Several questions on housing have been plaguing me. And because my current work engages with housing only tangentially, I find myself background thinking a lot of issues related to housing security, real estate markets and the nature of home ownership. The role of rentals in the housing market is something I’m rather excited about. So today’s question draws from the debate on in the UK about the growing role of buy-to-let home buyers. What’s the scenario in India?
We do know that speculative property purchases are on the rise in India. Notwithstanding the current slowdown, the post-liberalisation era has meant that favorable home loans terms and rising incomes have combined to put real estate into that sweet spot; real estate purchases have become a normal component in the portfolio of salaried urban Indians. Most of these investments are in second (or third) homes. Yet, there is the rise in the rental housing supply is not proportionate and we do know that a large number of houses in cities are lying locked up (ref: 2012 MoHUPA report on housing, which recommended push for rental housing).
Is there a larger role for buy-to-let home buyers in the Indian context?
Unlike the UK, Indians cannot avail of a buy-to-let mortgage, which are suited specifically for properties where rental incomes are more than the monthly installments. However, Indians do take out regular home loans to buy properties specifically for rental purposes. Though archaic rental laws are usually blamed for the slowness of rental markets, it is also true that speculative buying largely includes suburban properties that yield lower rents. The thrust of speculative housing investments has been the lure of higher returns through sale, not through rentals, which are relatively weak. Further, property management for rentals is not yet a well developed aspect of the real estate services industry and the responsibilities of being absentee landlords are daunting indeed.
Am super proud to be published (read my article here) in a magazine I have admired for the last couple of years. The Next City formerly focused on the US now carried in reportage from a number of cities across the world. A dedicated section called the Informal City Dialogues , supported by the Rockefeller Foundation specially focuses on urban issues in developing countries and holds a wealth of insights that I have often used in my work in low-income housing.
The editors at Next City worked off a piece I had originally written as a book chapter. The book idea was to develop caricature essays based on the various people I have interacted with during my fieldwork on rental housing in Gurgaon. The first one was about Billu, the landlord. Interviewing him was one of the most interesting experiences I have had. We had very different notion of body language and personal comfort zones, for instance. And yet, his passion for life and his work (he manages about 80 rental rooms for migrants) and his extremely practical approach to complex issues like identity, politics and change made me wonder about whether I am given to over-analyzing situations!
The Next City piece has been edited to give it adequate context. Would be curious to get your feedback. I still nurture the dream of writing that book, you see!
The private rental market is a critical one, from the perspective of citizens being able to access affordable homes. Despite ownership housing being the de facto option that policymakers the world over promote, an increasingly mobile human population and rising property prices have meant that rental housing is popular.
Of course, the issues in India and the UK are very different, but seeing as both nations are taking a re-look at rental housing policy, I thought it might be a good idea to compare, and learn.
In the UK, people can seek rental housing through Housing Associations which are private and not-for-profit bodies that manage a variety of housing stock. They are subject to government regulation. As Housing Councils (focused more on social housing) and Housing Associations were unable to meet demand, the private rental sector stepped in to provide rental homes. Now it represents about 10% of the total housing stock. This sector is also mildly regulated, in the sense that there is regulation that helps landlords recover rent from defaulting tenants, etc.
Today, rising homelessness (stats) and a slow economy are fueling a housing crisis of considerable proportions (1 million homes deficit, 2 million on social housing waiting lists) and a special committee of MPs has made recommendations to boost the private rental housing sector, focusing on simple tenancy agreements, transparency in leasing agent fees, etc.
Critics feel that the recommendations are lukewarm, stopping short of regulated rent increases that would truly help those in need of affordable housing (see here).
Here in India, we have another sort of problem. Over 60% of our affordable urban housing stock is in informal settlements, many of them illegal, many of them officially denoted as slums. Social housing for rent is also found in these areas, which aren’t really regulated in any fashion by building bye laws, leave alone rental laws. On the other land, our middle and high income rental sector has been through its ups and downs. Rent control and other laws have left landlords insecure and many prefer to leave their additional homes empty rather than rent it out, fearing they will be unable to evict tenants. Out of the 18 million new houses built between 2007-2012, owners of over 11 million units in India prefer not to let out the properties. A telling figure! The new rental laws under discussion hope to create watertight regulation so that developers are encouraged to build housing for rental purposes. Like the proposed changes in UK, the committee will address the role of rental management services. It even goes on to try and include provisions to encourage small size dormitory type housing for the poor.
However, I fear the new proposed laws are not looking at the current models by which private rentals in informal settlements work. Unless the proposed laws encourage, rather than ignore or discourage, informal private rentals, the urban poor are still going to be short of rental housing. And that is where the bulk of the housing demand is anyway. Besides private rentals, government agencies can also be mobilized to utilize under-used properties across the city to provide low-cost rentals and this also needs to be addressed as there is currently an unfortunate “free housing” mindset for dormitories as well!
Four factors denote a healthy rental market- longer term tenancies, protections from eviction, higher quality property and regulated rent increases. We need to ask, and so does the UK panel of MPs, whether our proposed laws or solutions achieve this. In addition to whatever Jerry Rao’s committee comes up with, we need in India an additional group working to ensure the above 4 conditions in the informal rentals market as well. Quality of housing especially is a tough one and directly determines the quality of life of tenants. In situations like slums, urban villages and unauthorized colonies, where tenants and landlords live side by side and share amenities, it isn’t just rental laws that will do the trick. In fact, local governments need to be pushed to provide, unconditionally, basic services to all housing. Further, tenure must be improved to allow landlords to access finance and build more and better quality rental units. Plus, technical assistance needs to be provided to ensure quality, in addition to regulations about light, ventilation, structural safety etc that would need to be followed if landlords expect incentives from the government going forward (it is a tricky situation considering most informal settlements evade tax though!).
Essentially, the problems of rental housing are linked to the larger issues in the housing sector. It is myopic to think that only addressing the low hanging fruit will solve the problem. While many middle income families might find it easier to rent, the current policy moves will not solve the issue for the urban poor, many of whom are migrants who need shorter term accommodation. We definitely need to look deeper and broader at who are tenants in the city and what are their housing choices before we create a policy that will truly boost affordable rental housing.
Water is on my mind these days. how can it not be, when some parts of our country struggle to deal with floods while millions of others depend on erratic and expensive sources of water to survive! To top it all, we have a roof leaking at home and, as gathering clouds strike fear in my heart, I am reminded everyday that water finds a way to get in everywhere. And become the heart of many a problem.
Clearly, India is at the brink of a gigantic water problem. We know it. A recent study by the Earth Policy Institute warns us of food supply problems because of overdrawing of water for underground aquifers, dropping water tables, contaminated water sources…a bleak picture with India being one of the regions most certainly at risk.
“India has a regulatory vacuum with regard to groundwater, and it is a free-for-all market when it comes to extraction and pricing.” writes Saritha Rai in her article in The Forbes that highlights the risk posed to businesses from water scarcity. This was brought home to me today this morning when I was interacting with a private landlord who builds and rents out units to migrant workers in Gurgaon’s urban villages.
I am neck deep in research to figure out ways in which the private informal rental market in the city’s urban villages and illegal colonies (link to HT article in which I was quoted, on this issue) can be catalyzed to be a legitimate and thriving source of rental housing supply in Gurgaon. Interestingly, while local landlords do not consider policy as a hurdle, choosing to stay outside the ambit of government surveillance with the freedom to do as they will, it might be the need for water that will push landlords towards seeking alliances with the government. Just like independent electrical meters help landlords track usage and allow them to charge for power separately from migrant tenants over and above rent, there are moves to meter water and pass the rising costs of water to the tenant as well. Landlords do fear that their ‘fail-proof’ rental business will, despite all their innovations and adjustments, meet its nemesis in water!
Dark clouds loom outside today. Rain threatens and my home also gears up to meet some aquatic challenges! Are we destined to drown in water without having any to drink?
Policy makers are making noises about a rental housing policy for India, which currently does not have one in place save for some anti-eviction and rent-protection laws in certain States. The renewed interest in rentals has been triggered by a report that finds 11 million out of the 18 million units built between 2007-2012 lie vacant, ostensibly because owners are hesitant to lease them out to renters who they fear will be hard to evict when they need to. A 19-member panel set up by the Ministry of Housing and Urban Poverty Alleviation (HUPA) headed by Jaithirth Rao, Chairman, Value and Budget Housing Corporation Private Limited is now looking at ways to encourage developers to construct rental housing units.
Historically, housing policy worldwide and in India as well has had an inordinate emphasis on home ownership. In India’s growing urban centres, rental housing is highly in demand owing to mobility patterns and also as a result of high land prices and high cost of home ownership. Highly distorted land markets mean housing affordability will continue to be an issue; it is not merely a demand-supply game for sure. A policy that will put more rental housing on the market, protect the landlord but more importantly protect tenants too against arbitrary rent increases is welcome.
However, policy makers seem to have missed entirely the huge amount of rental housing already being provided by small landlords in the informal areas of our cities. Walk through slums, unauthorized colonies and urban villages in any city and you will see homeowners adding floors to accommodate tenants (sometimes they call them relatives, but this is also a form of tenancy after all). In Gurgaon, my research as part of the Future Institute Fellowship Program shows large-scale construction of rental units by small and mid-size landlords in urban villages located close to employment centres. These erstwhile farmers have been meeting the housing needs of low- to middle-income for years successfully even as the government continues to mull over affordable housing as a problem.
This sort of rental construction is right under the noses of the authorities, yet they seem to feign ignorance about it. Local councillors tell me that villagers do not allow census enumerators to enter their homes and do not divulge the presence of tenants as far as possible, fearing interference with their business of rental housing. Landlords remain unclear about the legality of rentals, fear they may have to pay service tax. To refrain from showing rental units, they do not construct kitchens in the housing they provide, and also give minimum amenities like toilets and bathrooms. Yet, no one will be fooled that these tenement homes are for any other purpose but rentals!
We find ourselves in a strange conundrum with this sort of rental market. Like we refuse to see slums and accept them as part of our reality, we do not wish to really know where maids, cleaners, security guards, drivers, cooks, retail assistants and even BPO workers live. Within the same city, people are interdependent yet ignorant of each others’ lives.
From a policy perspective, it is a huge challenge indeed. We do need to legalize the informal rental market so that we can regulate the safety of the buildings that house migrant workers and so that landlords are encouraged to offer decent amenities- water, sanitation, etc. Yet, we want to ensure that these rental rooms remain affordable to the poor, which probably means offering some sort of incentives. From what I know, these landlords do not really make money off the rentals. They rent partly to keep their property from remaining vacant and being grabbed by political goons, and to keep busy after having lost their land in the process of urbanization. It is a delicate balancing act, but it needs to be addressed.
It is my appeal to Mr Rao and the HUPA to include the informal rental market in your considerations while formulating a rental policy. If needed, HUPA can set up a parallel panel of experts to look into this. Supporting and engaging with the informal rentals market will being down the pressure on the government to provide affordable home ownership options, especially in cities that are experiencing high rates of rural-urban migration. It would protect the poor, who often have to face arbitrary rent increases and are powerless before their landlords who are ‘locals’. It would also offer better business models to landlords, who will find ways to improve their offerings and expand their business without fear of the law.
For a low-income person in a city like Gurgaon, owning a legal home is a distant dream. During my field trips, I have spoken to scores of families that belong to Gurgaon and its surrounding areas that have invested in unauthorized colonies (usually plotted from agricultural land) bought on power of attorney basis from landowners. This, they say, is their only option to own a home in the city.
The new Haryana Affordable Housing Policy 2013, the details of which are now out, seeks to address this issue by setting new rules to bring on private developers into the low-income housing game. In a city where land prices are through the roof and housing is unaffordable for middle-income people as well, it remains to be seen how transparently and efficiently such a policy can be implemented so that the intended ‘beneficiaries’ get to buy and occupy these homes.
How the policy is to work
Essentially, the government plans to grant special licenses to developers to build these projects. The carrot on offer, of course, is increased density and FAR norms. Under the proposal, the projects licenses would get to build out to a density of 900 people per acre as opposed to the current maximum of 300 people per acre. The units are to be 28-60 sq m in size, however 50% of the units must be less than 48 sq m.
The developer has to qualify in a point-based system that takes into account the condition of existing infrastructure (roads, water, sewerage, developmental works) and the developer’s presence in the specific sector where the project is proposed; thus encouraging projects in areas where infrastructure is better developed to come up first as well as preventing developer monopoly over certain areas. Only one project will be approved per sector as per Master Plan. Once the license is awarded, the project is to be developed with 4 years and cannot be converted into a normal project.
Projects on plots upto a maximum of 300 acres are permitted in the State’s larger cities like Gurgaon and Faridabad, while maximum plot sizes go down to 150 and 75 acres for smaller cities. The allotment process is to be stringent and in the hands of a panel and will be done at the rate of Rs 4000 per square foot in Gurgaon, Faridabad, Panchkula and Pinjore-Kalka, and Rs 3600 per sq ft in other development plans.
Out of the subsidy mindset, finally!
In a rare and progressive gesture, the policy refrains from labeling any units as ‘EWS’ and categorically does this to prevent any cross-subsidy from applying to these projects. While there is a concern that the Rs 15-30 lakh price that these units are expected to be sold at will not really be affordable to the ‘urban poor’ in Gurgaon, keeping these out of the ambit of subsidy certainly prevents gross misuse of the policy. By this I mean that there will be no perverse incentive for middle and higher income people to buy the subsidized units, nor for poor people who get them to sell for profit and exit the investment. The units will go to a section of people who are still under-served, even though they technically will not come under the EWS and LIG categories who can afford homes priced between Rs 5-10 lakhs typically.
Some things slightly off….need to be thought through further…
Cars are a reality, transport planning on urban scale needed urgently: Parking, a typical problem area, rears its head here too. Half car parking space per unit is to be offered as stilted/covered parking but not to be allotted to flat owners, who will get two-wheeler parking instead. Visitor parking is to be uncovered parking. We are talking about middle income people here and I would wager every unit will own at least one small car, so this is a highly impractical situation and we are staring at a parking disaster in these projects. It would be more practical to incentivize such projects along transit corridors and plan an efficient transportation system that links these areas with employment centres. So that people who are hard pressed to buy a home are not forced to buy cars in the first place! From an aspiration perspective, a four-wheeler is a craze. We regularly see families that have no savings to speak of buying second hand cars, partly because a car is a status symbol, and mostly because there is little public transit to speak of. There is a desperate need to align this policy with other larger, more ambitious transit initiatives, both public and private.
What’s in it for the developer besides FAR/FSI? Developers are to provide bank guarantee as well, in addition to putting their lad on the table AND putting in the money to develop the project. Seems a hard ask to me!
Migrants allowed? Eligibility criteria not so clear: The eligibility criteria prevent the allottee or any family member from owning another govt allotted unit in urban areas in Haryana and limits the number of applications to one only. However, this is only applicable to ‘licensed’ colonies, so those currently living in illegal colonies are eligible. Plus, the newspaper reports that this scheme is for residents of the State. The draft policy makes no such specification. Does this mean that no domicile will be asked for? Private property does not restrict higher income migrants from buying; will these units also be available to migrants from other States with no identity papers from Haryana? I find that hard to believe in the light of the general drift of State housing policies, but if this is so it would mean a huge step forward as well.
The other issue is the one-year limit on reselling the flat. How will that be monitored?
No clarity on O&M: The developer is to maintain the project free of cost for five years, after which a resident association takes over. While this policy is an improvement over the existing one, this is a tough issue with affordable housing and needs definition certainly for a sustainable solution.
Imperative to learn from failures elsewhere: This policy has been a long time coming and it takes a few very bold steps forward; however, I wonder if the failed or partially successful experiences of other States have adequately been considered while drafting this (O&M experience of SRA scheme in Maharashtra, a case in point).
NCR cities might be special? The situation in Gurgaon and Faridabad is drastically different from other cities in Haryana. It seems to me that a differential approach could have been taken for these two cities to position them better within the NCT of Delhi.
Dovetail with other schemes critical for a sustainable and viable solution
It is clear to any practitioner in the housing space that this policy will serve middle income customers and not EWS/LIG and that is fine! However, other solutions like employer-built housing, rental housing dormitories and family units, public housing projects as built by Housing Boards as well as regularization of illegal colonies are critical to addressing the issue of affordable housing in the larger context. Otherwise, the truly under-served section of the urban poor will continue to be denied quality housing or a right to improve their socio-economic conditions; surely, that is fundamental to planning the cities of the future?
Cannot wish the urban poor away; can we try new housing solutions like rental housing to accomodate them? Feb 20, 2012
Today’s newspaper carried two stories that highlight how completely clueless we (citizens, governments, bureaucrats and planners alike) are about how to address the issue of housing the poor.
The first piece of news narrates a conflict in the numbers of homeless people in Delhi. The government figure is 55,955 while NGOs in the sector claim 150,000! A 2008 survey by IGSSS, an NGO prominent in working for the homeless, put the figure at 88,410. Apparently the government survey was done in the wake of the Commonwealth Games, when many of the homeless were evicted from the city as part of a ‘cleanliness’ drive! This is a typical example of the kind of data scenario policy makers work with in India. Very often, there is little desire to arrive at authentic, realistic figures; consequently, policies that evolve are unrealistic and do not cater to the present, leave alone plan for the future.
The second story, set in Gurgaon, highlights another typical conflict. Sector 45 residents pressurize the urban development authority (HUDA in this case) to remove slum encroachments in the area, citing poor sanitation and law and order issues. The slum, which occupies government land (apparently disputed and hence not developed), gets water supply and electricity, but has poor sanitation facilities and many residents use open lands for defecation. Whereas private property owners are fully entitled to complain against slums if they see them as threats to their quality of life, clearly governments choose to wait for complaints and fail to check unplanned illegal settlements. Further, there is a spectacular failure to provide low income housing to an urban settlement that is growing as rapidly as Gurgaon is. Conflicts such as these will continue to escalate, while the government mouths buzwords like ‘affordable housing’ and ‘RAY’, which have failed to see the light of the day and provide housing in sufficient numbers to meet even a fraction of the demand.
Poverty in urban India isn’t something we can simply wish away, yet we continue to look for stop gap solutions and refuse to adopt inclusive planing in the present and for the future. I am aware that this is a common refrain and I have no innovative or practical solutions to offer. I do, however, see enterprising landlords in urban villages in Gurgaon creating several affordable housing formats for rent, from dormitories, to single room sets and tenement style housing, there is a range of options for employed migrants who can pay rentals ranging from Rs 500 – 5000 per month. That’s taking a definite step forward. It would be heartening to see the government step in to facilitate the creation of rental housing for the poor in the city, while they continue to evolve greenfield affordable housing projects as well!