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After a two hour train journey from Dadar station and a rickety ride in a private white shuttle van I was finally standing in front a construction site, picturesquely located in the middle of peri-urban hills and a dried river bed that allegedly recharges every monsoon. Not a place I expected to see human habitation, let alone full scale construction activity. I couldn’t make up my mind if this 1200 unit apartment complex was angling investors looking for holiday homes or was it a serious attempt at low income housing development (LIH). After all who in the world would spend 2 hours everyday to travel to a 350 sq foot, one room kitchen apartment in Neral… No matter what the view.

I had just started working at the The Monitor Group and as a part of its “State of the Market Study” had had gone looking for market built, low cost housing (housing that cost less than Rs 1 million / $18,500). I was skeptic about the markets ability to provide housing for the low income group (people earning monthly household income of Rs7,500 – Rs 25,000)  Although I had found units that fit the bill, I was well aware that we were standing 75 Km away from the city’s center. I was concerned that houses at such locations would not reach the targeted customers and get quickly bought over by investors.

It would take trips to four other cities, several developers interviews and a visit to an occupied LIH project to understand and appreciate what I was looking at.

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Entrance to a project selling low income units. The white van on the left transports people from the site to the nearest railway station.

There is a high demand for low income housing in Indian cities. Much of this demand comes from people who work in the informal sector. Self employed entrepreneurs, rickshaw drivers, maid servants and others who do not have  documented proof of income and are hence considered “at risk” to get loans from government banks. Although at a higher interest rate, the emergence of Housing Finance Corporations (HFCs) has made it possible for people in this sector to get loans. Yet, the supply to meet this demand was meager; until the housing collapse in 2008. As the high income housing market stagnated, many developers started constructing smaller, cheaper housing formats that would cater to the demand in low income segment. In 2011 Monitor carried out a preliminary survey of 8 Indian cites and estimated that almost 50,000 sub Rs. 1 million homes had gone on sale by Nov 2011. However, the supply pales in comparison to the unmet demand of 21 million units across the country.

Through developer and HFC interviews and rigorous field work in 8 Indian cities Monitor’s State of the Market study attempts to investigate the bottlenecks in scaling up LIH construction. We are still in the process of analyzing data from the field, but my involvement this project has helped ease some of my earlier concerns. I shall elaborate..

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Low income houses closer to the railway station

While it is true that LIH in cities like Mumbai and Chennai is located at a distance of 60-100 Km from the city center, cities like Ahmedabad, Jaipur, Kolkata and Indore are building LIH units at a comfortable distance of 30 km. Also, if we recognize the multinodality of Mumbai, it becomes clear that over the years the centers have shifted closer to the outskirts bringing places of work closer to these sites. Moreover most sites are located around public transportation routes which allow residents easy access to work centers.

Also, contrary to what I had assumed, I came across developers who were against the idea of selling houses to investors. Some even had a clause which prevented the house from being resold within 3 years, as most investors like to flip their houses in this period. This is because developers who wish to build a LIH brand benefit more if their projects are occupied. Others highlighted that by settling in, the low income group brings up the property value of the project and as a result subsequent phases can be sold for a higher price. Moreover empty projects are cumbersome to maintain for the developer as there is no one to keep a watch on its day to day upkeep.

I am excited to see what the remaining data will reveal about this space. In the meanwhile I am just amazed at how the quest to find a sub million rupee house can reveal so much about our cities. I shall provide updates in the following posts!

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2 thoughts on “Building Low Income Housing Markets

  1. Great post! I work in the sector as well and am also excited to see what the data would reveal. Occupancy remains an issue for many of these projects built too far out. While we build developer-built greenfield housing, it is vital to catalyze incrementally built housing in informal settlements by helping the poor build safer, better, houses, giving them some sort of tenure to hep them access finance. This is not only a much better strategy to get the suppl quickly but also a sustainable way to build and live for communities across India.
    Mukta Naik, micro Home Solutions

  2. Reblogged this on ramblinginthecity and commented:
    This is one perspective to think of; the other is to catalyze the incrementally built housing in informal settlements. Indian families are comfortable living in low-rise high-density situations. These are also known to be more sustainable and promote a high sense of community. If we work to improve tenure and provide technical assistance to build safer, high quality homes in an incremental fashion while we encourage developers in the affordable housing space, we might be able to meet the demand of 21 million units as stated in this post.

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