground plus three
or four, and it was developed as a township with residential
areas, commercial zones, restaurants and so on. The Magarpatta project would provide an incentive and quality direction for farmers selling land to organize similar models.
Srinath Mukherji
To answer the question on micro-financing, the task force has
looked at recommendations in terms of making cheaper
housing finance available. Companies such as ours borrow
from banks or other sources and on-lend it. Our own lending
rates are dependent on the costs at which we borrow. Today
there is a secular rate prevailing in Indian banking which is
between 12 and 15 percent. To get below that, you have to
stand in a queue, get rationed by a bank or someone else. If
you agree to the terms you will get preferential rates but the
question is, will it be directed towards affordable housing or
will the benefits be passed on? If cheaper money were made
available to us through tax free bonds, or National Housing
Bank (NHB) money, housing finance will become cheaper. But
the dilemma we face is, apart from flats if we were to give
cheap money for self-construction, where would it end up in a
household? It gets diverted. If we have to police it, it brings up
the cost, so we are back to the level of 12e13 percent to be
able to deploy. So you cant subsidize for particular use in a
milieu that has high interest rates; it gets diverted. We do
home equity loans which are about 5 percent more than home
construction loans to stop diversion. So, while policy wise
there is room, with the present inflation situation there is very
little room to bring down rates. Any subsidy will get diverted.

Role of HUDCO in affordable housing

P G Ganapathy
Could you tell a little bit about HUDCOs role in affordable
housing? Are you involved in publicly funded projects like
the government projects, or are you operating independently? Are you financing the private sector? Could you
highlight your experiences?
S V Kamath
HUDCOs association historically has been with the state government e initially with state government agencies, housing
boards, development authorities, municipal corporations, and
all along HUDCOs mandate and thrust has been on financing
economically weaker sections and lower income groups at a
subsidized rate of interest. We have been doing this through
subsidization from operations in higher income segments,
commercial segments and of late, in infrastructure.
Basically our association has been with implementing
agencies, larger programmes e project funding has been
our area. From 1985 onwards in the initial decade the
thrust was on low cost housing. A decade later, quality and

Affordable housing: Policy and practice in India

cost effective housing became important. In the context of
urban awakening, this is getting a new label e affordable
housing. If we look at it in the right perspective we can
identify opportunities and create markets out of it; that is
where the need and requirement demand is.

Public versus private housing

P G Ganapathy
Do you have something on the public side, Monitor, or have
you only looked at the private side of affordable housing? If
you take the entire spectrum of up to Rs. 25,000/- household
incomes or even below Rs. 10,000/- do you have an estimate
of the percentage being catered to by the private market?
Vikram Jain
I have no data on the contribution of the public sector. In
the last 5e8 years, about 78,000 low income homes, below
Rs. 10 lakhs, were catered by the private sector, with about
30,000 coming up in the last few years. In the last few years
there has been uptake but it has been marginal compared
to the huge demand.

Public purpose and the role of the state

Audience Q: As a general reaction, one could say that the
beast has grown much bigger since the 80s. It was a similar
approach, the consumption index related to investments in
gold or real estate which brought about the crash in 2008 in
United States housing. I am not finance person but in my own
understanding I believe thats how it goes. We too might hit
that and trip over badly. Secondly, housing is not purely a
market thing. There is a sense of public purpose. There is a
history of deprivation and exclusion in the country. I see the
risk of collapse of market as well as risk of ingrained exclusion becoming worse. If the government is not going to step in
and do something substantial then we are in trouble.
Srinath Mukherji
You are right. This is a dilemma that not only India but
every country faces. In a situation that is market driven
such as mass commodities, shares, stocks, bonds, real estate, and gold, what is the mechanism and the degree to
which the government should intervene? Governments
should ideally take counter-cyclic measures.

Customer preferences
Srinath Mukherji
Further, in real estate, there is the question of customer
aspirations. We found that people who may be struggling to
buy a one bedroom home and did not have a car, wanted a
car park. People want more bedrooms. We are finding it
very difficult to make it affordable.
Audience: So it seems as if there is an increasing
switch-up situation in the market and steps should be
taken to tackle affordable housing both from the supply
side and in terms of the customers preferences.
Srinath Mukherji
We have to understand that apartments and homes are
also assets. The apartment dynamic has a dual aspect. One

139
is that of living in it and the other one is for its re-sale
value.
Rajesh Krishnan
I think marketing has a lot to do with this. It is not just
about cheap homes. When the Maruti 800 first came to
market it was cheap but it was an aspiration product. If we
can position cheap homes as an aspiration product the
customer who wants to buy a home will want to buy these
Rs. 10 lakh homes. In my mind marketing and positioning
has a lot to do with the rate that the customer perceives
and takes this product for. There is huge demand for small
format homes, and the small format sells quicker.

Affordability
Audience Q: When it comes to affordability, there are two
things e land component and building component. The land
component is fixed. In building component we need to do
research and innovation. Compared to other fields there seem
to be minimum innovation standards in affordable housing.
Srinath Mukherji
We figured that lot of housing or room stock in India other
than in metros is not going to be necessarily builder built. It
will be done by people like you and me or people with
freehold plots, who would have constructed a room and are
adding another room because their son is getting married,
for a third party, for rental and so on. That is where rooms
are being added in India and it is not in the builderconstructed apartments. Urbanization is happening in places where people are constructing with a contractor or a
mason. We call it self-construction. We do most of our
financing for self-construction or own construction which
has it risks and challenges. At that level there is no easy
way to do innovation even in building construction material
because leave aside technology, you dont even have a
regularized mason registration. If innovation has to happen
it has to be in mason training. The National Skill Development Corporation has to take up the issue as to who is going
to train the masons of India on new technology and material. So lets be pragmatic about the issues on the ground.
P G Ganapathy
A very straight question e Is it possible, in Bangalore, for
the private sector to provide an affordable home of
500 sq ft at rupees 5 lakhs, meeting all the requirements?
Rajesh Krishnan
This is where real policy innovation comes in. Today when
developers ask for financing, the only financing comes from
equity where investors are expecting 30 percent annualized
returns.
Unless I provide that I cant get financing. But if there
are people willing to give you money at 5e10 percent, you
can use the benefit of low cost of financing to subsidize
housing for the poor. There are several CSR investors, banks
and others who are willing to give you money at 5e10
percent. If you structure this you can get access to
financing at 10 percent. This means instead of selling a
house at Rs. 3000 per sq ft you can sell it at Rs. 1000 per sq

140
ft. Instead of getting land at market price, if somebody is
saying do social growth but give my money back with 5e10
percent returns, we can pursue that option.
Audience
Further, to tackle the problem of low cost building projects
that are far from the city centre, we need to have a
densification programme, inclusive zoning and so on. The
master plan should look at that.
V Balasubramanian
In conclusion, I would say that to be more effective in policy
making, we need to have a dialogue between politicians,
bureaucrats, academics and experts, and the industry.
Organizing policy workshops and inviting these stakeholders may initiate free exchange of views that educates
everyone, especially those who rule us.
P G Ganapathy
Thank you all for participating and making this a rich and
insightful discussion.

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