Deepak Parekh, founder and chairman of HDFC, the premier housing finance organization in the country, in an interview with the Times of India published on September 9, 2019 provided some important and telling numbers on the laudable efforts made by HDFC through its $ 1.1 billion real estate fund to finance affordable homes. Such projects show some way towards the goal set by our prime minister for Pradhan Mantri Awas Yojana (PMAY) which aims to provide affordable housing for all by 2022. Parekh pointed out that 90% of tenements were booked at Rs. 3,200/sqft in Boisar just beyond Vasai , a 400 sqft  tenement at Chembur within Mumbai city is going to cost Rs. 65lakh @ Rs. 16,000/sqft, a project at Gurgaon with 754 units was sold at Rs. 3,200-5,000/sqft.

We compliment Parekh for giving us some vivid information on what could be called affordable housing. To begin with let us relate and restrict affordable housing to those who are at median income, i.e., around Rs. 20,000 p.m. for a family in Mumbai. In urban India, the median income is Rs 13,500 for a family of four.

Let us confine our discussion to Mumbai where the cost of land is the highest for any city in India. As such, the share of land cost to the total cost of a dwelling is also the highest! As we build more houses, it will bring down the construction cost to some extent. The cost would vary to some degree from city to city. But it would be in the range of Rs.1,200 to Rs. 2,500/sqft.

It is the “construction component” that creates employment and hence if we have a reasonable goal of providing affordable housing to people at or within 25percent of median income, we must focus on affordability for people who fall within or around this income bracket. For a well designed compact unit we should restrict the space to 400 sq ft with all basic facilities and it should be within four floors so that the lift is not required. In Mumbai, we can have an FSI (floor space index) of three to four. But there should be no “sale component” for higher priced housing as it distorts the whole thing and affordable housing doesn’t get the full focus it deserves! In other cities where land is relatively cheaper, the FSI can be lowered to two or so. If these units are mass-produced, the construction cost should be within Rs. 7 lakh and depending upon their proximity to the nearest rail, metro, bus station or access to high volume work places, additional location premiums of up to a maximum of Rs. 2,000/sqft can be considered. The overheads, interests, etc. can be taken care of within Rs 1,000 per sqft.

An agency like MHADA must display its efficiency and scale of construction or redevelopment. PMAY should provide interest subvention to the lending agency so that effective rate of interest can be fixed at 2% to 4% and with a discount of up to Rs 2 lakh on the final sale price which is set right at the initial stage itself. If good quality and sensibly located high value dwellings are built at low costs, securing loans should not be a problem for the lender which is currently a big reason for the NPAs of banks.

40 sqm tenements for median income-an achievable goal for “affordable housing for most”
Under the affordable housing scheme a well-designed dwelling of 40 sqm should be provided. For monthly income of Rs.20,000, earnings for 5 years should be Rs.12 lakhs. This is considered maximum viable price which works out to Rs.3,000 per sqft. If the government finds or identifies land at around Rs.500 sqft and subsidizes the same so as to ensure that the buyer can pay a maximum premia over bare construction cost of  Rs 1,500-3,000 per sqft for location proximity and other administrative expenses. This will make it possible to actually offer affordable housing to people around the median income within acceptable distances.

For this the government must consider obtaining or providing land wherever possible. For example, it can provide 20% of the total 800 acres of land of Bombay Port Trust for affordable housing. The FSI given should be strictly for affordable housing only in Mumbai at least. The municipality and state government can forego their huge income arising out of premium charged on such FSI and therefore reduce it to a nominal amount sufficient for the record keeping machinery. Such tenements should be located within 2 km of railway and metro stations or within 1 km of the nearest bus route. There must be simultaneous planning for housing and transportation network.

There is no serious debate on truly affordable housing for large masses at least at the median level, which can make a “material” difference to employment generation and well being of large segments of population. It is the surest road for India towards a $5 trillion economy! These homes have to be affordably priced, i.e., costing maximum four years’ income. Unaffordable, low quality homes without connectivity to public transportation network have little value to the potential user.

More than enough flats at high end are constructed for well heeled and they are lying idle (reportedly there are 2,00,000 plus such flats costing in multiples of crores). These houses are certainly unaffordable to all except top 10% of population who are demographically upper middle class and can afford the price of up to Rs 2 crore. This market too will come down if a large number of affordable flats within manageable distance are made available. For this to happen, for the next three years the government must seriously consider providing land or FSI only for affordable housing.

Alternatively, we should adopt Western European model where between 20% and 50% of all available urban land or FSI is reserved for affordable housing (in India, till 2022, the target year of PMAY). We must demand that the chief minister provide at least 100 acres out of 800 acres of the Port Trust land for building 20,000 affordable transit tenements. Using above mentioned price and cost concepts we can rebuild slums within city that need redevelopment. The cost of land for the same should be free or priced under Rs 500 per sqft. For those whose slums need to be rebuilt, subsidized transit rental housing should be provided.  

With a programme like this, we can stop doling free housing and “saleable FSI” so that everybody will be able to get a standard size house. The premium could be charged on the number of years one has stayed in Mumbai where recent entrants could be levied, say Rs 1,000 per sq ft, and those living here prior to 1975 could be charged Rs. 10/sq ft. Builders can primarily perform the role of “actual builders” and earn legitimate profit on construction for which several innovations like bulk ordering of standard items such as tiles, doors, windows and fittings at a discount can be adopted.

Under any circumstances no affordable homes should cost more than Rs. 7,000 per sqft. For disadvantaged locations the cost could be fixed below Rs.5,000 per sqft. Banks must find such projects eminently credit worthy and there should be also some interest subvention so that interest charged is not more than 6% pa with total repayment period of up to 12-15 years.

This broad framework will address the issue of affordable housing in a serious and urgent manner to create employment, housing and long term sustainability of the city.

Ashok Datar is a Mumbai-based transport economist.