AMITY GLOBAL BUSINESS SCHOOL-MUMBAI

Summer Internship Under

Topic On
Housing Affordability..A 21
st
Century
Problem
Submitted by :
Abhishek Shrivastav
Enrollment Nos: A30206410012
BBA + GDBA( 2010 -2013)
UNDER THE GUIDANCE OF
PROF Ms.Bhavna Mehta
1
st
Page: Same as cover page
2
nd
Page : Declaration- (Signed by Eaculty guide )
3
rd
Page : CertiIicate Irom company ((Signed by
Company
Mentor/ Guide)
4
th
Page : Acknowledgements
5
th
Page : Contents
6
th
Page : Abstract (Executive summary)
Chapter 1- Introduction
Chapter 2 Literature Review
Chapter 3- Methodology (primary & secondary)
a. Sample details (size, demographic details)
Chapter 4- Data analysis
Chapter 5- Results, Discussion & Suggestions
Chapter 6- Conclusion
c) Bibliography
d) Appendix
( Eont Type Times New roman)
(Eont Size 12, 1.5 spacing)
ACKNOWLEDGEMENT
This profect is the outcome of sincere efforts, hard work and constant guidance of not onlv me
but a number of individuals. First and foremost, I would like to thank AMI1Y MUMBAI for
giving me the platform to work with such a companv. I am thankful to mv facultv guide Ms.
BHAJAA MEH1A, AGBS MUMBAI for providing me help and support throughout the
internship period.
I owe a debt of gratitude to mv companv guide Mr.MAAISH KIRPEKAR, Asst.General
Manager 1echnical,Mr.Ramrathinnam General Manager(Credit), Deewan Housing Finance
L1d,Bhavesh Prajapati,Rohit Maurya who not onlv gave me valuable inputs about the
industrv but was a continuous source of inspiration during these two months, without whom this
Profect was never such a great success.
I would also take the opportunitv to thank the entire staff of Deewan Housing Finance
Ltd(DHFL), Pinky Malhotra,Rachna Chemburkar,Shonak Masurkar,Deepali Mam,Ameya
Sir who helped and shared their knowledge about the industrv for which I am highlv grateful.
Last but not the least I would like to thank all mv Faculty members, friends and family
members who have helped me directlv or indirectlv in the completion of the profect.
Abhishek Shrivastav
BBA GDBA (2010 2013)
AMI1Y MUMBAI
TABLE OE CONTENTS
S. no. artlculars age no.
1. lntroductlon to the organlzatlon 3-8
2. lntroductlon to the pro[ect 9
3. Cb[ectlve 9
4. Llterature 8evlew 9-10
3. Methodology 10-14
6. 8esults and data analysls 14-32
7. Concluslon and recommendatlons 32-34
8. Llmltatlons 34
9. Appendlx 1 33-37
10. Appendlx 2 38
11. Appendlx 3 39
INTRODUCTION
Ceneral lntroductlon.
Pouslng ls one ol the baslc human necessltles. lt ls lundamental lor the physlcal, psychologlcal, soclal
and economlc well belng ol people. Shelter lsone ol the most basl c needs ol the people. All
over the worl d the havl ng thehouse ls ma[or problem and contlnuous ellorts have been
made to meet
theever l nc r eas l ng needs ol each gener at l on, whl l e t he pr obl em ol pr ov l dl ng h
ousl ng l s hl ghl y crltl cal ln the devel opl ng countrles. Most ol the advancedcountrles also
lace thls problem ln varylng degrees and
dlmenslons.A l m o s t a l l g o v e r n m e n t s , l t m a y b e d e v e l o p e d , d e v e l o p l
n g o r underdevel oped country thelr ob[ect l s every cltlzen ol thelr country shoul dhave
a one decent house ln a sultable llvlng envlronment. Pouslng as a lormol reproduclble wealth and ls a
asset ol the people and thelr country.Cons t r uc t l on ol hous e l n l ndl a has been one ol
t he mos t l mpor t ant problem, as a result ol hlgh growth ol populatlon. lt has very dllllcult to llll
thegap between supply and demand ol houses. Pouslng ls a lmportant lactor lor devel opment l n
bot h ec onoml c and wel l ar e t er ms . l t l s not onl y a goodconsumptlon but also
a productlve lnvestment.So lor that, they need llnanclal supports lor constructlon ol thelr ownhouse.
Speclllc lntroductlon
Solvl ng the houslng problems l n lndla, the Covernment and rl vatellnanclal lnstltutlons are
started thelr buslness to glve llnanclal asslstances
to people. "1he natlonal Pouslng 8ank" has started lts buslness to glveasslstance and
provlde llnanclal support to thelr people.1 h e "
uLWAn PCuS l nC l l nAnCL CC8C8A1l Cn L1u
", popularly known has uPlL has commenced lts buslness to provlde llnanclalasslstant and support to
thelr customers. 1he uPlL ls provldlng loan lor all the people. 1hls company's maln products are Pome
loan, Pome Lxtenslon loan,Pome lmprovement loan, leased 8ental llnance, Mortgage loan etc.,1he
uPlL's Shlmoga branch ls provldlng loan lor all salarled persons,sell employed persons, buslness
people, agrlculturlsts, llshermen's and all typesol people who want loan to bulld thelr own house ln all
over Shlmoga.uPlL also has the speclal schemes laclllty known as, "Swarna
!ayanthl8 u r a l P o u s l n g l l n a n c e S c h e me " t o m a r k t h e g o l d e n [ u b l l e e o l l n
d l a ' s lndependence. 1he scheme seeks to provlde lmproved to access houslng loansto borrowers ol
constralnts/ acqulsltlons/ up gradatlon ol houslng rural areas ol the country.
CCMAn? 8CllLL
lntroductlon
u P l L l s a h o u s l n g l l n a n c e c o m p a n y t h a t h a s t a k e n t h e r o a d l e s s travele
d. 1he [ ourney began on the 11th ol Aprl l 1984. Cn thls day, 8a[eshkumarWadhawan
began hls mlssl on to correct what had troubled hl m lor years, the sad truth that most lndlans
couldn't get a houslng loan on lalr terms.1he lounder Chalrman saw the ownlng ol a home as a crltlcal
element to
the bul l dl ng ol l dent l t y and c onl l dence ol ever y l ndl an. uPl L was onl y t hes ec
ond hous l ng l l nance c ompany s et up l n l ndl a. And l t s s t at ed bus l nes s ob[ectlve
was unusual to say the least, to provlde access to houslng llnance
tol ower and ml ddl e l nc ome l ndl ans . Mos t ex per t s l auded Mr . Wadhawan' s al t r
ul s m but s hook t hel r heads at hl s appar ent l ac k ol bus l nes s ac umen. Lspeclal ly
as ln the begl nnl ng uPlL dl sbursed lunds lrom lts own equltycontrl butlon and had a
return on equlty ol less than 8 at a tlme when thelnterest rates were about 18. 8ut that
ls the dlllerence between those who seethlngs as they are and the vlslonarles who see thlngs as they
can be. Cver twodecades later, uPlL ls stlll prolltably dolng what lts lounder lntended lt to do.uPlL
has dlsbursed l oans amountlng to over 33 bl lll on, lts non perlorml ngassets are the lowest ln
the lndustry. 1he lounder Chalrman had a unlque andtlmeless lnslght lnto the character ol the
ma[orlty ol lndlans who are generallydlsmlssed as hlgh credlt rlsk. 1hey respond unequlvocally to trust.
1hey have avery emotlonal relatlonshlp wlth the ldea ol an 'own home.' 1o them lt lsn't
anl nves t ment . l t l s a s anc t uar y . A s y mbol ol who t hey ar e. 1hey wl l l not
doanythl ng to [eopardl ze thls symbol ol securl ty. 1hls lnslght was the prlmemover behlnd
uPlL.
1oday, uPlL has an asset base ol over 8s. 3,380 crores wlth a strong presence across lndla
through lts 72 branches and 116 servlce locatlons. uPlLcaters to a large sectlon ol lndlans worklng ln
the Mlddle Last through lts over seas branch ln uubal.
vlslon
1 r a n s l o r m l l v e s o l l n d l a n h o u s e h o l d s b y e n a b l l n g a c c e s s t o h o m e .
Mlsslon
8e easlly accesslble to every lndlan who deslres to own a home.
understand our customer's lnner needs and speak thelr language.
Co to any length to make sure our customers don't leel lntlmldated.
Cont l nuous l y c onl l gur e our c r edl t pol l c y t o make s ur e t he max l mumnumber ol
people can be ellglble lor loans.
llnd ways to help our customers tlde over dllllcult tlmes
Spread our network to every corner ol lndla
8espond promptly and courteously to all enqulrles.
values
1reat all our customers wlth dlgnlty and respect.
8e totally transparent ln all our deallngs.
Strlve to be a learnlng organlzatlon.
uedlcated to team excellence and employee happlness
8e slngle mlndedly commltted to the betterment ol our soclety
PRODUCT PROFILE
Dewan Housing Einance Corporation Limited, this is a company
whichoI I er s t he I i nanc i al s er vi ces t o t he peopl e. The company oI I er s i nt a n
gi bl e packages in the Iorm oI Iinancial services, which are not the physical goods asthe
product oI the company.The main business and aim oI the Dewan Housing Einance
CorporationLt d, i s pr ovi di ng l ong t e r m l oa ns t o i ndi vi dua l s , co-
ope r at i ve s oci et i es , Corporate bodies and associations oI persons Ior the purpose
oI acquisitionconstruction and improvement oI the residential houses.DHEL oIIers diIIerent
types oI Housing loans schemes i.e. Home loan,Home Extension loan and Home Improvement
loan etc.,
PRODUCTS
DHFL Home Loans
DHEL Home Loans are oIIered to Individuals, Co-operative Societies,Corporate bodies and
Associations oI Persons.The home l oan s eeke r can a vai l l oans upt o Rs .
100, 00, 000/ - but
not e x c e e d i n g 8 5 o I t h e c o s t o I t h e p r o p e r t y . T h e a c t u a l l o a n a m
o u n t i s determined aIter taking into account Iactors like
repayment capacity, age,e ducat i ona l qual i I i cat i ons , s t abi l i t y and cont i nui t y
oI i ncome, numbe r oI dependents, co-applicant' s income, assets, liabilities,
saving habits etc. Thetenure oI the loan ranges Irom 1 to 20 years. The term however does
not extend
4. Llterature 8evlew
The rising population in the cities has been identified as a contributing factor in rising housing
costs, to the extent that housing affordability has been declining in Australia. Sydney's
population continues to grow and the NSW Government's Metropolitan Strategy (2005),
hereafter referred to as the "Metro Strategy, expects on average, Sydney to grow by about
40,000 people per year, or 780 people per week. About two thirds will be from natural
increase and the remainder of the growth is expected to come from interstate and overseas
migration.
Beginning with the National Housing Strategy definition of affordability to convey a notion of
reasonable costs in relation to income, Gabriel et al (p8, 2005) define housing affordability as
a "term usually denoting the maximum amount of income which households should be
expected to pay for their housing. Similarly, PCA (2007) and Whitehead (1991) point out that
housing affordability is expressed by the relationship between housing expenditure (rent or
mortgage) and household income.
n way or another, housing affordability is measured and expressed as a ratio between
expenditure on housing and income.
As a general rule property analysts (PCA, HA, UDA) use 30 percent as the benchmark for
housing affordability. Yates and Gabriel (2006) defined as having
'housing stress', those in the nation's lowest two income quintiles (40 percent) that need more
than 30 percent of their disposable income for housing and refer to it as the '30/40 rule'. Using
this definition, in a study for the Australian Housing and Urban Research nstitute (AHUR),
they have identified that there are 862,000 households in Australia experiencing housing
stress.
A survey of 159 major markets in Australia, Canada, reland, New Zealand, the United
Kingdom in 2006 by Cox and Pavlevich (2007) showed that Australia has the most "pervasive
housing affordability crisis. The measure used to rate housing affordability was the "Median
House Price to Median Household ncome Multiple, and thereby deriving the "Median
Multiple ratio. The survey also identified that "the housing cost escalation is principally the
result of supply factors.
Day (2006) points out, that in Australia, it is not the house itself that has risen in
price, rather it is the land the house sits on, which over the previous ten years (1995-
2005) has nearly trebled across Australia and by comparison the cost of building a new house
on that land has hardly moved. "Where land once represented 25 percent of the cost of a new
house and land package, it is now 60 percent .
UDA's (2007) submission to the NSW Department of Planning regarding the City Centre
Plans in four city centres (Penrith, Liverpool, Parramatta and Gosford) concluded that it is not
feasible to undertake new medium and high rise dwelling development in these areas as the
cost of supplying the new dwelling is less than
the expected price realisation. UDA contends that "regulatory and market conditions are
presently unsympathetic to apartment construction and contend that there need to be a
reduction taxes and charges, in particular, developer contributions (Sect 94 levies). n a
previous report, UDA (2002) calculated that for every $10,000 increase in the cost of
developing land, 240,000 Australian households are no longer able to afford a basic house
and land package.
As noted from above, there are varying views as to cause of affordability as the REA (2007)
points out, "the affordability problem has been caused by a broad range of complex factors
including policy inaction by various levels of government. n a case study of residential
developments, Karantonis (2007) found that the government receives 60 percent of total
income, whilst the developer with the risk, receives 40 percent. n a study for the Property
Council of Australia, UrbisJHD (2006) found that government levies and compliances now
make up for 35 percent of the total cost of homes in Sydney's northwest and 28 percent of the
cost of new units. HA (2003)
also noted that state and local government approaches to the supply and funding of
infrastructure associated with residential development have impacted negatively on housing
affordability.
nternationally, in a review of housing supply in the UK (UK Treasury, 2004), known as the
Barker Report, identified that the long-term upward trend in real house prices has been
2.4 per cent per annum over the last 30 years compared to the EU
average of 1.1 percent. To bring the UK real price trend in line with the EU, an extra
120,000 houses each year would be required. n their submission to the review, the
Home Builders Federation (HBF) stressed that land supply is the key to sustainable
housing (Anonymous, 2007).
Finally, UDA (2003) noted that providing affordable housing is determined by three
interacting factors; namely, demand side factors, supply side factors and government.
The latter included its intervention in planning regulatory mechanism, provision of
infrastructure, which are predominantly on the supply side
C8CW1P Cl PCuSlnC 8LCul8LMLn1S Anu PCuSlnC llnAnCL ln lnulA
A8S18AC1
ln a developlng country llke lndla, many lnstltutlons operate wlth varled ob[ectlves, ln varlous
sectors ol lts economy. Some ol these lnstltutlons provlde lt wlth a strong lndustrlal base whlle
some others conduct thelr operatlons to provlde llnanclal base to sustaln the pace ol
economlc growth. 1he latter category lncluded llnanclal lnstltutlons, whlch are requlred to
manage llnance lor other lnstltutlons. llnance ls the llle blood ol almost all the actlvltles,
lnvolved ln operatlng an economy. 1he houslng llnance lnstltutlons, as a whole, may be sald that
precursor ol the new era ol llnance. 1he exlstlng houslng llnance lnstltutlons though have
done ploneerlng [ob ln the natlon bulldlng but ln recent years lt has been lelt that they have
not been able to shoulder that soclal responslblllty, to a deslrable extent. lndeed, thls was the
very crux ol establlshlng the houslng llnance lnstltutlons ln the country so as to lmprove the
standard ol llle the ma[or chunk ol the rank and llle.
Man ls a soclal creature, whlch brlngs some amenltles llke lood, clothlng, and shelter mandatory
lor hls exlstence. Cenerally alter lood and clothlng, shelter ls an lmportant benchmark lor the
exlstence ol the human belng. 1he rate ol lnllatlon has played lts part ln changlng the
mlndset ol people, now not a palatlal accommodatlon but a small house ls perhaps the dream ol
mllllons ol people. 1he standard ol llvlng can be [udged by the adequacy ol houslng but mllllons
ol people are stlll vagrant ln our country as well as ln the world, so there ls a very wlld houslng
problem ln our natlon and world also. lt ls well known that the houslng problem ln lndla ls
alarmlng problem ln both rural and the urban areas. 1o overcome thls problem some llnanclal
lnstltutlon are comlng lorward to provlde money to publlc. ln present, houslng llnance
companles provldes loans to lndlvldual person, assoclatlon ol person, llrm, company,
corporatlons, unlon or state government and munlclpal or any local or publlc authorlty lor
purchase ol house or land, constructlon, malntenance, reconstructlon, lmprovement and
development ol house property, bulldlng, llat, olllce, shop, lactory and warehouse etc. 1here
are some houslng llnance companles such as Pouslng and urban uevelopment
Corporatlon Llmlted (PuuCC), Pouslng uevelopment Corporatlon
Llmlted (PulC), Llle lnsurance Corporatlon ol lndla (LlC) Pouslng llnance Llmlted, 8ank ol 8orada
Pouslng llnance Llmlted, ueewan Pouslng llnance Corporatlon Llmlted, State 8ank ol lndla
(S8l) Pouslng llnance, Canara 8ank -
ln18CuuC1lCn
lt's the serendlplty that we are born ln the breed that ls known to be the most adrolt among all
llvlng belng. We are known lor acumen but are lt sulllclent. Man ls a soclal creature, whlch
brlngs some amenltles llke lood, clothlng, and shelter mandatory lor hls exlstence. Cenerally
alter lood and clothlng, shelter ls an lmportant benchmark lor the exlstence ol the human
belng. Shelter ls a baslc human need next only to lood and clothlng. 1he rate ol lnllatlon has
played lts part ln changlng the mlndset ol people. now not a palatlal accommodatlon but a
small house ls perhaps the dream ol mllllons ol people. 1he standard ol llvlng can be
[udged by the adequacy ol houslng but mllllons ol people are stlll vagrant ln our country as
well as ln the world. So there ls a very wlld houslng problem ln our natlon and world also. lt ls
well known that the houslng problem ln lndla ls alarmlng problem ln both rural and urban areas.
1o overcome thls problem some llnanclal lnstltutlon are comlng lorward to provlde money
to publlc.
1he need to have a rool over our heads dates back to the tlme when our ancestors llrst lelt the
shelter ol the trees lor llle on the open areas. 1hey elther bullt a slmple shelter or lound an
unoccupled caves ln whlch people llved. 8ut unlortunately, llle today, ls more compllcated
than that. ln our lndustrlallzed urban areas, when lt comes to llndlng somewhere to llve,
our cholces are llmlted to rentlng a dwelllng or buylng one, more olten than not wlth the help
ol a houslng loan." Alter thls they llved ln huts. lor maklng dwelllng unlts people took loans. lor
thls purpose ln prevlous century, there was houslng llnance provlded by maha[ans, sahukars
and moneylenders. 8ut unlortunately, today taklng loans ls more compllcated than lt was
durlng our past tlme. ln recent years we have banks and corporate PlC's lor thls purpose.
Agalnst the mllleu ol rapld urbanlzatlon and a changlng soclo-economlc scenarlo, the demand
lor houslng has grown exploslvely. 1he lmportance ol the houslng sector ln the economy can be
lllustrated by a lew key statlstlcs. Pouslng property lorms an lmportant share ol the total
wealth ol households ln lndla and an estlmate made put lt to be as hlgh as
28 ol the household property."
A study made by the unlted natlons reveals that developlng countrles llke lndla should go ln
lor the annual constructlon rate ol least 8 to 10 dwelllng unlts per thousand populatlons
ln the ensulng 2-3 decades to prevent lurther deterloratlon ol houslng sltuatlon. 1he
observatlon deserves greater attentlon ln the context that at present only 2 or 3 dwelllng unlts
ls belng constructed lor a populatlon ol 1,000 per year." lt has been estlmated that as agalnst
the requlrement ol 3 dwelllng unlts per one thousand populatlons per year due to growth ol
populatlon along, the net addltlon to the houslng stock was only 2-3 dwelllng unlts per
thousand per year up to 1971. 8etween 1971- 1981 thls rate lncreased to 4 dwelllng per
thousand per year. 1he need lor lmprovement ln the exlstlng standards and replacement ol old
stock lurther adds to the houslng shortage.
luLn1lllCA1lCn Cl 1PL 8C8LLM
We dream ol llvlng ln an allluent soclety, to take the llrst step towards achlevlng lt, proper
accommodatlon ls mandatory. Whlch ln turn ls a behemoth problem ln lndlan scenarlo? 1he
problem ol houslng ls not unlque lor lndla alone but lt ls pandemlc. 1hls problem has led to
large scale houslng shortage both ln the rural and urban areas especlally among the poor and
mlserable communltles. 1he houslng problem has been lurther accentuated wlth the lncrease ln
populatlon ln the country. 1he shortage ol houslng ln lndla perslsts slnce lndependence. Agalnst
the mllleu ol rapld urbanlzatlon and a changlng soclo economlc scenarlo the demand lor
houslng has grownup exploslvely. Accordlng to the natlonal 8ulldlng Crganlzatlon the total
demand lor houslng ls estlmated at 2 mllllon unlts per year and total houslng shortlall ls
estlmated to be 19.4 mllllon unlts ln both the rural and urban areas.
C8!LC1lvLS Cl 1PL S1uu?
1. 1o study the net resources lnvested by houslng llnance company ln lndla slnce thelr
lncorporatlon.
2. 1o llnd the area where elllclency can be lmproved.
3. 1o locate the area where cost reductlon ls posslble.
4. 1o make posslble the elllclent and ellectlve utlllzatlon ol resources.
8LSLA8CP ML1PCuCLCC?
1he proposed study, "Crowth ol Pouslng 8equlrements and Pouslng llnance ln lndla" wlll be
based both on prlmary and secondary data. 1he prlmary data wlll be collected through
questlonnalre and personal lntervlews wlth the olllclal ol the houslng llnance companles
concerned. 1he secondary data wlll be collected through publlshed llnanclal. 1he data
thus collected wlll be tabulated, classllled and grouped lor the purpose ol lnterpretatlon,
analysls, llndlng and concluslons.
P?C1PLSlS
ln the course ol study the lollowlng hypotheses wlll be tested:-
a. 1he posltlve growth ls reglstered by houslng llnance lndustry ln lndla. b. 1here ls no
slgnlllcant dlllerence between the growth and requlrement
ol houslng llnance companles ln lndla.
c. 1he elllclent worklng ol the houslng llnance companles wlll have common men to
have conlldence ln the houslng llnance lndustry.
d. 1he trend has moved ln lavor ol the prlvate sector wlth regards to the total resources
lnvestment by the houslng llnance companles.
LlMl1A1lCn Cl 1PL S1uu?
1he proposed study ls bound to have a lew llmltatlons. llrstly, the analysls and measurement ol
growth ol houslng requlrements would be based on prlmary and secondary data so the
llmltatlons or shortcomlng ol prlmary and secondary data allects the concluslon and results ol
the study. Secondly the study ls sub[ected to general human llmltatlons.
PCuSlnC CLlClLS
Wlth a vlew to solve thls problem ol houslng there was a need ol a well-organlzed natlonal
Pouslng ollcy. lt ls encouraglng to note that ellorts have been made to establlsh houslng
enterprlses and lnstltutlons at the natlonal and state levels such as the Central 8ulldlng
8esearch lnstltutlon and the natlonal 8ulldlng Crganlzatlon and State Pouslng 8oards. 1he
ma[or llnanclal lnstltutlons ln the area ol houslng, operatlng elther dlrectly or through agencles
deallng wlth the houslng sector, can be broadly classllled lnto two groups, dependlng upon
whether houslng llnance ls thelr prlmary lleld ol operatlon or a secondary or lncldental
lunctlon.
1he lormal sources ol houslng llnance ln glst comprlse (1) budgetary allocatlons by the
Central and State Covernment, lncludlng market borrowlngs, (2) general llnanclal lnstltutlons
namely the Llle lnsurance Corporatlon, the Ceneral lnsurance Corporatlon and lts lour
subsldlarles, the rovldent lund, natlonal and State Munlclpal llnance Corporatlons, and the
Commerclal 8anks & Credlt lnstltutlons. 1he lnvolvement ol these ln houslng llnance ls rather
lncldental or secondary and hence they keep aslde a specllled portlon ol thelr lunds at the
dlsposal ol the houslng sector, (3) speclallzed houslng llnance lnstltutlons as the name
suggests lnclude malnly the nP8, the PuuCC, Apex and Cooperatlve llnance lnstltutlons,
ln the publlc sector PulC and lew other houslng llnance companles set up ln the prlvate
sector."
Although houslng ls prlmarlly a State sub[ect, the Central Covernment has been lormulatlng
natlonal Pouslng ollcles to provlde guldance to the State Covernment to meet the growlng
houslng shortage. 1he CCl has had schemes and pro[ects lor the houslng problem ln every llve
years plan but there was no such houslng pollcy lor the country as a whole belore 1988. 1hls
process started ln 1986. As a lollow-up ol the Clobal Shelter Strategy, nP was announced ln
1988. 1he long term goal ol the nP was to eradlcate house-lessens, lmprove the houslng
condltlons ol the lnadequately housed and provlde a mlnlmum level ol baslc servlces and
amenltles to all. 1he role ol government was concelved, as a provlder lor the poorest and
vulnerable sectlons and as a lacllltator lor other lncome groups and prlvate sector by the
removal ol constralnts and the lncreased supply ol land and servlces.
ln 1991, lndla adopted a more growth orlented vlew ol economlc development by emphaslzlng
that lt must lntegrate wlth the global economy. ln pursuance ol thls, lt reduced custom dutles
and welcomed lul ln several sectors ol the economy. 1he nP
1994 was a product ol thls economlc polnt ol vlew. 1he 1994 ollcy sought to lncrease
supply ol land servlced by baslc mlnlmum servlces wlth a vlew to promotlng a healthy
envlronment.
1he natlonal Pouslng & Pabltat ollcy, 1998 lald greater emphasls on the aspect ol Pabltat as a
supplementary locus to houslng. 1he emphasls on provldlng houslng contlnued ln thls
pollcy wlth emphasls on both quallty and cost-ellectlveness especlally to vulnerable sectlons ol
soclety. 1he pollcy envlsages a shllt ln the government's role lrom a bullder to an enabler, wlth
the government commltted to remove barrlers llke access to land, llnance and technology and
lorglng strong publlc-prlvate partnershlps to accelerate the pace ol house constructlon malnly
lor the dlsadvantaged sectlons.
n8l's/lC's are permltted to lnvest up to 100 ln the lollowlng houslng and real estate
development pro[ects:
- uevelopment ol servlced plots and constructlon ol bullt up resldentlal
premlses.
- 8eal estate coverlng constructlon ol resldentlal and commerclal premlses
lncludlng buslness enterprlse centers and olllces.
- uevelopment ol townshlps.
- Clty and reglonal level urban lnlrastructure lacllltles, lncludlng both roads and brldges.
- Manulacture ol bulldlng materlals.
- reparatory ventures ln these above and
- lnvestment ln houslng llnance lnstltutlons.
lt means, 100 lul's permltted to development ol lntegrated townshlps (lncludlng houslng,
commerclal premlses, hotels, resorts etc) requlres prlor government approval.
1he 'natlonal urban Pouslng & Pabltat ollcy' 2007, has been lormulated keeplng ln vlew
the changlng soclo-economlc parameters ol the urban areas and growlng
requlrement ol shelter and related lnlrastructure. 1he pollcy seeks to promote varlous types
ol publlc-prlvate partnershlps lor reallzlng the goal ol Allordable Pouslng lor all wlth speclal
emphasls on the urban poor. 1he natlonal urban Pouslng & Pabltat ollcy, 2007 seeks to
enhance the spotllght on habltat wlth a reglonal plannlng approach as well as lurther
deepens the role ol government as a lacllltator and regulator. Moreover, the new pollcy
lays emphasls on earmarklng ol land lor the LWS/LlC groups ln new houslng pro[ects. 1he pollcy
lays emphasls on Covernment, retalnlng lts role ln soclal houslng, so that allordable houslng ls
made avallable to LWS and LlC ol the populatlon.
1he ollcy envlsages speclllc roles lor the Central Covernment, State Covernments, local
bodles, banks & PlC's, publlc agencles. 1he houslng problem has been vlewed as a serlous
lssue. lt ls also a lact that houslng cannot be consldered ln an lsolated sector and therelore,
there ls an urgent need to co-ordlnate actlon by dlllerent mlnlstrles vlz. Works and Pouslng
lndustrlal uevelopment. llnance and Labour and other related departments to solve the
problem ol houslng ln an lntegrated way.
ln lndla there was no such problem as houslng tlll 1941. lt was only alter ln 1931 when the
dellclt trend was started and whlch ls contlnulng wlth an escalatlng magnltude. As per the
estlmate ol natlonal 8ulldlng Crganlzatlon there has been a dellclt ol 2.11 crore houses ln our
country durlng the year 1981 and the dellclt lncreased to 2.47 crore (1.88 crore ln rural area
and 0.39 crore ln urban area) by the end ol March 31, 1983. 1he dellclt ls lncreased to
3.13 crore ln urban area) the end ol 1991 and llkely to lncrease
4.16 crore unlts by 2000 Au (1.61 crore ln urban areas and 2.33 crore ln the rural
areas)."
1he ollcles ol urban uevelopment and Pouslng ln lndla have come a long way slnce
1930's. 1he pressure ol urban populatlon and lack ol houslng and baslc servlces were
very much evldent ln the early 1930's. 1he posltlve aspects ol cltles as englnes ol
economlc growth ln the context ol natlonal economlc pollcles were not much
appreclated and, therelore, the problems ol urban areas were treated more as wellare
problems and sectors ol resldual lnvestment rather than as lssues ol natlonal economlc
lmportance.
8CLL Anu C8!LC1lvLS Cl nA1lCnAL PCuSlnC CLlC?
1he baslc role, ob[ectlves ol the nP are:
- 1o asslst all people and ln partlcular the houseless and lnadequately house and
vulnerable sectlons, to secure lor themselves allordable shelter through access to developed
land, bulldlng materlals, llnance and technology.
- 1o create an enabllng envlronment lor houslng actlvlty by ellmlnatlng
constralnts and the developlng an elllclent system lor dellvery ol houslng lnputs.
- 1o expand lnlrastructure lacllltles ln rural and urban areas ln order to lmprove the
envlronment ol human settlement, lncrease the access ol poorer households to baslc servlces
and to lncrease the supply ol developed land lor houslng.
- 1o undertake, wlthln the overall context ol pollcles lor poverty allevlatlon and
employment, steps lor lmprovlng the houslng sltuatlon ol the poorest sectlons and vulnerable
groups by dlrect lnltlatlve and llnanclal support ol the state.
- 1o help moblles resources and lacllltate expanslon ol lnvestment ln houslng ln order
to meet the needs ol houslng constructlon, up-gradatlon and augmentatlon ol lnlrastructure,
and
- 1o promote a more equal dlstrlbutlon ol land and houses ln urban and rural areas
and to curb speculatlon ln land and houslng ln consonance wlth the macro-economlc
pollcles lor elllclent and equltable growth.
1hough the dralt nP ls yet to take a llnal shape, the shelter sector has been
recognlzed as an lmportant vehlcle lor economlc actlvlty and provldes the most dlrect and
lndlrect employment ln the seml urban and urban areas. lor achlevlng the baslc ob[ectlves ol
nP, the government should take lnltlatlve lor dlrectlng the actlvltles ol publlc agencles
towards lncreaslng the supply ol servlced land lor varlous groups and
essentlal purposes wlth the preponderant proportlon lor the poor sectlons. 1he ma[or weakness
ol the natlonal houslng pollcy, however, lles ln the lact that the pollcy does not set any tlme
bound targets owlng to resource constralnts. 8ut wlthout commltment, the pollcles remaln only
on paper. varlous tax lncentlves proposed ln the dralt pollcy lor prlvate sector and n8l
lnvestment ln the houslng sector that cannot solve the problem to any slgnlllcant extent.
Table: Plan Outlay in Housing and Urban Development Sector
(Rs. in crore)
Five Year`s Plan Total Outlay
Housing & Urban
Development
Percentage share in
the total
Eirst Plan 2,068.80 48.80 2.36
Second Plan 4,800.00 120.00 2.50
Third Plan 7,500.00 127.60 1.70
Annual Plan 1966-69 6,625.40 73.30 1.11
Eourth Plan 15,900.00 2700.20 1.70
EiIth Plan 37,250.00 1150.00 3.09
Annual Plan 1977-80 12,176.50 368.80 3.03
Sixth Plan 97,500.00 2488.40 2.55
Seventh Plan 180,000.00 4229.50 2.35
Annual Plan 1990-92 133,835.00 3000.10 2.24
Eighth Plan 434,100.00 10500.00 2.42
Ninth Plan 859,200.00 15880.00 1.85
Tenth Plan 1,525,639.00 40500.00 2.65
Eleventh Plan 3,644,718.00 36870.00 1.01
Sources-mhupa.gov.ln (modllled)
1able shows there ls a lluctuatlon ln the sanctloned amount ol plans. ln the llrst llve ?ear lan
(1931-36), the emphasls was glven on lnstltutlon bulldlng and on constructlon ol
houses lor Covernment employees and weaker sectlons. 1he Mlnlstry ol Works & Pouslng was
constltuted and natlonal 8ulldlng Crganlzatlon and 1own & Country lannlng Crganlzatlon
were set up. A slzeable part ol the plan outlay was
spent lor rehabllltatlon ol the relugees lrom aklstan and on bulldlng the new clty ol
Chandlgarh. An lndustrlal Pouslng Scheme was also lnltlated. 1he CCl had lntroduced
the Centre Subsldy Scheme to the extent ol 30 towards the cost ol land and constructlon.
1he scope ol houslng program lor the poor was expanded ln the Second lan (1936-61). 1he
lndustrlal Pouslng Scheme was wldened to cover all workers. 1hree new schemes were
lntroduced, namely, 8ural Pouslng, Slum Clearance and Sweepers Pouslng. 1own & Country
lannlng Leglslatlons were enacted ln many states and necessary enterprlses were also set up lor
preparatlon ol master plans lor lmportant towns. Covernment had earmarked ln the second llve
years plan, substantlal portlon ol lts lunds towards expanslon ol lnlrastructure, whlch had
resulted ln development ol houslng sector.
1he general dlrectlons lor houslng programs ln the 1hlrd lan (1961-66) were co- ordlnatlon ol
ellorts ol all agencles and orlentlng the programs to the needs ol the LlC's A Scheme was
lntroduced ln 1939 to glve loans to State Covernments, lor a perlod ol 10 years lor
acqulsltlon and development ol land ln order to make avallable bulldlng sltes ln sulllclent
numbers. Master lans lor ma[or cltles were prepared and the State capltals ol Candhl
nagar and 8hubaneswar were developed. uurlng the perlod lrom 1966 to 1969 owlng to
unstable Covernment, there had occurred a plan hollday, whlch had allected the growth ol
houslng sector.
1he balanced urban growth was accorded hlgh prlorlty ln the lourth lan (1969-74). 1he lan
stressed the need to prevent lurther growth ol populatlon ln large cltles and need lor
decongestlon or dlspersal ol populatlon. 1hls was envlsaged to be achleved by creatlon ol
smaller towns and by plannlng the spatlal locatlon ol economlc actlvlty. PuuCC was establlshed
to lund the remuneratlve houslng and urban development programs, promlslng a qulck
turnover. A Scheme lor Lnvlronmental lmprovement or urban Slums was undertaken ln the
central sector lrom 1972-73 wlth a vlew to provlde a mlnlmum level ol servlces, llke, water
supply, sewerage, dralnage, street pavements ln 11 cltles wlth a populatlon ol 8 lakh and above.
1he scheme was later extended to 9 more cltles.
1he lllth lan (1974-79) relterated the pollcles ol the precedlng plans to promote smaller
towns ln new urban centers, ln order to ease the lncreaslng pressure on urbanlzatlon. 1hls was
to be supplemented by ellorts to augment clvlc servlces ln urban areas wlth partlcular
emphasls on a comprehenslve and reglonal approach to problems ln metropolltan cltles. A task
lorce was set up lor development ol small and medlum towns. 1he urban Land (Celllng &
8egulatlon) Act was enacted to prevent concentratlon ol land holdlng ln urban areas and to
make avallable urban land lor constructlon ol houses lor the MlC and LlC's.
1he thrust ol the plannlng ln the Slxth lan (1980-83) was on lntegrated provlslon ol servlces
along wlth shelter, partlcularly lor the poor. 1he lntegrated uevelopment ol Small and Medlum
1owns was launched ln towns wlth populatlon below one lakh lor provlslon ol roads,
pavements, mlnor clvlc works, bus stands, markets, shopplng complex etc. osltlve
lnducements were proposed lor settlng up new lndustrles,
commerclal and prolesslonal establlshments ln small, medlum and lntermedlate towns. 1he
slxth llve years plan clearly states that the provlslon ol shelter ls a baslc need. 1he ob[ectlves ln
respect ol houslng ln the plan were, (1) rovlslon ol house sltes and asslstance lor the
constructlon ol dwelllng lor rural landless laborers. (2) ln vlew ol the severe constralnts ol publlc
resources, publlc sector soclal houslng schemes have been deslgned to benellt the maxlmum
number ol people. (3) Speclllc ellorts must be made to secure reductlon ln cost ln publlc
houslng schemes by uslng cheap and alternatlve bulldlng materlals.
1he Seventh lan (1983-90) stressed on the need to entrust ma[or responslblllty ol
houslng constructlon on the prlvate sector. A three-lold role was asslgned to the publlc sector,
namely, moblllzatlon lor resources lor houslng, provlslon lor subsldlzed houslng lor the
poor and acqulsltlon and development ol land. 1he nP8 was set up to expand the base ol
houslng llnance. n8C was reconstltuted and a new enterprlse called 8ulldlng Materlal
1echnology romotlon Councll was set up lor promotlng commerclal productlon ol lnnovatlve
bulldlng materlals. A network ol bulldlng centers was also set up durlng thls plan perlod. 1he
Seventh lan expllcltly recognlzed the problems ol the urban poor and lor the llrst tlme an
urban overty Allevlatlon Scheme known as urban 8aslc Servlces lor the oor was launched.
uurlng the year 1990-91 there was a plan dlsturb because ol shortage ol lunds.
ln the backdrop ol thls report the Llghth lan (1992-97) lor the llrst tlme expllcltly recognlzed
the role and lmportance ol urban sector lor the natlonal economy. Whlle growth rate ol
employment ln the urban areas averaged around 3.8 per annum, lt dropped to about 1.6 ln
the rural areas. 1he lan ldentllled the key lssues ln the emerglng urban scenarlo:
- 1he wldenlng gap between demand and supply ol lnlrastructural servlces badly
hlttlng the poor, whose access to the baslc servlces llke drlnklng water, sanltatlon, educatlon
and baslc health servlces ls shrlnklng.
- unabated growth ol urban populatlon aggravated the accumulated backlog ol houslng
shortages, resultlng ln prollleratlon ol slums and squatter settlement and decay ol clty
envlronment, and
- Plgh lncldence ol marglnal employment and urban poverty as rellected ln nSS
43rd round that 4.18 crore urban people llved below the poverty llne.
1he lannlng Commlsslon suggested modlllcatlon ol the Pouslng pollcy to lncorporate
allordable houslng program lor the 8L category. Conslderable ellorts were made durlng nlnth
and 1enth llve ?ear lans to enlarge the resource base and lnltlate lnnovatlve lnstltutlonal
mechanlsms to augment houslng dellvery ln urban areas. locused ellorts were also lnltlated to
cover the poor and vulnerable groups ol soclety to enable them to access baslc shelter related
servlces. llscal concesslons coupled wlth leglslatlve measures were also lnltlated to encourage
lncreased lnvestments ln houslng by lndlvlduals and corporate.
1he natlonal Common Mlnlmum rogram has stated that houslng lor weaker sectlons ln rural
areas extended on a large scale. 1he 1enth lan, therelore, had suggested
provlslon ol lree houslng only to the landless SC/S1 lamllles and shllt to a credlt-cum subsldy
scheme lor the other 8L lamllles. 1he repeal ol the urban Land (Celllng and 8egulatlon) Act,
1976 has been a slgnlllcant step towards relorm ln the urban land market. lollowlng the repeal
ol the central leglslatlon, a number ol state governments had also repealed the state-level law.
Pavlng ldentllled houslng as a prlorlty ln the nlnth llve year plan (1997-2002), the nP has
envlsaged an lnvestment target ol 8s. 13880.00 crore lor thls sector. ln order to achleve thls
lnvestment target, the Covernment needs to make low cost lunds easlly avallable and enlorce
legal and regulatory relorms.
ln order to lmprove the quallty ol llle ln urban areas, the Lleventh llve ?ear lan (2007-
2012) has stressed the need lor lmproved houslng stock through urban renewal, ln clty
slum lmprovement and development ol new houslng stock ln exlstlng cltles as well as
new townshlps. lurthermore, the 8harat nlrman rogram has also recognlzed and
accorded due prlorlty to the need to end shelter. 1he rogram has set a target to
construct 60 lakh houses lrom 2003 to 2009. 1he houslng component under the
rogram ls belng lmplemented ln parallel wlth lndlra Awas ?o[ana scheme. lor the
Lleventh lan, the locus ls on targetlng the poorest ol the poor.
1lll !une 1982, the lollowlng soclal houslng schemes had been taken up ln the country (l)
lntegrated Subsldlzed Pouslng Scheme lor lndustrlal Worker's and LWS ol Communlty 1932, (ll)
Low lncome Croup Pouslng Scheme 1934, (lll) Subsldlzed Pouslng Scheme lor lantatlon
Workers 1936, (lv) Mlddle lncome Croup Pouslng Schemes lor State Covernment Lmployees
1936, (v) Slum Clearance/lmprovement Scheme 1936, (vl) vlllage Pouslng ro[ects Scheme 1937,
(vll) Land Acqulsltlon and uevelopment Scheme 1939 and (vlll) rovlslon ol Pouse Sltes to
Landless Workers ln 8ural Areas 1971. lrom !uly 1982, the exlstlng Soclal Pouslng Schemes,
except the subsldlzed houslng scheme lor plantatlon workers, whlch contlnue to be ln the
central sector and the scheme lor provlslon ol houses sltes to landless workers have been
reclassllled ln 4 categorles on the basls ol lncome crlterla as: (l) Pouslng Scheme lor
Lconomlcally Weaker Sectlons, (ll) Low lncome Croup Pouslng Scheme, (lll) Mlddle lncome
Croup Pouslng Scheme and (lv) 8ental Pouslng Scheme lor State Covernment Lmployees.
ln the last lour decades, the urban populatlon ln lndla has grown lrom about 7.00 crore to 60.00
crore. 1here has been a dlstlnct decllne ln houslng lnvestment ln proportlon to the total
lnvestment. Around 20 ol the populatlon ls elther houseless or ls serlously under-housed. 1hat
ls a grlm plcture lndeed, notwlthstandlng the lact that presently the total number ol dwelllng
unlts ln the country number about 12.30 crore (as per houslng llnance an unpubllshed document
ol PulC). 1o brldge the current gap ol houslng alone we need about 8s. 80,000 crore at a
conservatlve estlmate at today's prlces. 1he estlmate ls only llkely to lncrease wlth over the
perlod.
ln lndla, because ol the lack ol lund moblllzatlon, the system ol houslng llnance has remalned
largely undeveloped. ln a workshop held under the aegls ol the Pouslng and ubllc Work
Commlttee ol the llCCl and nP8, lt was polnted out that an lnvestment ol about 8s. 190,000
crore was requlred lor houslng by the end ol 2001. A study
conducted by llCCl revealed that an lnvestment ol 8s. 31,376 crore at uecember, 1989 prlces
would be needed durlng the Llght lan. llnanclal experts have estlmated that the publlc and
prlvate sectors have to lnvest an average ol 8s. 13,000 crore durlng 1990-
93 to meet the growlng demand. Cur endeavor here ls to assess the llnanclal measures belng
undertaken by the government towards the houslng problems. Are these enough to moblllze
the requlred level ol lnvestment, ln the houslng sector? ll not, what new measures could be
undertaken lor enhanclng the level ol lnvestment? Wlth the growlng recognltlon ol
houslng llnance ln a developlng economy llke lndla, where houslng llnance lndustry has
assumed all the more slgnlllcance and presently over 400 entltles, lncludlng PlC's and
natlonallzed banks, lorelgn as well as co-operatlve have entered the scene. ln the market
sltuatlon, there ls room lor many numbers ol players to remaln actlve. 8ut lt ls lmportant
lor a player to lulllll lts obllgatlons to lts cllents both ln terms ol dlsbursement made at a
comparatlvely lower cost and also the quallty ol servlce. 1he PlC's, whlch are approved by nP8
and are taklng nP8 rellnance, can lmprove thelr posltlon ol lunds through the securltlzatlon
route. 8esldes, though the servlce quallty has lmproved overall there ls need and scope lor
lurther lmprovement ln thls lleld.
1he PlC ln the country ls sullerlng malnly lrom the blg cost ol lunds and even alter reductlon ln
rates ol lnterest ln the recent year, the rate ol lnterest lor the long terms loans ls 3-6 more
than rates ln uSA. 1he legal system ol the country requlres strengthenlng and also streamllnlng
because thls ls necessary lrom the documentatlon polnt ol vlew as well as lor remedlal
actlons lor loreclosure ol the loans ln case ol delault 1he Apartment Cwnershlp Act, Stamp
uuty Act, Land Acqulsltlon. Act, 1ransler ol roperty Act, 8eglonal lannlng & uevelopment
Control 8egulatlon Act, 8ent Control Act, Pouslng 8oard Act, urban Land Celllng Act, Co-
operatlve Act 2006, negotlable lnstrument Act 1881, 1he lndlan Contract Act 1872, 1he
Companles Act
1936, Code ol Clvll rocedure 1908, Crlmlnal rocedure Code 1973, 8anklng
Companles Act 1949, 8anker 8ook Lvldence Act and lndlan 8anklng (8egulatlon) Act
1949 (8evlsed ln September 1936) and 8eserve 8ank ol lndla Act 1934 etc., whlch
dlrectly or lndlrectly have a bearlng on the houslng sector, needs to be modllled and
some sort ol unllormlty may be lntroduced.
1 CvL8vlLW
1hls report provldes an overvlew ol the ma[or llndlngs that have emerged out ol the thlrd
APu8l-lunded natlonal 8esearch venture (n8v3), Pouslng Allordablllty lor Lower lncome
Australlans. lt ldentllles the ma[or rlsks and challenges ln relatlon to Australla's houslng
problem ln the 21st century, as well as drawlng out pollcy lmpllcatlons.
1he ma[or concluslons ol the three-year n8v3 research program are as lollows:
4 Pouslng allordablllty ls a large and wldespread problem.
4 Pouslng allordablllty ls a structural problem.
4 Causes ol allordablllty problems are complex and dlverse. Ma[or drlvlng lactors can be
lound both wlthln the houslng system and beyond lt.
4 Pouslng allordablllty problems are predlcted to lncrease ln the llrst hall ol the 21st century as
a result ol antlclpated demographlc and houslng market changes.
4 Allordablllty problems have speclllc spatlal and cycllcal dlmenslons.
4 Pouseholds most at rlsk ol laclng the multlple problems that arlse lrom a lack ol allordable
houslng are lower-lncome households ln the prlvate rental market.
4 Pouslng markets have lalled to provlde an adequate supply ol allordable houslng lor lower-
lncome households.
4 lndlvldual households experlence and address houslng allordablllty problems ln dlllerent
ways.
4 Whlle houslng provldes shelter, lt also lnlluences a ralt ol non-shelter outcomes lor
lndlvldual households, such as worklorce partlclpatlon, access to [obs and servlces, lamlly
stablllty and educatlonal attalnment.
4 uecllnlng allordablllty has lmpllcatlons lor economlc perlormance and labour market
elllclency, soclal coheslon and polarlsatlon ol cltles, envlronmental conslderatlons and
the creatlon and dlstrlbutlon ol wealth through home ownershlp.
1ogether these concluslons explaln the tltle glven to thls report: houslng allordablllty ls a 21st
century problem.
Figure 2.5: Determinants of housing affordability
Supply oI
housing
Dwelling
prices/rents
AIIordability
Interest
rates
Demand Ior
housing
Household
income
Demographic
Iactors
2.3.2 8lsk lactors that can allect allordablllty outcomes
ln addltlon to the underlylng structural lssues allectlng houslng allordablllty, whlch have been
the locus ol thls chapter, a number ol relatlvely recent changes have taken place that lncrease the
systemlc rlsk that allordablllty problems may be even greater ln the luture than they have
been ln the past, partlcularly lor lower-lncome households. 1hese relate to the greater
llexlblllty that has been the hallmark ol the new economy and to the economlc, soclal and
structural changes that have been assoclated wlth lt.
Labour markets are less regulated than they were ln the past. 1here ls greater rellance on
llxed-term contracts, part-tlme work and a casuallsed worklorce, all ol whlch put lncomes ol the
worklng poor at rlsk. 1he steady growth experlenced over the past decade has provlded a strong
element ol protectlon agalnst the rlsks that such changes lmpose on lndlvldual workers but there ls
no guarantee that the economlc boom wlll contlnue or that lt wlll contlnue to benellt all workers,
lncludlng the low-skllled. A downturn wlll allect purchasers who depend on overtlme or
addltlonal part-tlme work to pay thelr mortgage and asplrant purchasers who rely on thls to help
save a deposlt.
Structural change has contrlbuted to a reductlon ln the hlgh rates ol lnllatlon and an assoclated
nomlnal wage growth that domlnated the economlc envlronment ln the 1970s and 1980s. ln
turn, thls means that marglnal home purchasers undertaklng mortgages at the llmlt ol what
they can allord no longer can rely on lnllatlon to reduce thelr repayment burden.
Pousehold relatlonshlps are more llexlble than they have been ln the past and slngle-person
households are becomlng lncreaslngly domlnant. Any transltlon lrom a household wlth
more than one lncome earner to one wlth one or no earners lncreases the rlsk that contractual
houslng costs wlll become unallordable. 1ransactlons costs can make lt dllllcult lor
households to ad[ust to changed clrcumstances.
4 art ol the rlse ln slngle person households ls assoclated wlth the agelng ol the populatlon.
uemographlc change creates the addltlonal rlsk that the exlstlng dwelllng stock does
not rellect the needs ol smaller and older households ln relatlon to both lorm and locatlon.
Mlsmatches between what ls approprlate and what ls avallable can contrlbute to allordablllty
pressures ll households are unable to choose the type ol houslng that best sults thelr current
needs. 1he agelng ol the populatlon brlngs wlth lt a lurther rlsk assoclated wlth the pressures that
arlse ll the current generatlon ol workers are not outrlght owners by the tlme they reach retlrement
age.
1he move lrom collectlve to lndlvlduallsed provlslon lor retlrement lncomes vla contrlbutory
superannuatlon schemes where payouts depend on lund earnlngs means households bear the
rlsk ol thelr retlrement lncomes belng lnadequate to meet both thelr houslng and non-houslng
needs. Pouseholds constralned lrom galnlng access to owner-occupatlon lace the rlsk ol hlgher
houslng costs ln thelr retlrement years than those laced by prevlous generatlons ol retlrees lor
whom home ownershlp has provlded conslderable protectlon lrom houslng stress.
1ax lncentlves deslgned to encourage personal superannuatlon benellt hlgh- lncome and hlgh-
wealth households and run the rlsk ol creatlng an economy ln whlch lncome and wealth are
even more unevenly dlstrlbuted than at present. Such lnequalltles may lmpose greater pressures
on the houslng market than have been lelt ln the past and create addltlonal allordablllty problems
lor those whose lncomes and wealth have not kept pace wlth the natlonal average.
lncentlves deslgned to encourage lnvestment ln superannuatlon may also have the unlntended
consequence ol reduclng lndlvldual lnvestment ln the prlvate rental market. Any reductlon ln such
lnvestment elther wlll add to pressures on rents or wlll result ln a reductlon ln the supply ol
rental dwelllngs at a tlme when an lncreaslng proportlon ol the populatlon are belng dlscouraged
lrom enterlng home ownershlp lor elther lllestyle or allordablllty reasons.
More generally, moves lrom collectlve to lndlvldual responslblllty lor health, educatlon and
retlrement provlslon, to name [ust a lew ol the servlces that were centrally provlded ln the
past, have meant that households lace lncreased demands on budgets already squeezed by
rlslng houslng costs.
4 Lower-lncome households seeklng to avold the burdens lmposed by hlgh houslng cost ratlos are
lorced to relocate to reglons where houslng costs are lower and where, ln many cases, there ls a
general lack ol servlces and where they may lose the support provlded by lamlly and communlty
networks.

Accordlng to the last census conducted ln lndla ln 1991, the country had a populatlon ol 846.3
mllllon out ol whlch 217.6 mllllon llved ln cltles and towns. 1he total number ol households
was estlmated at 133.2 mllllon lor the same year. As agalnst thls llgure, the houslng stock ln the
country was ol the order ol 148 mllllon - 39.3 mllllon unlts ln urban areas (26.6) and 108.7
mllllon ln rural areas (73.4). uurlng the perlod 1971-1991, whlle the number ol households
lncreased by 38, the number ol houslng unlts went up by about 39. Although lndla has been
laclng the problem ol houslng shortage lor a long tlme, the lncrease ln houslng stock ln recent
decades has been more than that ln the number ol households. 1able 1 portrays some sallent
data regardlng the houslng sltuatlon ln lndla at the 1991 Census.
Approxlmately 40 ol households ln 1991 were ln slngle room tenaments, about 30 llved ln two-
room unlts. Cnly about 13 ol households had lour or more rooms. 1able 2 shows the
percentage break-up ol households by the number ol rooms occupled.
Table 1
Housing Situation in India: 1971, 1981 & 1991
1971 1981 1991
Population & Households:
Total Population (Million) 548.20 683.30 846.30
Rural Population (Million) 439.10 523.80 628.70
Urban Population (Million) 109.10 159.50 217.60
Slum Population (Million) - 27.91 46.73
Total Households (Million) 97.10 123.40 153.20
Rural Households (Million) 78.00 94.10 112.50
Urban Households (Million) 19.10 29.30 40.70
Household Size: Total 5.65 5.54 5.52
Household Size: Rural 5.63 5.57 5.59
Household Size: Urban 5.71 5.44 5.35
Households per Dwelling 1.04 1.06 1.03
Persons per Dwelling 5.89 5.86 5.72
Housing Units (Million):
Housing Stock: Total 93.00 116.70 148.00
Housing Stock: Rural 74.50 88.70 108.70
Housing Stock Urban 18.50 28.00 39.30
Housing Shortage: Total 14.60 23.30 23.90
Housing Shortage: Rural 11.60 16.30 14.67
Housing Shortage: Urban 3.00 7.00 8.23
Source: Government oI India National Buildings Organisation, Ministry oI Urban
AIIairs & Employment: Prominent Eacts on Housing 1997.
Table 2
Distribution of Households by Number of Rooms Occupied
(Percent)
1971 1981 1991
One Room:
Rural
Urban
47.3
50.0
44.3
45.8
40.8
39.6
Two Rooms:
Rural
Urban
28.5
27.0
28.9
27.8
30.6
30.4
Three Rooms:
Rural
Urban
12.1
11.4
12.3
12.2
13.5
14.8
Eour or More Rooms:
Rural
Urban
12.0
11.4
12.1
12.1
14.0
14.7
No Exclusive Room and
UnspeciIied Rooms
Rural
Urban
0.1
0.2
2.4
2.1
1.1
0.5
Source: Government oI India National Buildings Organisation, Ministry oI Urban
AIIairs & Employment: Prominent Eacts on Housing 1997.
At the 1991 Census, more than 95 oI the households living in rural areas had
buildings oI their own whereas the Iigure Ior urban areas was much lower at 63.1.
However, over the period 1971-91 though the percentage oI households owning
buildings rose in both rural and urban areas, the rise in case oI the latter was
impressive the Iigure going up Irom 47.1 in 1971 to 63.1 in 1991. In addition to
improvement in ownership status, there has also been a steady upward trend in the
quality oI housing units in the country. During the decade 1981-91, the number oI
pucca (permanent) housing units increased by 64.64, which is much higher than the
growth oI 53.39 occurring during the decade 1971-81. Over the period 1981-91, the
number oI semi-pucca houses declined by about 8 (Irom 6.80 million in 1981 to
6.23 million in 1991), while the number oI kutcha (thatched, huts, etc.) houses
showed only a marginal increase oI about 6 (Irom 3.1 million in 1981 to 3.2 million
in 1991). Table 3 provides some important inIormation regarding the housing
conditions in the country.
InsoIar as the provision oI civic amenities is concerned, there have been considerable
improvements in the access oI people to such amenities over the years although
shortages in housing and inIrastructure do continue. Table 4 shows the percentage oI
households in the country as a whole having access to saIe drinking water, toilet
Iacilities and supply oI electricity during the decade 1981-1991.
Table 3
Housing Conditions in India: 1971, 1981 & 1991
1971 1981 1991
Tenure Status oI Households ()
Owned:
Rural
Urban
93.8
47.1
93.0
53.5
94.5
63.1
Rented:
Rural
Urban
6.2
52.9
7.0
46.5
5.5
36.9
Type oI Structure ()
Pucca:
Rural
Urban
19.0
63.8
21.1
64.6
33.0
75.8
Semi Pucca:
Rural
Urban
37.0
23.5
37.6
24.3
34.2
15.8
Kutcha: (Serviceable):
Rural
Urban
32.0
12.7
29.0
11.1
22.8
8.4
Kutcha: (Unserviceable):
Rural
Urban
12.0
-
12.3
-
10.0
-
Source: Government oI India National Buildings Organisation, Ministry oI Urban
AIIairs & Employment: Prominent Eacts on Housing 1997.
Table 4
Access of Households to Basic Amenities: 1981-1991
1981 1991
Households having SaIe
Drinking Water
74.14 81.59
Households having Toilet
Eacility
57.4 63.58
Households with Electricity 61.6 75.93
Source: Government oI India National Buildings Organisation, Ministry oI Urban
AIIairs & Employment: Prominent Eacts on Housing 1997
Housing Shortage
Housing shortage is estimated in terms oI excess households over houses including
houseless households, congestion (number oI married couples requiring separate
room/house), replacement/upgradation oI kutcha/unserviceable kutcha houses and
obsolescence/replacement oI old houses. Table 5 shows the components oI housing
shortage in the country at the beginning oI 1991. Table 6 shows the estimates oI
housing shortage in urban areas based on the Report oI the Ninth Plan Working Group
oI the Government oI India, Ministry oI Urban AIIairs & Employment
Table 5
Components of Housing Shortage: 1991
Million Units
Total Rural Urban
Excess oI Households over
Houses including Houseless
Households
5.16 3.76 1.40
Congestion (No. oI Married
couples requiring separate
Room/House)
1.91 - 1.91
Replacement/Upgradation
oI Kutcha/Unserviceable
Kutcha Houses
14.20 10.91 3.29
Obsolescence/Replacement
oI Old Houses
1.63 - 1.63
Total 22.90 14.67 8.63
Source: Government oI India National Buildings Organisation, Ministry oI Urban
AIIairs & Employment: Prominent Eacts on Housing 1997
Table 6
Projected Housing Shortage in India`s Urban Areas, 1997-2001
Million Units
Item 1997 1998 1999 2000 2001
Pucca 40.08 42.13 44.29 46.56 48.94
Semi-pucca 6.65 6.73 6.81 6.88 6.97
Kutcha 3.35 3.38 3.40 3.43 3.45
Households (No.) 50.09 51.85 53.68 55.56 57.52
Housing Shortage 7.57 7.36 7.18 6.93 6.64
Note: The housing shortage estimates also account Ior congestion and obsolescence oI
existing units
Source: Ministry oI Urban AIIairs & Employment 1996. Report oI the Working
Group on Urban Housing Ior the Ninth Eive-year Plan. Government oI India, Delhi.
India`s National Report Ior Habitat II ConIerence in Istanbul estimates that by 2021,
the country would Iace a housing shortage oI 44.9 million units and that the
investment required Ior tackling this shortage over a period oI 25 years at 1991 prices
would be oI the order oI Rs.6580 billion. The Ninth Plan Working Group oI the
Government oI India, Ministry oI Urban AIIairs & Employment estimated the new
housing/old housing upgradation requirement at 16.76 million units Ior the 9
th
plan
period (1997-2002). About 70 oI the units are estimated to be required Ior the
urban poor/economically weaker sections oI society while about 20 is Ior low-
income groups. About 10 oI the urban requirement is Ior addressing the middle and
higher income group segments. It is estimated that Ior urban housing alone, the total
requirement oI investment would be oI the order oI Rs.1213.7 billion Ior 1997-2002
to address the housing shortage oI 7.57 million, upgradation oI 0.32 million semi-
pucca Economically Weaker Sections (EWS) units and the additional construction oI
8.67 million units. The total requirement oI Iunds Ior urban and rural housing put
together Ior 1997-2002 was estimated to be oI the order oI Rs.1500 billion (see Table
7). Against this amount, about Rs.520 billion is likely to be available iI the past
trends oI housing Iinance are assumed to continue.
Table 7
Investment Requirement for Housing: Ninth Five Year Plan
(1997-2002)
Segment No oI Units to be
Constructed
(Million)
Eund Requirement
(Rs. Billion)
Likely Availability
Rural 162.5 290 180
Urban 176.6 1,214 340
Total 330.1 1,504 520
Source: Government oI India, Ministry oI Urban AIIairs & Employment: Ninth Plan
Working Group on Housing (1996)
Shortage in Civic Services
In addition to shortage in housing, India is Iaced with the problem oI inadequate civic
services. The coverage in terms oI organised sewerage systems ranges Irom 35 in
small towns to 75 in large cities. According to estimates prepared by the Ministry oI
Urban AIIairs and Employment, Government oI India, only about 50 oI the urban
population had access to sanitation Iacilities in 1997-98. Approximately one third oI the
urban centres are not covered by proper drainage systems; storm-water drainage
Iacilities are estimated to cover no more than 66 oI the urban population. The National
Sample Survey Organisation (NSSO) 44
th
round Survey (1988-89) reveals that 31.08
oI the urban population does not posses any latrine/toilet Iacility. Only 66 oI the
urbanites have access to toilet Iacilities within their premises. Out oI those urban
residents having toilets, only 39.06 have a Ilush system, 37.49 a septic tank system
and the rest service latrines. As estimated under the Low Cost Sanitation Programme oI
the Government oI India, there are about 3.3 million dry latrines yet to be converted into
water-borne toilets in the towns with a population oI less than 500,000.
It is estimated that 28 oI the urban population do not have access to reIuse
collection and disposal services. A study in 1989 shows that the solid wastes
collection eIIiciency (solid wastes collected as percentage oI solid wastes generated)
ranged Irom 82.8 in 6 metropolitan cities to 63.5 in 19 cities with population
ranging Irom 0.1 to 1 million, 55.5 in 6 towns with population between 50,000 and
100,000 and 50.0 in 5 towns with population between 20,000 and 50,000.
Approach to Housing Development
AIter independence, housing was accorded a relatively low priority in the national
development programme in India, presumably with the objective oI keeping it
basically a private sector activity. The low budgetary support given to the housing
sector is evident Irom the Iact that the Eirst Eive Year Plan oI India allocated 7.4 oI
the total plan resources Ior housing; the share oI housing in the subsequent plan
resources ranged between 1.2 and 4.9. The governmental agencies, however,
played a strong supporting role Ior the provision oI housing Ior the poorer sections oI
society, including allocation oI land. Over the years there has been a gradual shiIt in
the role oI the Government Irom a provider` to a Iacilitator`, ensuring access to
developed land, basic services, building materials, technology, construction skills and
Iinance so that housing can be undertaken as a people's programme. The Iacilitating
approach aims at Iostering strong public-private partnerships with the provision oI
appropriate incentives to the private sector, promotion oI housing Iinance institutions,
propagation oI alternate building materials and technologies and extension oI support to
NGOs, CBOs, co-operatives and the private sector.
The Government oI India and State Governments have adopted a two-pronged
approach to housing development Ior the poor in the past, i. e., sites and services and
permanent housing. Under sites and services, basic inIrastructure Iacilities like
drinking water, internal roads, approach roads, drainage, community toilet, etc., were
provided to develop layouts. The beneIiciaries were also given construction
assistance Ior erecting a small shelter. The permanent housing programme, which has
replaced sites and services, was initially conIined to those beneIiciaries who could avail
loan Iacility. Later, several modiIications have come up in the programme to address
the housing needs oI diIIerent target groups. The broad elements oI the
approach oI the Government oI India to tackle the problem oI housing the poor are:
special programmes/targeted subsidy to the poor and vulnerable groups, loan
assistance to governmental agencies/beneIiciaries at below-market interest rate Ior
housing and at normal rate Ior inIrastructure through the Housing and Urban
Development Corporation (HUDCO), creation oI housing assets as part oI
employment and income generation programmes, promotion oI cost-eIIective and eco-
Iriendly building materials and technologies and creation oI an enabling
environment Ior private sector initiative. Indira Awas Yojana (IAY) is an example oI
housing Ior targeted groups in rural areas through employment creation.
Indira Awaas Yojana (IAY)
Indira Awas Yojana (IAY) intends to assist certain vulnerable target groups in
housing activities. The programme applies to categories such as Scheduled Caste
(SC)/Scheduled Tribe (ST) households who are victims oI social atrocities, SC/ST
households headed by widows and unmarried women, SC/ST households aIIected by
Ilood, Iire accident, earthquake, cyclone and similar natural calamities, Ireed bonded
labourers, Iamilies/widows oI personnel Irom deIence services/para-military Iorces killed
in action, ex-servicemen and retired members oI para-military Iorces, persons displaced
on account oI developmental projects, nomadic, semi-nomadic and de- notiIied tribals
and Iamilies with disabled members, subject to the conditions that these households
belong to below poverty line category. As per the Government oI India guidelines, IAY
houses are being allotted in the name oI the Iemale member oI Iamily or alternatively in
the joint name oI both wiIe and husband. The programme is Iully subsidised by the
Government oI India.
Housing Programmes: Unit Costs
The contents and unit costs adopted Ior various types oI housing programmes diIIer
between States and have been revised Irom time to time. Table 8 depicts the latest unit
costs adopted by the State oI Andhra Pradesh Ior the programmes implemented by it.
Table 8
Unit Cost Particulars of Housing Schemes: Andhra Pradesh
(In Rupees)
Scheme Year
Unit
Cost
BeneIi-
ciary
Contri-
bution
Loan
Government Subsidy
State Central Total
(1) (2) (3) (4) (5) (6) (7) (8)
Sites & Services 1981 1000 - - 1000 - 1000
Semi Permanent
Rural Housing 1998-99 7500 500 - 7000 - 7000
Rural Permanent
Housing 1998-99 17500 500 10000 7000 - 7000
Urban Permanent
Housing 1986-87 12,000 300 10700 1000 - 1000
Weavers Housing:
(i) House-cum
Workshed (Rural) 1998-99 35000 4000 8000 5000 18000 23000
(ii)House-cum
Workshed (Urban) 1998-99 45000 6000 14000 5000 20000 25000
(iii) Exclusive
Worksheds 1996-97 6000 500 - 1500 4000 5500
Workshed (Rural) 1998-99 9000 - - 2000 7000 9000
Workshed (Urban) 1998-99 14000 2000 - 2000 10000 12000
Rural Landless
Employment
Guarantee
(RLEGP) Housing 1987-88 10200 - - 2040 8160 10200
Beedi Workers
Housing 1998-99 18000 1000 6500 1500 9000 9000
Eishermen
Housing 1998-99 20000 1250 7000 - - 11750
Indira Awas
Yojana Housing:
In Plain Areas 1996-97 16500 - - 3300 13200 16500
In Black Cotton
Soils 1998-99 20000 - - 4000 16000 20000
Special Housing 1998-99 20000 500 12500 7000 7000
Cyclone Housing
(i) By APSHCL 1996-97 16500 - 10000 6500 - 6500
(ii) By NGO`s
a) 0-5 Kms. Erom
Sea Coast 1996-97 30000 15000 - 15000 - 15000
b) In Other Areas 1996-97 20000 10000 - 10000 - 10000
Economically
Weaker Sections
(EWS) Housing 1998-99 25000 2000 20000 3000 - 3000
Scheme Ior 1991-92 4000 - 3000 400 600 1000
CGG Working Papers4/2003
Housing & Shelter
Upgradation
to
1996-97
EWS (Special
Cyclone) 1996-97 30000 4500 25500 - - -
EWS (Special) 1998-99 30000 2000 25000 3000 - 3000
Township Housing 1998-99 50000 2000 43000 5000 - 5000
Source: Andhra Pradesh State Housing
Corporation Ltd.
Housing and Urban Development
Corporation
The Housing and Urban Development Corporation (HUDCO) was established as a
Iully- owned enterprise oI the Government oI India in 1970 with an equity
base oI Rs.20 million to Iunction as a national techno-Iinancial institution to
promote housing and urban development. The objectives oI HUDCO include the
Iollowing:
] To Iinance and undertake housing and urban development programmes in
urban and rural areas;
] To Iinance and undertake either wholly or partly, the setting up oI new towns or
satellite towns covering inIrastructure needs in urban and rural
areas;
] To Iinance and undertake the setting up oI building material industries;
] To provide consultancy services Ior projects oI housing and urban development
within the country and
abroad.
At present HUDCO has an authorised capital base oI Rs.12.50 billion ($297
million), paid-up equity oI Rs.8.98 billion ($213 million), reserve oI Rs.5.75
billion ($136 million) and net worth oI Rs.14.83 billion ($349 million).
The total borrowings by
HUDCO stand at Rs.121.68 billion ($2897 million). Thus the debt-equity
ratio oI HUDCO works out to 7.77.
The key activities oI HUDCO
include:
] Lending Ior housing programmes through various schemes such as
urban housing, rural housing, staII rental housing, cooperative
housing, working women's housing, housing schemes through NGOs
and CBOs and housing through private builders;
] Lending Ior urban inIrastructure, including land acquisition Ior projects,
integrated land acquisition and development, city level inIrastructure -
water supply (rehabilitation, augmentation, new source
development/transmission projects), sanitation (rehabilitation,
augmentation, new sewerage and drainage projects, conversion oI dry
latrines, construction oI individual and community toilets), solid waste
management (collection, conveyance, treatment and disposal, energy
recovery), transportation (roads, bridges, rail and road transport terminals,
airports, ports), etc., social inIrastructure (health, education, parks,
playgrounds), commercial inIrastructure (shopping centres, commercial
complexes, oIIice complexes), and integrated area development/new
township projects, etc.;
] Consultancy services in the Iield oI housing, township development and
inIrastructure
development;
] Promotion oI Building Centres Ior technology transIer and support to building
material
industries; and
] Training in human settlements and technical assistance to borrowing agencies.
The borrowers oI HUDCO are: State Urban InIrastructure Einance and Development
Corporations, Water Supply and Sewerage Boards, Urban Development Authorities,
State Housing Boards, National Capital Region Planning Board (NCRPB), New Town
Development Agencies like City and Industrial Development Corporation (CIDCO),
Mumbai, Municipal Corporations/Municipalities, Improvement Trusts, and private
companies and agencies.
Since its inception, HUDCO has so Iar sanctioned 14821 projects with a project cost oI
Rs.48.51 billion ($11.54 billion). The amount oI loan sanctioned is Rs.31.66 billion
($7.53 billion) against which Rs.17.82 billion ($4.24 billion) is already released.
Housing loans approved amount to Rs.19.42 billion ($4.6 billion) against which
Rs.12.30 billion ($2.9 billion) has been disbursed. HUDCO has so Iar contributed to the
development oI 10.14 million dwelling units and 4.7 million low-cost sanitation units.
HUDCO`s inIrastructure Iinancing portIolio is growing at a phenomenal rate. During
the last 10 years HUDCO has sanctioned Rs.12.24 billion ($2.9 billion) Ior inIrastructure
projects covering water supply, sewerage, drainage, solid waste management, low cost
sanitation, etc. HUDCO`s operations extend over 1,760 towns and thousands oI villages
in the country.
Cost-effective & Eco-friendly Technologies
Building materials account Ior about 60 oI basic inputs in any housing programme
and their costs can go as much as 75 oI the cost oI a house Ior low-income groups.
There is a growing concern that persisting shortage oI cost-eIIective building
materials Ior the vast majority oI population is a serious impediment to improving the
housing conditions oI the people. While popular traditional materials are short in
supply, high demand Ior them has resulted in their high prices and taking them out oI
the reach oI the poor. Most oI the new alternate materials developed in recent past are
cost-eIIective and environment-Iriendly. But they are yet to be translated into
marketable products Ior mass application. Excepting cement and steel, all other
materials required Ior housing are likely to have constraints oI supply.
Keeping the above aspects in view, the Government oI India and State Governments
have been promoting research in the Iields housing and construction activities. This
has led to a number oI new alternative building materials and techniques aimed at
reducing the cost oI house construction and improving the perIormance oI
conventional building materials and techniques. Energy-eIIicient manuIacturing
processes and use oI renewable raw material resources oI wastes and byproducts oI
industry, agriculture and Iorestry, etc., have resulted in Cost-EIIective and Eco-
Eriendly (CEEE) products. As it was seen that the use oI CEEE building materials
and techniques was hampered by the general lack oI understanding on part oI
beneIiciaries due to ignorance and illiteracy, the Government has initiated a massive
programme oI demonstration, education and counseling Ior the poor. Rural masons
are considered as the 'rural housing engineers by the beneIiciaries and thereIore,
care is being taken to train and motivate masons in addition to beneIiciaries.
Building Centres Movement
Recognising that the propagation and extension oI new cost-eIIective, energy-
eIIicient and eco-Iriendly building technologies to the grassroots level require a
Iocused approach, a Centrally-sponsored scheme Ior setting up a national network oI
Building Centres (Nirmithi Kendras) was initiated in diIIerent States. Over 350 such
centres have already become Iully operational. These Building Centres are promoting
use oI cost-eIIective building materials based on locally available raw materials and
wastes. They provide a variety oI services such as practical demonstration and
propagation oI new technologies, training oI artisans, entrepreneurs and small
contractors, counseling oI householders and production oI low-cost materials and
components to meet the local housing construction needs. A large number oI centres
are also undertaking construction oI housing projects and other public buildings.
HUDCO provides Iunding support to Building Centres Ior setting up production units
oI new building materials and components. To encourage Building Centres in
technology extension activities, the Government oI India has exempted the levy oI
excise duty on materials and components produced by these Centres. The training to
entrepreneurs in several States has led to setting up oI their production units Ior low-
cost building materials and components to cater to the local needs.
National Housing and Habitat Policy 1998
In 1994, India adopted the National Housing Policy (NHP), which recognises the key
role oI the Government as Iacilitator rather than provider oI housing services. The
National Housing & Habitat Policy-1988 (NH&HP) is a continuation oI the NHP. It
calls Ior a housing revolution in the country and Iocuses on the changed roles oI
various stakeholders in the housing development process in the new economic
environment oI liberalisation and globalisation. The policy emphasises the need to
persuade the private and cooperative sectors to take greater initiatives in the
promotion and development oI housing through Iiscal concessions and other
incentives. Though the move towards disassociation oI governmental agencies Irom
direct construction is being witnessed since the early 70s, the NH&HP calls Ior a
continued positive role by the Government in housing oI the poor. Rapid growth oI
population and increased urbanisation on one hand and escalating land prices on the
other are responsible Ior widening the gap between demand Ior and supply oI housing
units. These Iactors squeeze the poor oII land and marginalise them in urban housing
markets. Recognising this, the NH&HP suggests a number oI areas oI intervention
Ior governmental agencies to promote aIIordable housing Ior the poor, including
availability oI sites, housing loans at below-market rates, low-cost building materials
and civic services.
The broad aims oI the National Habitat and Housing Policy-1998 (NH&HP) are:
] Creation oI surpluses in housing stock either on rental or ownership basis;
] Providing quality and cost-eIIective housing and shelter options to the citizens,
especially the vulnerable groups and the poor;
] Guiding urban and rural settlements to ensure planned and balanced growth and
a healthy environment;
] Making urban transport as an integral part oI the urban Master Plan;
] Using the housing sector to generate more employment and to achieve skill
upgradation in housing and building activities;
] Promoting accessibility oI dwelling units to basic Iacilities like sanitation and
drinking water;
] Removing legal, Iinancial and administrative barriers Ior accessing land, Iinance
and technology Ior housing;
] Eorging strong partnerships between private, public and co-operative sectors in
housing and habitat projects.
The NH&HP envisages a key role Ior the Government oI India in promoting policy
and legal reIorms, Iacilitating Ilow oI resources to housing and inIrastructure through
measures such as Iiscal concessions to investors and promoting the creation oI a
secondary mortgage market. The State Governments are expected to gradually
withdraw Irom direct construction oI houses, liberalise legal and regulatory regime to
give a boost to housing and support inIrastructure, promote private sector and co-
operatives, and Iacilitate access oI the poor to land, Iinance, low-cost and locally-
suited engineering solutions and participatory designs.
Two Million Housing Programme
The National Agenda Ior Governancethe election maniIesto oI the present
Government recognises Housing Ior All as a national priority. It has set a target Ior
the construction oI 2 million additional houses every year 0.7 million in urban areas
and 1.3 million in rural areas. A programme oI this magnitude is expected to result in
an investment oI about Rs.80 billion in housing construction activity. This would also
Iacilitate cement, steel and other building materials industries in addition to creating
substantial employment in this sector. Every million oI rupees spent by the
construction industry generates about 75 man-years oI employment.
Recent Budgetary Initiatives
In recent years, housing and construction have emerged as top priority` sectors Ior
policy-makers. Eaced with recession and slow-down oI economic activities, the
Government oI India has realised the key role that construction Industry can play in
jump-starting the economy and provide gainIul employment to people. Housing
construction has many Iorward and backward linkages and about 280 industries are
directly or indirectly linked to housing activities. Moreover, construction is the
second largest employment-generating sector in the country, next only to agriculture.
Considering these, the Union Budgets oI 1998-99 and 1999-2000 have laid a great
deal oI emphasis on creating an enabling environment Ior housing activities in the
country through the private sector.
The measures initiated by the Union Budgets to boost up housing activities include:
] Additional equity support to HUDCO to the tune oI Rs.1.92 billion in the 1998-99
budget and Rs.2.71 billion in the 1999-2000 budget oI the Ministry oI Urban
AIIairs and Employment and Rs.0.5 billion in the1998-99 budget oI the Ministry
oI Rural AIIairs and Employment. These measures augmented the equity base oI
HUDCO by Rs.5.13 billion in a period oI just two years as against the inIusion oI
Rs.3.85 billion by the Government oI India over a period oI 27 years Irom the
creation oI HUDCO. The addition oI Rs.5.13 billion oI equity would enable
HUDCO to leverage about Rs.42 billion Irom the market Ior housing and urban
inIrastructure activities. HUDCO would be in a position to support the creation oI
1.5 million houses each year out oI which 1 million will be towards achieving the
target under the Two Million Housing Programme;
] Extension oI tax holidays Ior approved housing projects allowing a deduction oI
100 oI the proIits Ior the Iirst Iive assessment years and 30 deduction Ior
another Iive years. This was made applicable to housing units upto 1500 sq. It. in
the budget oI 1999-2000. The Iacility will promote private sector participation in
housing activities;
] Increase in deduction against income Irom house property Ior repairs and
collection charges Irom 1/5
th
to 1/4
th
and increase in the deduction Ior interest on
borrowed capital in the case oI selI-occupied property Irom Rs.15,000 to
Rs.30,000 in 1998-99 budget. The latter Iigure was revised drastically to
Rs.75,000 in the budget oI 1999-2000. This will promote better maintenance oI
constructed housing stock in addition to promoting larger individual investments
in housing;
] Enhancement in the percentage oI incremental deposits into housing activities
Irom the banking sector Irom 1.5 to 3 to enable inIlow oI Rs.3.8 billion Ior
low-cost housing;
] Inclusion oI micro-credit and tiny sector as part oI priority sector lending oI banks
to give a Iillip to weaker section/low-income housing;
] Extension oI depreciation beneIits in corporate employees housing Irom 20 to
40 to encourage corporate houses to take up housing Ior their employees;
] Repeal oI the Urban Land Ceiling and Regulation Act in 1998 to Iree the supply
oI land Ior housing in urban areas, especially metropolitan cities.
Andhra Pradesh Model: Self-help & Mutual Help
The State oI Andhra Pradesh is a pioneer in India in implementing innovative housing
programmes Ior the poor on a large scale. Though the A.P. State Housing
Corporation Limited (APSHCL) was established in 1979 to Iormulate, promote and
execute housing schemes Ior the weaker sections oI society, the Corporation has
constructed about 3.62 million houses by 31.03.2000 out oI which 2.4 million are in
rural areas. It ranked Iirst in the country in the implementation oI housing Ior the
poor in rural areas Irom the year 199192 onwards. Households with an annual
income oI Rs.13,000 or less are eligible Ior sanction oI houses under various schemes
Irom 199697 onwards. 50 oI the houses are earmarked Ior Scheduled Castes and
Scheduled Tribes, 33 Ior Backward Castes, 7 Ior Minorities and the remaining
10 Ior other Economically Weaker Sections. The Iunding oI the housing
programme includes subsidy Irom the Government and loan Irom various Iinancial
institutions Ior the repayment oI which the Government stands guarantee irrespective
oI the ultimate recovery Irom beneIiciaries. Loans are mobilised Irom HUDCO, LiIe
Insurance Corporation, General Insurance Corporation and Commercial Banks.
The basic concepts and Ieatures based on which the entire Weaker Sections Housing
Programme is being implemented in the State oI Andhra Pradesh are:
] 'SelI-help and Mutual help by the beneIiciaries and their Iull participation in
decision-making and implementation, consequently resulting in their capacity
building;
] The concept oI 'Core House which is easily expandable depending upon the
improvement in the economic position oI the beneIiciary and his need. The
adequacy oI the accommodation is not relevant and it does not come in the way oI
implementation oI the housing programme. The issue oI adequacy oI subsidy-
cum-loan assistance is also irrelevant as the Government gives only a Iixed
Iinancial assistance to the beneIiciary;
] Cost-EIIective and Eco-Eriendly (CEEE) building materials and construction
technologies;
] Principal Bank Branch System (PBBS) in handling oI Iinances. Amount due the
beneIiciary is directly credited to individual bank accounts oI beneIiciaries. One
bank is designated as the nodal or principal bank Ior each scheme. The nodal
bank promotes banking habit and thriIt and credit among beneIiciaries.
Some Directions for Future
Although the National Housing and Habitat Policy emphasises the Iacilitating role oI the
Government in housing, the public sector agencies are not absolved oI the responsibility
oI providing housing to those segments oI the people who cannot be served by the
market. However, a new approach is called Ior issues such as beneIiciary consultations
on the location, design and cost aspects oI shelter, aIIordable shelter options Ior the very
poor, integration oI income generation and housing, eligibility criteria Ior availing
housing Iinance and providing a collateral Ior the same, easier availability oI plots and
houses Irom public and private providers, assistance Ior house construction, speedy
approvals Ior construction oI inIrastructural services, simpliIication oI documentation
and procedures, etc. Housing subsidies oIten beneIit the salaried employees oI the
organised sector including the Government and the recipients oI tax concessions Ior
housing investment. Implicit subsidies to beneIiciaries oI social housing schemes arise
Irom loan waivers, low cost recovery rate, concessional interest and ineIIiciencies
absorbed by the agencies. The schemes involving a combination oI concessional loan
and subsidy aIIect the extension oI viable Iinance on non-subsidised terms, based on
rigorously enIorced cost recovery. These issues need to be re-examined.
Part oI the resources needed Ior the shelter oI the urban poor could be diverted Irom
current outlays by an objective review oI all subsidies and mis-applied resources, and by
channelling institutional Iinance. Additional resource mobilisation could be by a
combination oI measures to activate beneIiciary savings and channelling loans on viable
terms by Iinancial institutions. These measures could be catalysed and leveraged by
budget provisions Ior land and services, equity Ior housing agencies and support to open
market lending on credit-rated terms. Steps are needed Ior avoiding the dispensation oI
ex-post and implicit subsidies, to provide Ior transparent and well-targeted subsidies, and
to prevent the leakages oI subsidies under government programmes and unwarranted
Iiscal concessions to better-oII sections. Subsidies may perhaps be administered in the
Iorm oI subventions through credible NGOs Ior group shelter activity and savings eIIort.
The State governments need to adopt a state-wide policy on the regularisation oI
tenure and conIerment oI leasehold or occupancy rights to slum-dwellers at least in
areas not needed by public agencies. The National Housing and Habitat Policy
emphasises the grant oI occupancy rights to slum-dwellers and providing support Ior
progressive slum redevelopment and upgradation schemes. The slums and squatter
settlements could be categorised as those needing urgent relocation, those that can be
considered Ior conIerment oI occupancy rights/title and upgradation or redevelopment in
situ, and those which can be provided with basic services without conIerment oI title.
This categorisation process should be dovetailed with the process oI Master Plan
revision and Iormulation oI Ilexible development planning norms. It would enable the
relocation oI slum-dwellers and change in land use plans to incorporate the regularised
slums into the plan-scape oI the city. Also, physical and social planning should be on
city-wide basis so as to integrate the inIormal sector in the city's economy and social liIe.
The State and city agencies need to be encouraged to Iormulate city plans Ior developing
varied shelter options Ior the urban poor, such as the provision oI essential services,
shelter upgradation and extension including toilets, renewal oI congested inner city
chawls, serviced sites Ior the poor, in situ redevelopment oI slums with assistance oI the
private sector and co-operative involvement, night-shelter and sanitation Iacilities Ior the
new migrant landless persons, relocation oI Iamilies Irom sites urgently required Ior
public purposes, and Iinancial and technical assistance on a group or individual basis Ior
incremental construction.
In order to Iacilitate greater private and co-operative sector participation in housing
activity, as well as public-private partnership, there is the need to: Iirst, undertake legal
reIorms; second, to undertake land policy reIorm to provide easier access to developed
land; third, provide suitable Iiscal measures and incentives to encourage investment oI
household savings in home ownership and to induce the corporate sector to invest in
employee housing; Iourth, careIully assign property rights and make them legally
enIorceable; IiIth, create enabling institutions Ior providing an enabling environment by
restructuring existing institutions and by creating new ones, iI required; and sixth,
widen the existing database Ior strategic planning to cover aspects relating to ownership
oI land and property, housing starts and completions, etc.
With the Union Budgets Ior 1998-1999 and 1999-2000 according a new thrust to
housing in the National Agenda Ior Governance, the Central and State Governments
have initiated a reIorm agenda Ior housing sector reIorms. The reIorm areas include the
Iollowing:
] Public-Private Partnerships to ensure a Iair return on investment to the private
land owners/developers through guided development and availability oI serviced
sites Ior allotment to low income Iamilies at aIIordable prices. Eiscal incentives
and provision oI inIrastructure can induce private sector entrepreneurs to housing
including that Ior the poor;
] Measures to control the continuing spiral oI land prices, speculation, shortage oI
developed land, and increasing pace oI unregulated and environmentally damaging
land development;
] Increased availability oI developed land through measures such as reservation oI
5 oI the land in larger layouts as land bank Ior economically weaker sections
and low-income groups, land pooling, land readjustment, etc., steep vacant land
tax, etc.;
] Restructuring oI Housing Einance Institutions (HEIs) to meet the housing Iinance
needs oI the Iormal sector as well as the poor and the inIormal sector. A revision oI
current eligibility norms that inhibit the Ilow oI a signiIicant proportion oI Iunds
Irom the Iormal sector to the poorer sections oI the population is called Ior;
] Establishment oI linkage with inIormal credit systems along with grant oI security oI
tenure to slum-dwellers and reIorms related to land title, building regulations, etc.,
with a view to assisting the poor with access to institutional Iinance Ior housing;
] Community resource mobilisation through schemes such as Insurance-Linked
Savings-cum-Loan-cum-Subsidy scheme Ior shelter Ior the poor engaged in
inIormal sector activities. Under the scheme Ior a nominal one-time premium oI
Rs.150 per house, the houses are insured Ior Rs.25,000 against damages due to
Iire, lightning, Ilood, storms, tempests, cyclones, etc.;
] Increased involvement oI NGOs/CBOs/Cooperatives to promote selI-help,
mutual-help, thriIt and credit, selI-management, community empowerment, etc.
There is a need Ior shiIting to community-based non-subsidised loan mechanism, as
adopted by SelI Employed Women`s Association (SEWA) in Gujarat State, targeted
at poor and sustained by beneIiciary savings Ior shelter and group guarantee;
] Promotion oI high density housing in selected areas in cities through appropriate
amendments to zoning and land use regulations to obviate the necessity oI costly
land acquisition and to avoid high inIrastructure costs;
] Adoption oI small lot zoning in parts oI large lot layouts making it mandatory on
the part oI developers to divide part oI the lands being developed into small plots
to make them available to poor beneIiciaries;
] Promotion oI rental housing through the balancing oI landowner and tenant
interest so that supply oI rental housing at aIIordable rents is ensured and there is
an incentive Ior people to build houses Ior themselves and Ior others;
] Propagation oI cost-eIIective and eco-Iriendly building materials and technologies
and up-scaling oI innovative products to make them marketable and amenable Ior
mass application;
] Municipalisation oI programmes oI poverty alleviation and slum-upgradation in
urban areas to make elected Municipalities responsible Ior these Iunctions and
mobilise local support and eIIort.
WHO IS AT RISK AND HOW DOES IT AFFECT
THEM?
Much of the research undertaken for the NRV3 focused on identifying households that
face unacceptably and unsustainably high housing costs in relation to their household
incomes, and on determining how they are affected. This chapter covers research
reported in more detail in RP1, RP3, RP6, RP9 and RP10. t indicates the extent of
potential affordability problems, identifies households at risk and describes how
housing affordability problems are manifest. The evidence generated provides a clear
rationale for why housing affordability is a concern. A further rationale is provided by
consideration of the likelihood that affordability problems will continue and of the
impact that poor affordability outcomes have on society as a whole. This
complementary evidence is covered in the following chapter.
3.1 How big is the probIem?
3.1.1 Measurement issues
Determining just how much can be spent on housing costs before such costs impose
an unacceptable and unsustainable burden on the household is contestable, not least
because a household's ability to bear the burden of high housing costs is affected by
a complex array of factors. (RP1) Foremost among these is household income. The
complex array of demands made upon the budgets of a diverse range of households
comes a close second.
High housing costs in relation to income are less likely to leave high-income
households with inadequate resources to meet their non-housing needs than is the
case for lower-income households. They are also more likely to reflect choices made
by the households incurring them. An obvious example of over-consumption of
housing among higher-income households is the increased demand for 'McMansions'.
n such cases, the impact of high housing costs on individual households is of
relatively little concern, although the impact they have in creating pressures on the
housing market and the environmental impact of excessive consumption of housing
may well contribute to broader concerns about affordability (covered in the following
chapter).
High housing costs experienced by lower-income households are more problematic
for a number of reasons. First, it is more difficult to determine whether high housing
costs reflect a choice on the part of the household or whether the high housing costs
arise because there is no alternative. Costs associated with choice might arise if a
lower-income household chooses to purchase rather than rent or to live in a high-cost
location rather than in a location where housing is more affordable. Costs associated
with constraint might arise because of the household's need to live close to work or
transport or simply because there is no housing available that is both affordable and
adequate for their needs. Secondly, housing costs might be high in relation to income
simply because income is too low. Thirdly, the question of whether a household will
have adequate resources to meet non-housing needs after paying for their housing
costs will depend on household type and size, as well as household circumstances.
(RP1, RP3)
This chapter uses the 30/40 rule to indicate how many and which households are in
housing stress and, therefore, at risk of experiencing housing affordability problems.
t uses both quantitative and qualitative data to indicate what these affordability
problems are and to provide estimates of the numbers and characteristics of
households that actually experience them.
17
3.1.2 Housing stress estimates
The 30/40 benchmark was selected as a robust indicator of the potential scale of
affordability problems. NRV3 research on alternative measures showed that it was
also a conservative measure with a tendency to under-estimate rather than over-
estimate the extent of the problem. (RP3) t is also conservative for a second reason.
t takes no account of households whose housing cost burden is below 30 per cent
but who live in housing which may be inadequate because it is overcrowded, of a
standard below community norms, or located far from work, transport, services and
family or other social networks. Such households are also likely to experience
hardship as a result of poor housing affordability even though they are not included in
the indicators reported here. A housing cost ratio of 30 per cent of income is more
than double the Australia-wide average (of 15 percent).
n 2002-03, the latest year for which data were available when this research was
undertaken, of the 7.6 million households in Australia, just under 1.2 million (16
per cent of all households) paid 30 per cent or more of gross household income in
meeting their housing costs.
10
Of these, 862,000 were lower-income households,
defined as being in housing stress. A further 164,000 were moderate-income
households. (RP3)
Figure 3.1: Proportion of househoIds with unacceptabIy high housing cost ratios
Unacceptable housing costs
16% = 1.2 m households
Housing stress
= 862,000 households
Acceptable housing costs
84% = 6.5m households
This proportion has remained remarkably stable for the past 10 years despite the
obvious price pressures in housing markets highlighted in Chapter 2. (RP3) There
are a number of reasons for this. Households make trade-offs to avoid increasing
the proportion of their income spent in housing. For younger households, these
can include renting instead of buying, remaining for longer in the parental home,
sharing instead of forming independent households. Older households who are
established home owners are less likely to have their housing costs affected by
housing market changes.
A critical explanation, however, is that the aggregate measure disguises
considerable variation in the incidence of housing stress at a disaggregate level.
(RP8) The proportion of households with high housing costs in relation to their
income is polarised and polarising.
3.2 Who is at risk?
Despite the relative stability of the proportion of those with high housing costs, there
are several important concerns regarding observed housing affordability outcomes.
These concerns include the following:
18

n
c
i
d
e
n
c
e
o
f
s
t
r
e
s
s
(
%
)
The burden of high housing costs is not borne equally by all households. While
16per cent of all households had high housing cost ratios, over 28 per cent of
lower-income households were in housing stress. For particular types of
households, the incidence was even higher. For example, the incidence of stress
for private renters was 65 per cent. For purchasers the incidence of stress was 49
per cent. (RP3) The numbers and incidence of stress for broad groups can be
seen in Figure 3.2, with the scale and incidence of affordability problems
increasing from bottom left to top right and with the size of the problem mirrored in
the size of the bubble.
Figure 3.2: Numbers and incidence of househoIds at risk
100
80
60
40
Moderate income
private renters
Lower income
purchasers
Lower income
private renters
Moderate income
purchasers
0
0 100 200 300 400 500 600
Numbers in stress ('000s)
n the lowest two quintiles, the greatest numbers in housing stress are private
renters, working households and households with children (both couple and sole
parent households).
11
The incidence of housing stress is highest for lower-income
private renters, single-person households aged less than 65 years and lower-
income home purchasers. Almost half of lower-income households in stress are
working households and over one-third of lower-income working households are in
housing stress. These more detailed estimates for lower-income households are
illustrated in Figure 3.3. (RP3)
By 2045, the incidence of stress is projected to have increased for all of these
households (by 4 percentage points for all lower-income households and by as
much as 13 percentage points for private renters and 10 percentage points for
sole parents). (RP11)
19
Single purchaser, 35-44
Single renter, 25-34
Single renter, 35-44
Single renter, <25
Couple with children
Couple with chi
purchaser, 25-34
purchaser, 35-
Couple with children
purchaser, 45-54
Single renter, 65+

n
c
i
d
e
n
c
e
o
f
s
t
r
e
s
s
(
%
)
Figure 3.3: Characteristics of seIected Iower-income househoIds at risk
100
80
60 ldren
44
40
20
0
0 20 40 60 80
Numbers in stress ('000s)
Stress is an enduring problem for many. There is close to a 50 per cent chance
that a person living in a household in housing stress in one year will be living in a
household in stress in the following year and a 60 per cent chance that they will be
living in a household in stress for one of the next two years. (RP3)
n a decade, the proportion of households in housing stress increased from 24 per
cent in the mid-1990s to 28 per cent in 2002-03. This was a period when there
was steady economic growth and an increase in average household incomes,
including those of lower-income households.
12
(RP8)
The total numbers paying a higher proportion of their incomes in meeting their
housing costs has steadily increased as the number of households in Australia
has increased. (RP3)
Under a reasonably conservative set of assumptions about future trends, both the
incidence of housing stress and the total numbers in housing stress are likely to
increase. By 2045, broadly the period covered by the government's two
ntergenerational Reports, there are likely to be at least half a million more
households in housing stress than at present, increasing the number of lower-
income households at risk of facing significant affordability problems to well over
1.5 million households.
13
(RP11)
This increase in numbers arises because of the projected increase in the number
of households into the future, the ageing of the population, a projected increase in
the proportion of households in private rental housing and the higher incidence of
housing stress among households in private rental.
The incidence of housing stress is also expected to increase as demographic
change interacts with tenure change. This anticipated increase in the incidence of
housing stress is particularly significant for lower-income households in the private
rental market as the impact of (i) the current decline in home ownership rates
among younger households and (ii) the contraction of the public housing sector
work their way through the system. (RP11)
20
Single purchaser, 35-44
Single renter, 25-34
Single renter, 35-44
Single renter, <25
Couple with children
Couple with chi
purchaser, 25-34
purchaser, 35-
Couple with children
purchaser, 45-54
Single renter, 65+

n
c
i
d
e
n
c
e
o
f
s
t
r
e
s
s
(
%
)
Figure 3.3: Characteristics of seIected Iower-income househoIds at risk
100
80
60 ldren
44
40
20
0
0 20 40 60 80
Numbers in stress ('000s)
Stress is an enduring problem for many. There is close to a 50 per cent chance
that a person living in a household in housing stress in one year will be living in a
household in stress in the following year and a 60 per cent chance that they will be
living in a household in stress for one of the next two years. (RP3)
n a decade, the proportion of households in housing stress increased from 24 per
cent in the mid-1990s to 28 per cent in 2002-03. This was a period when there
was steady economic growth and an increase in average household incomes,
including those of lower-income households.
12
(RP8)
The total numbers paying a higher proportion of their incomes in meeting their
housing costs has steadily increased as the number of households in Australia
has increased. (RP3)
Under a reasonably conservative set of assumptions about future trends, both the
incidence of housing stress and the total numbers in housing stress are likely to
increase. By 2045, broadly the period covered by the government's two
ntergenerational Reports, there are likely to be at least half a million more
households in housing stress than at present, increasing the number of lower-
income households at risk of facing significant affordability problems to well over
1.5 million households.
13
(RP11)
This increase in numbers arises because of the projected increase in the number
of households into the future, the ageing of the population, a projected increase in
the proportion of households in private rental housing and the higher incidence of
housing stress among households in private rental.
The incidence of housing stress is also expected to increase as demographic
change interacts with tenure change. This anticipated increase in the incidence of
housing stress is particularly significant for lower-income households in the private
rental market as the impact of (i) the current decline in home ownership rates
among younger households and (ii) the contraction of the public housing sector
work their way through the system. (RP11)
20
Single purchaser, 35-44
Single renter, 25-34
Single renter, 35-44
Single renter, <25
Couple with children
Couple with chi
purchaser, 25-34
purchaser, 35-
Couple with children
purchaser, 45-54
Single renter, 65+

n
c
i
d
e
n
c
e
o
f
s
t
r
e
s
s
(
%
)
Figure 3.3: Characteristics of seIected Iower-income househoIds at risk
100
80
60 ldren
44
40
20
0
0 20 40 60 80
Numbers in stress ('000s)
Stress is an enduring problem for many. There is close to a 50 per cent chance
that a person living in a household in housing stress in one year will be living in a
household in stress in the following year and a 60 per cent chance that they will be
living in a household in stress for one of the next two years. (RP3)
n a decade, the proportion of households in housing stress increased from 24 per
cent in the mid-1990s to 28 per cent in 2002-03. This was a period when there
was steady economic growth and an increase in average household incomes,
including those of lower-income households.
12
(RP8)
The total numbers paying a higher proportion of their incomes in meeting their
housing costs has steadily increased as the number of households in Australia
has increased. (RP3)
Under a reasonably conservative set of assumptions about future trends, both the
incidence of housing stress and the total numbers in housing stress are likely to
increase. By 2045, broadly the period covered by the government's two
ntergenerational Reports, there are likely to be at least half a million more
households in housing stress than at present, increasing the number of lower-
income households at risk of facing significant affordability problems to well over
1.5 million households.
13
(RP11)
This increase in numbers arises because of the projected increase in the number
of households into the future, the ageing of the population, a projected increase in
the proportion of households in private rental housing and the higher incidence of
housing stress among households in private rental.
The incidence of housing stress is also expected to increase as demographic
change interacts with tenure change. This anticipated increase in the incidence of
housing stress is particularly significant for lower-income households in the private
rental market as the impact of (i) the current decline in home ownership rates
among younger households and (ii) the contraction of the public housing sector
work their way through the system. (RP11)
20
The polarisation of affordability housing stress (RP8) is anticipated to worsen by
2045, with an increasing proportion of lower-income households both young and
old in the private rental market. (RP11)
3.3 How does it affect them?
The estimates presented above identify households potentially at risk of problems
arising directly from unacceptably high costs. However, they do not provide any
indication of what these problems might be. These implications are covered here.
Unless indicated to the contrary, all of these results are taken from RP9.
Housing affordability problems are assumed to arise when households are forced into
decisions that adversely affect them and which would not have been made had they
not been in housing stress. While some of the experiences are shared across
tenures, some are specific to private renters and others are specific to recent
purchasers.
Common experiences include:
Facing the constant stress of not having enough money to cover rent or mortgage
payments and other necessities of life, particularly utility costs. Living with
constant stress contributes to health problems, as well as placing stress on family
relationships.
An increased probability of financial hardship. (RP6, RP9) This can result in
households going without meals, their children missing out on school activities and
adequate health and dental care, or in having to pawn possessions for financial
viability.
Experiences for stressed renters include:
The risk of being stigmatised with poor credit histories because of rental arrears
Being forced into frequent moves in their search for affordable rental housing. This
brings with it dislocation and significant search costs, particularly when there few
vacancies in the low-rent segment of the market.
Making trade-offs regarding dwelling quality and location which affect their access
to employment, education and health services
Having their future aspirations for ownership blocked
Fearing that there will be no relief from this stress in the foreseeable future.
Experiences for stressed recent purchasers include:
Fearing that an interest rate rise will mean they may not be able to meet mortgage
repayments and be pushed into foreclosure
Fearing that loss of employment, part-time work or overtime will mean they may
not be able to meet mortgage repayments and be pushed into foreclosure
For those on high loan to valuation ratios, fearing that any downturn in finances
will put them in a position of negative equity
Being unable to undertake essential repairs to their dwelling or to furnish the home
appropriately
Fearing that they have no reserves (in the form of savings) to tide them over any
change in circumstances.
Many stressed renters (particularly those defined below as strugglers or backsliders)
report that they are unlikely to benefit from intergenerational transfers that might help
them gain access to owner-occupation to provide them with long-term relief of their
21
affordability problems. This is in marked contrast with higher-income renters
surveyed, for whom housing stress is a pragmatic choice and one that creates
relatively few problems.
As renters excluded from home ownership reach retirement age, their incidence of
housing stress is likely to increase, as are the problems they face as a result of their
poor affordability outcomes. (RP11)
The dynamic effects of affordability problems faced by lower-income households are
also relevant. Many of the renters surveyed reported that:
They are unlikely to ever achieve home ownership because their current incomes
are too low and unstable and they feel it is unlikely that they will ever get a job that
will pay them an income sufficient to change this.
They had low rates of satisfaction with their current dwelling and a perception of
intergenerational inequity in that they regarded their housing situation as being
worse than that of their parents.
These results highlight the extent to which poor housing affordability outcomes can
exacerbate the already significant inequalities that arise from housing market
outcomes. (RP10)
Stressed lower-income home purchasers face fewer problems. Proportionally, the
greatest difficulties arise for those faced with ongoing costs associated with home-
ownership such as unexpected maintenance costs that were not budgeted for. Unlike
renters facing high housing cost burdens, however, many home purchasers are able
to adjust the timing of these housing costs so that they have less of an impact on non-
housing outcomes.
There are, however, a small minority of stressed purchasers who face similar housing
affordability problems as those experienced by stressed renters. There are more who
face the prospect of loss of their family home if their economic or personal
circumstances change.
3.4 From housing stress to housing affordabiIity probIems
Not all households in housing stress experience the types of problems indicated in the
previous section. One reason is that some households have made a conscious
decision to spend more than 30 per cent of their income on housing because they feel
they can afford to do so. Another reason is that the simple 30/40 measure does not
capture the extent to which many households are paying considerably more than 30
per cent. For example, of the 862,000 lower income households identified as being in
stress, over 400,000 were paying more than 50 per cent of their income for housing.
(RP3) Lower income households with extremely high housing cost ratios are more
likely to experience affordability problems than higher income households with similar
housing cost ratios because they have so little disposable income remaining after they
pay for their housing.
Supplementary quantitative and qualitative research on households in housing stress
undertaken for the NRV provides the key to identifying which households are likely to
be adversely affected by their high housing costs. This section reports on the insights
gained from this research.
This supplementary research was undertaken, very specifically, in the kinds of
suburbs and regional cities in which most low- and moderate-income Australians live.
Details are provided in RP9.
22
3.4.1 Taxonomy of households at risk
Through the surveys, focus groups and interviews, a breadth of experiences, contexts
and outcomes across both renters and recent purchasers was identified. While these
are diverse and cut across the specific socio-demographic and economic
characteristics conventionally used to describe households most likely to be in
housing stress, they are consistent with the broader understanding obtained by more
conventional classifications. They also serve the important role of reiterating the
observation that not all lower-income Australian households in housing stress are
struggling and discontented in the private rental market, and not all are finding it
impossible to overcome significant barriers to home ownership.
n all, seven archetypes have been identified.
14
A broad indication of the extent to
which these were represented among those surveyed is provided in percentage
terms. (RP9) ndicative lower bound estimates of the total numbers involved at a
national level are provided in parentheses. While the survey covered a range of
households, the numbers cover only households in housing stress.
For renters, the four groups identified are described as:
Strugglers 30% (approx 140,000 nationally)
Backsliders 10% (approx 46,000 nationally)
Pragmatists 30% (approx 140,000 nationally)
Aspirant purchasers 30% (approx 140,000 nationally)
StruggIers are those who are having trouble meeting rental payments and who are
suffering high levels of financial stress. They can be of any age group, but are often
single or in lone-parent households. They are often not working. Despite living in
cheaper locations, they are often paying extremely high proportions of their incomes
towards housing (up to 50 or 60 per cent). Strugglers were often found in
neighbourhoods generally regarded as 'affordable' or in those where house price
increases had put pressures on rents. They represent the core group of long-term
renters.
BacksIiders are those who at an earlier stage in life had once owned their own home.
They have 'fallen out' of home ownership, usually as a result of a major rupture in life
circumstances such as a loss of earning capacity, health difficulties or in household
circumstances either as a result of loss of a partner through death or relationship
breakdown. Backsliders often sought to retain ties to a particular neighbourhood and
had problems in achieving this. Returning to rental compounds the sense of loss and
strain imposed on this group by their change in circumstances. They need to restart
their lives but lack 'renter knowledge' and the skills required to negotiate the rental
market.
Pragmatists are those who are generally managing and who perceive that there are
benefits of renting as opposed to owning. Many of those surveyed were paying
relatively high proportions of their income towards housing, but were doing so as a
result of trade-offs made to reflect lifestyle and family choices. Pragmatists were
more prevalent in markets that had been relatively stable with little upward pressure
on rents. Many were reconciled to living with life's ups and downs.
Aspirant purchasers are those who still aspire to home ownership and believe that
they are going to make it, although not all of those surveyed thought they would be
able to do so in the short- to mid-term. A common characteristic of aspirant
purchasers was full-time, secure employment and, typically, two incomes. Many of
the older renters who still aspired to home ownership were beginning to recognise that
23
they were no closer to achieving this goal than they were 10 years earlier, and were
exhibiting an increased sense of anxiety about the implications of remaining renters
for the long-term.
Of these renter groups, it is the Strugglers and Backsliders who are of pressing policy
concern in both the short and the long run. They can be regarded as being trapped in
the private rental market and they face immediate housing affordability problems.
Their circumstances also raise important questions about the long-term and the risks
they are likely to face as they age, if they have not had the opportunity to build up
property-based assets. The research reported in RP10 shows the huge divide in
wealth ownership between those who own their own dwelling and those who do not.
To the extent that their numbers are swelled by any increase in the number of
Pragmatists or disillusioned Aspirant purchasers, these long-term concerns are
compounded.
For purchasers, the three groups identified are described as:
Stretched 40% (approx 106,000 nationally)
Focused 20% (approx 23,000 nationally)
Ambivalent 40% (approx 106,000 nationally)
Stretched purchasers are those who had very little slack in their capacity to pay
when they entered home purchase and are now expressing concerns about their
ability to pay their mortgage.
15
Many have young, growing families and had limited
capacity to save before they purchased, which has meant that they have no buffer to
cope with problems as they arise. They have been hit hard by the interest rate
increases that took place prior to being surveyed and they have been forced into a
range of management strategies because of budgetary constraints. For example,
they have worked longer hours or taken on a second job, with the resultant pressures
on family life. They are concerned about the risks to their income if the labour market
softens. Others have not managed. They have increased their mortgage in order to
release funds to accommodate increased interest rates, or have had to approach
welfare agencies. n broad terms, they have limited equity in their property, having
bought with minimal or no deposit. A significant proportion of these purchasers have
been unable to meet their repayments at some time in the past year. Stretched and
Focused recent purchasers were more likely to be found in the outer metropolitan
regions where rising interest rates and stagnating house prices have had the most
impact.
Focused purchasers recognised that mortgaged home ownership is a significant life
changing process that would impose compromises and constraints on their lifestyle.
Although not struggling to meet repayments, a number were paying upward of 50 to
60 per cent of their income to pay off their mortgages. For a significant group, this
overpayment was a clear strategy to pay off the mortgage as quickly as possible.
Despite their belief that home ownership should provide them with long-term security
and despite their risk management strategies to increase the probability that this
would be so, many were insecure and feared that their homes were at risk. This led
them to work more overtime than they wished, to compromise family happiness and to
scrape by on hermit-like lifestyles.
AmbivaIent purchasers are those who are not necessarily committed to home
ownership. They ended up purchasing because it seemed the right thing to do at the
time or because on balance it appeared to provide them with a more cost-effective
option than continuing to rent. For some, it was a result of peer pressure or a sense
24
of being left behind. Among these purchasers were those who had a realistic
assessment of the advantages and disadvantages of both renting and owning.
Of these purchaser groups, it is only the small core (around 510 per cent) of
Stretched purchasers who are not coping who are of pressing policy concern in the
short term. However, the highly constrained lifestyles of the Focused purchasers
highlights potential concerns about the long-term risks that access to home ownership
presents in an environment where financial market and labour market flexibility have
become the norm. For many this means that home ownership, instead of being a
symbol of security and stability, has become a risky undertaking contributing to a
sense of insecurity.
3.4.2 Housing stress and housing affordability problems
The taxonomy presented above and the estimates of proportions in the various
classifications were derived from the quantitative and qualitative surveys undertaken
for NRV3 (described in RP9). Table 3.1 synthesises some of the quantitative and
qualitative results from these surveys.
TabIe 3.1: HousehoIds-at-risk assessment
Typology Risk assessment
Normative
Subjective Duration:
measure:
measure:
long-term
30/40 rule feel stressed problems
Renters
Strugglers/
Backsliders
Pragmatists
Aspirant
purchasers
Affordability problems, no
foreseeable way out
Affordability problems, but short-
term
At risk of affordability problems
Yes Yes Yes
Yes Yes Mixed
Yes No No
Purchasers
Stretched
Focused
Ambivalent
Affordability problems, no
foreseeable way out
Affordability problems, but short-
term
At risk of affordability problems
Yes Yes ?
Yes Yes Mixed
Yes No No
These surveys focused on locations where, according to census data, there are high
proportions of stressed private renters and home purchasers. Although the surveys
cannot claim to be representative, they do provide the basis for determining a lower
bound estimate of the numbers of households in housing stress for whom housing
affordability problems are a reality, not just a risk.
16
This is the focus of this section. t
provides indicative estimates of the extent to which housing stress leads to housing
affordability problems.
The evidence reported in RP9 suggests that the 40 per cent of renters classified as
trapped (made up of 30 per cent of Strugglers and 10 per cent Backsliders)
experienced a number of the problems outlined in section 3.3. Their current housing
circumstances, which they have experienced for some time and perceive as on going,
causes them stress. n Table 3.1, they are described as having no foreseeable way
out of the affordability problems that arise from their being in housing stress. n Figure
3.4 they are grouped with the small core of stretched purchasers (representing 5
25
10per cent of those surveyed) as households with severe housing affordability
problems and, therefore, of immediate policy concern.
The 30 per cent of Pragmatic renters are described in Table 3.1 as having short-term
affordability problems. This is possibly a sanguine interpretation since their
pragmatism often arises from a sense of resignation and from coming to terms with
trade-offs they are forced to make. They are not in a position to save or to build
assets. Because of the significant trade-offs they are forced to make in order to meet
their high housing costs, Pragmatic renters and Focused purchasers are classified in
Figure 3.4 as experiencing housing affordability problems.
The remaining households the 30 per cent of renters who are Aspirant purchasers
and the 40 per cent of purchasers who are Ambivalent are described in Table 3.1 as
being at risk of experiencing housing affordability problems. They are coping in that
currently they are managing the stresses that high housing costs impose upon their
limited budgets. They are, however, at risk of experiencing the types of affordability
problems that are associated with having no discretionary income, no capacity to save
and inadequate resources to meet unanticipated expenditures.
Figure 3.4 combines the qualitative data reported in RP9 and the quantitative data
reported in RP3 to provide indicative estimates of the number of households in these
three categories.
17
Figure 3.4: Housing stress and housing affordabiIity probIems
approx 25%
(200,000 households)
Coping but at risk
approx 50%
(450,000 households)
Housing affordability
problems
Housing stress
(862,000 households)
approx 25%
(200,000 households)
Severe housing
affordability problems
The 200,000 or so households at the bottom of the figure are currently experiencing
severe affordability problems. These are the trapped renters and a small proportion of
stretched purchasers. The 450,000 in the middle group are households whose high
housing costs force them into making trade-offs that place them under considerable
strain. They, and the 200,000 households at the top of the table who are classified as
coping, are at risk of experiencing severe housing affordability problems. They have a
relatively fragile capacity to cope with any future changes that will affect their housing
costs in relation to their capacity to pay. Examples of such changes are increases in
interest rates or rents. A change in household circumstances is another example.
Many of these changes are beyond their control.
A number of these risk factors were highlighted in Chapter 2. Their potential impact
on households currently experiencing or on the threshold of a housing affordability
problem are covered in the following chapter.
26
4 WHY IS HOUSING AFFORDABILITY IMPORTANT?
The results reported in the previous chapter provide evidence of the extent of the
housing affordability problem and the range of effects on households. t concluded
with the claim that the likelihood that households in housing stress will have an
affordability problem is influenced by a number of factors. These were described in
Chapter 2 as factors that increase the systemic risk that affordability problems will be
greater in the future than they have been in the past. n the main, they relate to the
greater flexibility that has been the hallmark of the new economy, and to the
economic, social and structural changes that have been associated with these
changes. This chapter examines the potential impact of some of these changes.
Before doing so, however, it presents a wider assessment of why housing affordability
is important and why it should be viewed as a pressing policy concern.
4.1 Economic and sociaI impact
Housing affordability is important not just because of the costs borne by the individual
households experiencing high housing costs, but also because it imposes costs on
the wider economy and society. The research undertaken by NRV3 focused primarily
on the former, as many of the social outcomes were identified in the systematic review
undertaken for NRV1. However, social outcomes identified by the research were
reported in the previous chapter. For example, some of the coping strategies
employed by those with housing affordability problems (such as frequent moves) can
contribute to a lack of social cohesion. (RP9)
The economic costs that add to the wider explanations of why housing affordability is
important are covered below. These add to the risks associated with failing to
address the problems of affordability as they become increasingly oppressive.
Housing affordability potentially has an impact on economic outcomes in a number of
ways. n the first place, it can affect the macro economy. n the second place, a lack
of affordable housing may affect the efficiency with which labour markets operate at
both a national and regional level, and particularly in the large metropolitan areas in
Australia. Thirdly, it has a very significant impact on wealth distribution in our society
and therefore can contribute to social and economic problems that flow from an
inequitable distribution of resources. n other words, housing affordability affects the
economy through its impact on stability, efficiency and equity.
4.1.1 Impact on the macro economy
Australia as a middle-ranking, open economy is vulnerable to interest and exchange
rate shocks. The operation of the housing market impinges centrally on these
parameters.
Excessive debt burdens undertaken by home purchasers in response to high
house prices can make households more sensitive to interest rate increases. To
meet their increased mortgage payments, households may cut back on
consumption, thus creating a potential for greater economic instability. (RP4)
High house prices that render home ownership unaffordable for many first home
purchasers add to housing wealth for existing home owners and can contribute to
increased aggregate demand both directly and indirectly through providing the
basis for equity withdrawal (which, in turn, adds to increased debt and to the threat
of interest rate changes bringing about a severe credit squeeze). (RP4)
High house prices may also contribute to inflationary pressures. (RP4)
27
All of these make it more difficult to manage the economy.
To the extent that intensifying housing stress increases the risk that house price
movements will increase the overall volatility of the economy, problems of housing
affordability should attract the attention of economic policy makers at the national
level.
4.1.2 Impact on economic efficiency
A lack of affordable housing also can affect the efficiency with which labour markets
operate at both national and regional levels, and particularly in the large metropolitan
areas in Australia. There are a number of ways in which such outcomes might arise.
High housing costs, for example, may be reflected in rising wage levels that feed
back into rising housing prices in a region, although the precise nature of the
causal processes are unclear. f pronounced, this can undercut the competitive
advantage of firms locating in the region. (RP5)
Differentials in affordability between areas may create labour market impediments
by inhibiting migration to high-employment, high-cost locations and, conversely,
encouraging migration to low-employment, low-cost areas. (RP5)
Both of these processes of labour mobility and immobility have the capacity to
contribute to a spatial mismatch between jobs and workers, particularly in relation to
the availability of lower-paid workers in high-cost global cities. They stem from
imperfections in spatial housing markets and can hinder the emergence of an efficient
spatial economy (that is, one where resources are used in ways that would maximise
Australia's growth).
While the risks of spatial mismatch are very real, the evidence of the extent to which
there is a mismatch in Australia arising from housing affordability problems remains
inconclusive. t remains an open question as to whether or not a potentially mobile,
mixed and uncertain supply of lower-paid, 'flexible' labour will adequately meet the
functional needs of the globally oriented economy centred in the core areas of the
major cities.
4.1.3 Impact on distributional equity
High housing costs and low affordability have their corollary in substantial increases in
the asset levels of residential property owners and therefore a widening of the wealth
distribution between them and the sizeable minority of non-residential property
owners.
Processes of gentrification that have pushed much affordable housing to the fringe
of urban areas and regions have contributed to a tendency towards spatial
polarisation. (RP5)
ntergenerational equity is compromised by the increasing disparities between
those who gain access to home ownership and those who do not as a result of the
high cost of access to owner occupation. (RP10, RP11)
ncreasing disparities in wealth add to the risks of a loss of social cohesion.
ncreasingly polarised cities foster defensive behaviours, not just by those in areas of
deprivation, but also by more affluent citizens who may demand housing estates and
building forms constructed on principles of safety and security (eg gated
communities). This in turn can undermine a sense of wider citizenship as people
retreat to, and structure a life around, their own small, gated world and ignore their
broader social obligations.
28
n summary, the evidence presented in Chapter 3 and in this section of Chapter 4
provides a compelling case for suggesting that housing affordability is important
because of:
The known impact it has on individual households and the consequent risk it
imposes on the achievement of social objectives
The risks it imposes on achievement of broader economic goals of stability,
efficiency and equity.
4.2 Risks
4.2.1 Risk as a motivation for concern over housing affordability
The evidence reviewed so far provides a rationale for why high housing stress is
important and should be a matter for concern. t focuses on the risks associated with
the outcomes of poor housing affordability.
Table 4.1 summarises some of the potential risks arising from possible future trends in
relation to affordability outcomes. t focuses on possible outcomes for individual
households in housing stress and at risk of facing resultant housing affordability
problems (as identified in the typology presented in Chapter 3) and the economic and
social system as a whole (as discussed in section 4.1).
Among the systemic risks identified, one key theme included in the table concerns the
risk of increased social polarisation, a situation that might arise if increasing house
prices and interest rate rises were to lock an increasing proportion of households out of
the home ownership market (eg Aspirant purchasers). This in turn could lead to
labour market pressures as these households relocate to other areas. f the social
contract of access to home ownership for a large group of households disappears, the
resultant social polarisation also could lead to increased friction between owners and
non-owners. n turn, this might create a political problem for governments.
A second theme relates to the risk of economic destabilisation arising from the impact of
economic change on purchaser households. n cases where there is a reasonably
sharp increase in interest rates, there could be a tendency for home purchasers to
struggle to retain their home. n addition to the obvious pain for households, this
could also put pressure on financial institutions, particularly those institutions with
large loan books of low-documentation loans.
A third theme focuses specifically on the impact on individual households. The NRV3
research points to a large body of trapped renters. This group would be particularly
vulnerable to increases in rents. Their response to this may lead to increased churn in
the rental market and a desire to seek cheaper housing on the fringe and, therefore, to
additional financial and environmental costs of travel. ncreases in fuel costs may also
put more pressure on the financial situation of these low-income households.
POLICY IMPLICATIONS
The findings of this extensive study make a compelling case for the need for
governments to ameliorate the housing affordability stress currently being
experienced by many lower-income renters and, to a lesser extent, marginal home
buyers, and to improve housing affordability conditions in Australia in the long-term.
This chapter draws out the broad principles that follow from the research findings,
provides examples of some illustrative policies that satisfy these principles and signals
some of the wider policy actions needed to promote affordable housing.
5.1 PoIicy directions
5.1.1 Policy principles
A number of general principles to guide a strategic policy response to the challenges
of declining housing affordability can be drawn from the analysis and evidence
presented in this study. The policy principles that derive from the main conclusions of
this study are listed in Box 5.1.
Box 5.1: Research findings and poIicy principIes
Main conclusions Policy principles
Housing affordability is a large and
widespread problem.
Additional policies and outlays will be needed
to offset housing affordability problems.
Causes of affordability problems are complex
and diverse. Major driving factors can be
found both within the housing system and
beyond it.
An integrated set of policy responses capable
of addressing the range of factors that
contribute to poor affordability will be
required.
Both housing policy action and action in other
policy arenas will be required.
Housing affordability is a structural problem. While housing assistance can address the
housing stress of individual households and
provide a safety net for those at risk, it will be
insufficient to overcome the underlying
causes of declining affordability.
Housing affordability problems are predicted
to increase in the first half of the 21st century.
Sustained action will be required to prevent
housing affordability problems worsening.
Affordability problems have specific spatial
and cyclical dimensions.
Policy responses need to be tailored to
different local market contexts and to be
responsive to changing economic conditions.
A strategic framework that guides the actions
and priorities of different players will be
required, in order to promote cohesive action
and to avoid fragmentation of policy
responses.
Households most at risk of facing the multiple
problems that arise from a lack of affordable
housing are lower-income households in the
private rental market.
Policy responses to the needs of individual
households should give greatest attention to
those in the private rental market.
37
Main conclusions Policy principles
ndividual households experience and
address housing affordability problems in
different ways.
Providing a range of choices and options is
desirable to meet differing household needs
and aspirations.
Policies that assist households to obtain
affordable housing should as far as possible
be designed to be responsive to their
individual needs and to adjust to changes in
those needs.
Housing markets have failed to provide an
adequate supply of affordable housing for
lower-income households.
Policies to promote efficiency in the housing
market and to support a greater permanent
supply of affordable housing should be given
greater weight than is currently the case.
While housing provides shelter, it also
influences non-shelter outcomes for individual
households, such as workforce participation,
access to jobs and services, family stability
and educational attainment.
The goal of improving housing affordability
needs to be aligned with other relevant
objectives of governments.
Declining affordability has implications for
economic performance and labour market
efficiency, social cohesion and polarisation of
cities, environmental considerations and the
creation and distribution of wealth through
home ownership.
Failure to address housing affordability
problems will jeopardise the achievement of
wider government goals.
5.1.2 Current policy settings
NRV3 research did not include a direct review of how current policy settings affect
housing affordability. However, the findings of the research point to key weaknesses
and limitations in current approaches to assisting households to access and maintain
affordable housing.
For instance, it is apparent from the quantitative and qualitative analysis of
affordability that the current core housing policies that operate to assist lower-income
home buyers and renters are not adequate.
Current forms and levels of government assistance for lower-income aspirant
purchasers and struggling first home buyers are unlikely to provide many in these
groups with a path to affordable and sustainable home ownership.
The large Commonwealth Rent Assistance (CRA) program has alleviated housing
affordability problems for many renters but has not prevented a growth in the
number of private renters in housing stress and leaves hundreds of thousands of
households (comprising both recipients and non-recipients of CRA) with severe
affordability problems. Any pressures on rents could mean that blunt instruments
like this are less effective in the next housing market cycle.
Targeting social housing and other measures of assistance tightly on those with
the highest needs has created a gap in assistance for those households (such as
low-wage workers) for whom a smaller amount of financial support or additional
well-located additional affordable housing could provide housing closer to labour
market opportunities and/or lift them out of housing stress.
As there is insufficient capacity to maintain or expand the provision of social
housing under current funding arrangements, this traditional source of low-cost
supply is retracting. This is leaving many very low income renters who are eligible
38
for social housing stranded in the private rental market, where they face ongoing
unaffordable rents.
Changes to allocation policies, which have reduced access to public housing for
many lower-income families starting out on the housing ladder, have eroded the
capacity of these families to save for home ownership.
The regulatory framework in the private rental market does not address the needs
of long-term renters.
n the broader environment, policies that affect housing have contributed to the
increased risk of affordability problems. For example:
Relaxation of regulation of home lending practices has been one factor
contributing to the growth of heavily indebted marginal home buyers with greater
vulnerability to housing stress.
Current approaches to planning and managing residential development and urban
renewal in our major urban and regional areas are not sufficiently directed to
promoting a wider range of affordable housing options and to generating more
socially mixed communities.24
Tax policies that directly affect demand for and investment in housing (see RP10)
are not geared to protecting or promoting the affordable end of the market. Under
recent market conditions, tax provisions and changes to them have tended to act
against affordability goals by overstimulating housing investment and adding to
the demand for owner-occupied housing.25
Limited coordination between federal, state and local government policies that
affect affordability outcomes weakens overall efforts to address the problem.
5.1.3 A new policy framework
To achieve effective and sustainable improvements in housing affordability for
individual households in stress and for future generations, governments across
Australia now need to adopt a balanced set of policy reforms under a common vision,
purpose and framework for implementation.
A coordinated cross-government response that applies both housing policy tools and
other policy levers will be required, to address the needs of individual households and
to redress systemic housing market problems.
Specific housing policy tools will be appropriate to alleviate housing stress and to help
to offset patterns of social and economic exclusion that are often associated with
situations of unaffordable housing. However, the qualitative research findings of this
study indicate that a more nuanced and flexible housing policy approach than in the
past will be needed, to respond to differing experiences of housing affordability
problems and the diversity of effects these may have on people's lives and
livelihoods. Accordingly, a variety of new policy options (designed to achieve
improved outcomes for low-income renters and marginal home buyers in housing
stress, as well as those at risk of severe stress) are suggested in section 5.2.
However, a broader set of policy actions (beyond housing) will also be required, for a
more lasting impact on the housing affordability challenge. The complex interactions
between housing policies and macro policy settings provide a strong rationale for
arguing that housing should be a core area of interest for government as a whole. n
particular, policies that influence economic development and labour market
performance, fiscal and monetary policies, transport planning and infrastructure
provision, population policies and settlement planning, income support policies, and
agendas to improve urban and regional sustainability, need to give greater emphasis
39
to addressing housing affordability problems among other goals. t is through
adjustments in these key areas that actions to alleviate housing stress in the short-
term will be buttressed by broader strategies that can address the underlying causes
and wider impact of deteriorating housing affordability.
Figure 5.1: Macro drivers of housing affordabiIity outcomes
Labour market
policies
Fiscal and
monetary policies
ncome support & retirement
incomes policies
Regional economic
development
Housing
affordability
outcomes
Urban and regional
planning
Transport
policy
Population policy &
settlement planning
Sustainable
communities & regions
The evidence of the structural nature of the housing affordability problem presented in
RP3 and RP10 (and summarised in Chapter 2) and future projections (RP11) show
that housing affordability problems will continue and deepen.
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t is only with an
overarching public policy goal of steadily and consistently improving the affordability of
the housing market over time, using both housing policy tools and other policy drivers,
that governments may be able to contain the endemic affordability problem and,
thereby, curtail growth in the need for ever more direct housing assistance measures,
as well as manage the risks to the economy posed by persistent house price inflation.
Thus macro policy settings, in particular, must take greater account of the need to
reduce the pressures on house prices in the medium- and long-term.
Not only are more diverse and proactive strategies required but also these must be
developed and implemented cohesively. Stronger coordination and cooperation
between agencies and spheres of government will be essential, to:
Ensure that actions outside the housing policy arena do not have adverse effects
on housing affordability
Prevent fragmentation of the effort directed towards tackling affordability across
different government bodies
Encourage more integrated approaches to interventions on the supply and
demand side and to the delivery of different forms and mixes of housing
assistance.
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5.1.4 Specific objectives
Primary and supporting objectives for a new affordable housing policy model were
developed as part of this study (see RP7 and Box 5.2). The proposed objectives
represent a set of broad goals to drive a policy agenda consistent with the policy
principles that have been derived from the research findings. The objectives
recognise the specific purposes and processes behind ways of providing more
affordable housing and also acknowledge a range of other desired economic, social
and spatial outcomes that are potentially affected by how affordable housing is
produced, financed and delivered. Adoption and application of these objectives by
governments as part of a coordinated national approach will lead to specific policies
that can address the housing risks and problems being experienced by individual
households, provide overall improvements in housing affordability and boost the social
and economic benefits to both individual households and the broader community that
arise from having more appropriate and affordable housing.
Box 5.2: PoIicy objectives for a nationaI affordabIe housing poIicy framework
Primary objective
Affordable housing To improve access to existing housing that is affordable for both low-
and moderate-income households and those with specific housing
needs in housing affordability stress (the target groups).
To preserve and add to the supply of affordable housing where it is
needed for the target groups.
Supporting objectives
Appropriate
housing
To ensure that housing provided is appropriate to the needs and
changes in needs of the target groups in response to:
size and type of household
cultural needs of households
occupant circumstances (eg need for support services; stability)
locational needs of households.
To provide well-designed housing and neighbourhoods.
To contribute to the environmental sustainability of dwellings provided to
the target groups.
Participation To enable the target groups to participate in decisions about affordable
housing policies, products and projects.
Positive non-shelter
outcomes
To ensure that target groups have sufficient residual income after
paying for housing to meet their non-shelter needs at a socially
acceptable standard.
To provide affordable housing in ways that can strengthen the economic
and social position of the target groups. Consideration should be given
to:
incentives for workforce participation
support for family life and work/family balance
ways of supporting the health, wellbeing and education needs of
occupants
enabling ageing in place
development of socially cohesive communities and community-
building processes.
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Choice To diversify the housing and tenure options available in local housing
markets and to provide the target groups with adequate choice.
Equity To target any subsidies that are provided to the target groups in
proportion to need.
To give priority of assistance to those most in need.
Long-term benefits To retain and use any benefits gained from investing in housing for the
target groups to meet the needs of future generations.
To progressively improve the capacity of the private and the not-for-
profit sectors to provide affordable housing.
Unintended effects
avoided
To avoid as far as possible any unintended effects of the way in which
initiatives intended to improve the affordability of housing are
implemented. (For example, to avoid measures that contribute to a
sudden surge in demand and a consequential short-term boom in house
prices.)
Efficiency To use any subsidies that are provided to access, procure, manage and
maintain housing in the most cost-effective way.
To support and contribute to the efficient operation of the housing
market.