Making Housing Affordable: New models and best practices

New models and best practices

Most of the developing economies in the South Asian region are grappling with the challenge of providing housing to all their citizens. Given the rapid urbanisation in the region, affordable housing is an issue which warrants immediate attention. In India, 30-70 per cent of people living in small, medium and large towns are living in an informal set-up and are not taken into account while planning for infrastructure development projects. More and more people are being displaced due to the implementation of infrastructure projects as only a few cities have systems in place to address the relocation issues and resettlement plans for those displaced. Another factor responsible for depleting the potential and capacity of the lowest strata of the population is their inability to upgrade their homes by availing financing from financial institutions. This highlights the need to bring these sections of society into the mainstream of the financial mechanisms and systems designed for infrastructure development.

Housing scenario in Nepal

The housing situation in Nepal, especially for the poor, is far from adequate. The growth of the sector is impeded by several issues such as scarcity of land, rapidly increasing land prices, lack of finances, duplication of responsibilities between state governments and corporations, and other institutional issues. Driven by the objective of making the maximum profits, most of the houses constructed by the private sector cater to higher-income groups, while government housing projects are aimed at the lower-income groups. As a result, most of the people belonging to middle-income groups end up building their own houses.

Nepal’s recently launched New Town Project is the first land pooling project in the country. To make land pooling successful, provision of land strapping with housing units has been adopted in this project. In addition, for quality assurance, the task of monitoring and operations has been entrusted to the private sector.

Affordable housing project in Odisha

The first public-private partnership (PPP) affordable housing project in Odisha has been taken up with assistance from the International Finance Corporation (IFC). It involves the development of 2,600 affordable housing units in Bhubaneswar for people with annual incomes up to Rs 0.18 million per annum. The project is based on a cross-subsidisation model, wherein 65 per cent of the land parcel will be used for development of the housing units and the remaining 35 per cent (called the developer area) will be given to the private sector for commercial utilisation. Under the project, the private player plans to develop residential housing for the higher-income group in the developer area.

The parameter for identification of the private sector partner was a premium/grant that it would have to pay/receive from the government. If the private partner feels that the revenue being generated from the developer area is sufficient to offset the construction cost of the affordable housing component, then it will be willing to pay a premium to the government to get freehold rights of 35 per cent of the land parcel. However, if the partner feels that the cost to be incurred on the affordable housing units is higher than the expected profit, it will be given a grant by the government. For this project, the grant requirement quoted by the bidder was Rs 470 million. This model will create a win-win scenario for both the government and the beneficiaries and can be successfully replicated in other cities.

Given the immense requirement for affordable housing, both the public and private sectors need to collaborate. For successful implementation of projects, capacity building of municipalities is the starting point. There is a need to switch from a 3P (PPP) approach to a 4P approach involving people participation as well. Due diligence needs to be undertaken for identifying projects. Further, well-defined bidding documents and concession agreements as well as a strong regulator are needed to drive the success of PPPs in the affordable housing segment. w

Based on a panel discussion among Sheela Patel, Director, Society for the Promotion of Area Resource Centers and Chair, Slum Dwellers International; Prafulla Man Singh Pradhan, Chairman, Lumanti Support Group for Shelter, Nepal; Sumeet Shukla, Investment Officer,  IFC; and Sultan Hafeez Rahman, Professorial Fellow and Head, Governance & Politics Cluster, BRAC Institute of Governance and Development, BRAC University, Bangladesh, at a recent NITI Aayog conference