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Affordable Housing for the Weaker Sections By K. L. Dhingra, Chairman & Managing Director, HUDCO

Shelter is a basic human need next only to food and clothing. The global human settlements strategy as envisaged in the Habitat Agenda envisions a world devoid of shortage of shelter. The objective stresses on the participation of various stakeholders and interest groups in the decision making process, co-operation of political, financial and technical functionaries and partnerships among public, private and community sectors in implementation.

The economically weaker sections are the backbone of the society and provide much of the services, which make the cities run effectively and improve the quality of life of its citizens. They provide support to cities in the provision of informal services and act as reservoirs of cheap labour. However, the society hardly recognizes their contribution and they are unable to find a place for themselves while they contribute their mite to make cities function.

As of now, 11% of world’s urban population lives is in India. 27.8% of the country’s population resides in urban areas which is a figure of 285 million. Also 26.7% of the total poor in the country live in urban areas which implies 80.7 million persons or about one-forth of the country’s total urban population. With the growing population and economic empowerment of weaker sections, there will be an increasing requirement in the future for construction of new ‘pucca’ and ‘semi-pucca’ houses. In addition, there will be a continuing need for renovation, conversion of ‘kutchha’ to pucca/ semi-pucca houses as well as housing requirements to address congestion and obsolescence.

As far as the provision of housing for the higher and middle-income groups is concerned, the private sector has taken the lead and is ably delivering the same. The government on its side has given considerable fiscal concessions to the housing sector, which is also one of the primary reasons for the spurt in housing activity.  But in this scramble for real estate development, the poor and the economically weaker sections are left out to a large extent. The housing shortages comprise largely of requirements for the economically weaker sections, while the government and its agencies have been able to deal with the issue to a considerable extent, the role of other stakeholders remains as important. 

EWS is currently defined in a single dimensional manner in terms of household income. As per the present HUDCO definition a household with an income of below Rs. 3300 per month is categorized as EWS. A household with income of Rs 3300 would possibly be able to spare about Rs 500 for housing. Hence it is important to lay down the affordability range for EWS. This is important, as no sustainable financial closure for EWS housing can take place without assessing the strength of EWS to meet part of the cost (i.e. the affordability) and then meeting the balance through viability gap funding by the central/state governments.

The involvement of the private sector in an effective Public-Private-Partnership is an essential component to ensure housing delivery targeted for the weaker sections. With viability gap funding provisions, the government is effectively facilitating such partnerships. Some constraints in why urban poor lack access to housing finance financing are poor credit profiles, lack of documented income proof, lack of clear titles to the land, lack of permanent residence / locations and requirement of long loan tenures. Banks don’t find it lucrative to directly finance slum housing projects and most of finance channelised through schemes of public agencies. The urban poor can access only informal sources (money lenders) at exorbitant rate but now MFIs are also playing key role. Social collaterals provide the security for repayment of loans provided under micro-finance.

Problems plaguing social housing sector also relate to collaterals and repayments. The government’s direction on capping state government guarantees has resulted in difficulty in procuring government security for projects. Therefore, the option of specifically earmarking a portion out of the state government guarantees for social housing may be explored.

However, the lack of availability of developed land, particularly in urban areas, has remained the prime factor hindering the increased housing activity. Land availability could also be increased through appropriate use of innovative methods of land assembly such as land pooling, land readjustment, etc. A heavy disincentive for vacant lands could also enable release of considerable land for urban housing, particularly in view of the fact that 10% of the land in urban areas has been estimated to be lying vacant.

Social housing is usually taken up by public agencies and acceptable land documents are not available for many large properties that they own, thereby making mortgages difficult. Also, better recoveries need to be addressed through regular persuasion and follow up with the involvement of local communities and undertaking mass awareness programs.

Also, rising construction costs are beyond the affordable capacity of the economically weaker section and low income group population and a large cross section of the middle income group, whose income levels have not increased commensurately. Therefore, there is a need to adopt cost-effective technologies by upgradation of the traditional technologies and local materials as well as using appropriate and intermediate technologies using modern construction materials with efficient and effective technology inputs. The emphasis needs to be on advocating using locally available materials, improved construction systems, the use of local labour and skill, and adopting options which are least energy consuming and environment sensitive and cost effective.

The housing sector has an important role in ensuring prolific and sustained economic growth. The convergence of the efforts of the various stakeholders such as public, private, corporate, co-operative, community and individual sectors would be instrumental in giving a significant thrust to housing sector. The imminent need is to overcome the hurdles and create an enabling environment to facilitate the growth of housing especially for the weaker sections of the society.

The multi-fold agenda, as envisaged in the new draft ‘Urban Housing and Habitat Policy, 2006’ focuses on aspects such as developed land, access to infrastructure, affordable finance, appropriate technology, fiscal incentives and legislative interventions.  The policy leading to increased investments and associated reforms in housing sector would contribute to building the nation “brick by brick”, along with the direct, indirect and induced effects in rejuvenating the economy.

Role of HUDCO in Housing Delivery in India

In order to supplement its efforts for housing and urban development, the Government entrusted the task of techno-financial assistance to Housing and Urban Development Corporation Ltd. (HUDCO).  The Housing and Urban Development Corporation Ltd (HUDCO) is the premier National techno-financing institution in the field of housing and urban development, established by the Government of India in 1970. Significantly, HUDCO has facilitated the construction of over 1.41 crore dwelling units all over the country with its techno-financial assistance. HUDCO has become the largest facilitator of housing units across the globe, accounting of 1/16th of the total housing stock in India.

Cumulatively till end March, 2008, HUDCO has sanctioned a total of 15,982 schemes involving a total project cost of Rs.26,46,75 crores. HUDCO's loan commitment for the schemes is of the order of Rs.80463 crores.

HUDCO was an expression of the concern of the Central Government with regard to the deteriorating housing conditions in the country and a desire to assist various agencies in dealing with it in a positive manner. The principle mandate of HUDCO was and still remains, to ameliorate the housing conditions of all groups with a thrust to the needs of the Low Income Group (LIG) and Economically Weaker Sections (EWS).

To meet its social housing obligations, HUDCO has successfully adopted differential pricing. In order to meet its social obligations, it has funded private sector above its base rates and the government bodies have been funded at marginally below the base rates. This has helped it to maintain interest spreads with which it meets the requirements of the LIG and EWS housing. As a result, it has managed to fund EWS and LIG sector much below its base rates.

Today HUDCO has emerged as the premier national techno-financing institution with the major objective of financing/encouraging the housing activity in the country and alleviating housing shortage of all groups in rural and urban areas and along with the development of urban infrastructure facilities. HUDCO extends assistance benefiting the masses in urban and rural areas under a broad spectrum of programmes that include housing, infrastructure, building technology, consultancy services, research and training. The other special initiatives organised by HUDCO include setting up of Model Villages (Adarsh Gram), Model Improved Slums (Adarsh Basti) with a convergence approach and Special Building Centres in each of the States /Union Territories in the country.

Although 55% of housing finance resources is allocated for weaker section housing, almost 95 % of the dwelling units sanctioned by HUDCO are benefiting Economically Weaker Sections (EWS) and Low Income Group (LIG). HUDCO has taken a number of steps to see that the houses built for all families remain well within their repaying capacity.

Considering the income brackets, HUDCO has evolved ceiling costs and loan limits for EWS and LlG linked with affordability and prevailing cost of construction for various geo-climatological contexts. Coupled with ceiling cost and 55 per cent of housing resources allocation for EWS and LlG, HUDCO has been able to sanction over 95 per cent of the houses for these income groups.

The government of India appointed Hudco as the organization through which to channelize its grants for various schemes for habitat development. Hudco’s contribution in centrally sponsored action plan schemes includes massive contribution to 2 million housing programme (2MHP), Night shelters, Valmiki-Ambedkar Awas Yojana and Jawaharlal Nehru National Urban Renewal Mission. Hudco has also contributed to policy initiatives by participating in the making of the National Housing and Habitat Policy and National Slum Policy.

Hudco’s motto is profitability with social justice. Hudco is the only organization in India that has focus primarily on housing for the weaker sections and alongside offers loans for construction of dwelling units for the economically weaker sections. It cross-subsidizes these rates with higher rates for other schemes. There is a constant endeavour to devise new systems to continue this cross-subsidization in today’s changing markets.

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