AMITY GLOBAL BUSINESS SCHOOL-MUMBAI Summer Internship Under
Topic On Housing Affordability..A 21st Century Problem
Submitted by : Abhishek Shrivastav Enrollment Nos: A30206410012 BBA + GDBA( 2010 -2013)
UNDER THE GUIDANCE OF PROF Ms.Bhavna Mehta
1st Page: Same as cover page 2nd Page : Declaration- (Signed by Faculty guide ) 3rd Page : Certificate from company ((Signed by Company Mentor/ Guide) 4th Page : Acknowledgements 5th Page : Contents 6th 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 ( Font Type – Times New roman) (Font Size – 12, 1.5 spacing)
ACKNOWLEDGEMENT This project is the outcome of sincere efforts, hard work and constant guidance of not only me but a number of individuals. First and foremost, I would like to thank AMITY MUMBAI for giving me the platform to work with such a company. I am thankful to my faculty guide Ms. BHAVNA MEHTA, AGBS MUMBAI for providing me help and support throughout the internship period. I owe a debt of gratitude to my company guide Mr.MANISH KIRPEKAR, Asst.General Manager Technical,Mr.Ramrathinnam General Manager(Credit), Deewan Housing Finance LTd,Bhavesh Prajapati,Rohit Maurya who not only gave me valuable inputs about the industry but was a continuous source of inspiration during these two months, without whom this Project was never such a great success. I would also take the opportunity 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 industry for which I am highly grateful. Last but not the least I would like to thank all my Faculty members, friends and family members who have helped me directly or indirectly in the completion of the project. Abhishek Shrivastav BBA + GDBA (2010 – 2013) AMITY MUMBAI
TABLE OF CONTENTS S. No. Particulars
Page No.
1.
Introduction to the organization
3-8
2.
Introduction to the project
9
3.
Objective
9
4.
Literature Review
9-10
5.
Methodology
10-14
6.
Results and data analysis
14-32
7.
Conclusion and recommendations
32-34
8.
Limitations
34
9.
Appendix 1
35-37
10.
Appendix 2
38
11.
Appendix 3
39
INTRODUCTION General introduction.
Housing is one of the basic human necessities. It is fundamental for the physical, psychological, social and economic well being of people. Shelter isone of the most basic needs of the people. All over the world the having thehouse is major problem and continuous efforts have been made to meet thee v e r i n c r e a s i n g n e e d s o f e a c h g e n e r a t i o n , w h i l e t h e p r o b l e m o f p r o v i d i n g h ousing is highly critical in the developing countries. Most of the advanced countries also face this problem in varying degrees and dimensions.A l m o s t a l l g o v e r n m e n t s , i t m a y b e d e v e l o p e d , d e v e l o p i n g o r underdeveloped country their object is every citizen of their country shouldhave a one decent house in a suitable living environment. Housing as a formof reproducible wealth and is a asset of the people and their country.C o n s t r u c t i o n o f h o u s e i n I n d i a h a s b e e n o n e o f t h e m o s t i m p o r t a n t problem, as a result of high growth of population. It has very difficult to fill thegap between supply and demand of houses. Housing is a important factor for d e v e l o p m e n t i n b o t h e c o n o m i c a n d w e l f a r e t e r m s . I t i s n o t o n l y a g o o d consumption but also a productive investment.So for that, they need financial supports for construction of their ownhouse.
Specific Introduction
Solving the housing problems in India, the Government and Private financial institutions are started their business to give financial assistances to people. "The National Housing Bank" has started its business to giveassistance and provide financial support to their people.T h e " DEWAN HOUSING FINANCE CORPORATION LTD ", popularly known has DHFL has commenced its business to provide financialassistant and support to their customers. The DHFL is providing loan for all the people. This company’s main products are Home loan, Home Extension loan,Home Improvement loan, leased Rental finance, Mortgage loan etc.,The DHFL's Shimoga branch is providing loan for all salaried persons,self employed persons, business people, agriculturists, fishermen's and all typesof people who want loan to build their own house in all over Shimoga.DHFL also has the special schemes facility known as, "Swarna JayanthiR u r a l H o u s i n g F i n a n c e S c h e m e " t o m a r k t h e g o l d e n j u b i l e e o f I n
d i a ' s independence. The scheme seeks to provide improved to access housing loansto borrowers of constraints/ acquisitions/ up gradation of housing rural areas of the country.
COMPANY PROFILE
Introduction D H F L i s a h o u s i n g f i 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. The journey began on the 11th of April 1984. On this day, RajeshKumarWadhawan began his mission to correct what had troubled him for years, the sad truth that most Indians couldn't get a housing loan on fair terms.The Founder Chairman saw the owning of a home as a critical element to the b u i l d i n g o f i d e n t i t y a n d c o n f i d e n c e o f e v e r y I n d i a n . D H F L w a s o n l y t h e s e c o n d h o u s i n g f i n a n c e c o m p a n y s e t u p i n I n d i a . A n d i t s s t a t e d b u s i n e s s objective was unusual to say the least, to provide access to housing finance tol o w e r a n d m i d d l e i n c o m e I n d i a n s . M o s t e x p e r t s l a u d e d M r . W a d h a w a n ' s a l t r u i s m b u t s h o o k t h e i r h e a d s a t h i s a p p a r e n t l a c k o f b u s i n e s s a c u m e n . Especially as in the beginning DHFL disbursed funds from its own equitycontribution and had a return on equity of less than 8% at a time when the interest rates were about 18%. But that is the difference between those who seethings as they are and the visionaries who see things as they can be. Over twodecades later, DHFL is still profitably doing what its founder intended it to do.DHFL has disbursed loans amounting to over 53 billion, its non performing assets are the lowest in the industry. The Founder Chairman had a unique andtimeless insight into the character of the majority of Indians who are generallydismissed as high credit risk. They respond unequivocally to trust. They have avery emotional relationship with the idea of an ‘own home.’ To them it isn’t ani n v e s t m e n t . I t i s a s a n c t u a r y . A s y m b o l o f w h o t h e y a r e . T h e y w i l l n o t d o anything to jeopardize this symbol of security. This insight was the prime mover behind DHFL.
Today, DHFL has an asset base of over Rs. 3,580 crores with a strong presence across India through its 72 branches and 116 service locations. DHFLcaters to a large section of Indians working in the Middle East through its over seas branch in Dubai. Vision
Transform lives of Indian households by enabling access to home.
Mission
Be easily accessible to every Indian who desires to own a home.
Understand our customer’s inner needs and speak their language.
Go to any length to make sure our customers don’t feel intimidated.
C o n t i n u o u s l y c o n f i g u r e o u r c r e d i t p o l i c y t o m a k e s u r e t h e m a x i m u m number of people can be eligible for loans.
Find ways to help our customers tide over difficult times
Spread our network to every corner of India
Respond promptly and courteously to all enquiries.
Values
Treat all our customers with dignity and respect.
Be totally transparent in all our dealings.
Strive to be a learning organization.
Dedicated to team excellence and employee happiness
Be single mindedly committed to the betterment of our society
PRODUCT PROFILE Dewan Housing Finance Corporation Limited, this is a company whicho f f e r s t h e f i n a n c i a l s e r v i c e s t o t h e p e o p l e . T h e c o m p a n y o f f e r s i n t a n g i b l e packages in the form of financial services, which are not the physical goods asthe product of the company.The main business and aim of the Dewan Housing Finance CorporationL t d , i s p r o v i d i n g l o n g t e r m l o a n s t o i n d i v i d u a l s , c o o p e r a t i v e s o c i e t i e s , Corporate bodies and associations of persons for the purpose of acquisitionconstruction and improvement of the residential houses.DHFL offers different types of Housing loans schemes i.e. Home loan,Home Extension loan and Home Improvement loan etc., PRODUCTS DHFL Home Loans DHFL Home Loans are offered to Individuals, Co-operative Societies,Corporate bodies and Associations of Persons.T h e h o m e l o a n s e e k e r c a n a v a i l l o a n s u p t o R s . 100,00,000/- but note x c e e d i n g 8 5 % o f t h e c o s t o f 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 after taking into account factors like repayment capacity, age,e d u c a t i o n a l q u a l i f i c a t i o n s , s t a b i l i t y a n d c o n t i n u i t y o f i n c o m e , n u m b e r o f dependents, co-applicant's income, assets, liabilities, saving habits etc. Thetenure of the loan ranges from 1 to 20 years. The term however does not extend
4. Literature Review
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. In 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, HIA, UDIA) 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 Institute (AHURI), they have identified that there are 862,000 households in Australia experiencing housing stress.
A survey of 159 major markets in Australia, Canada, Ireland, 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 Income 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 (19952005) 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 ”.
UDIA’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. UDIA 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). In a previous report, UDIA (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 REIA (2007) points out, “the affordability problem has been caused by a broad range of complex factors including policy inaction by various levels of government”. In 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. In 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. HIA (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.
Internationally, 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. In their submission to the review, the Home Builders Federation (HBF) stressed that land supply is the key to sustainable housing (Anonymous, 2007).
Finally, UDIA (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
GROWTH OF HOUSING REQUIREMENTS AND HOUSING FINANCE IN INDIA
ABSTRACT
In a developing country like India, many institutions operate with varied objectives, in various sectors of its economy. Some of these institutions provide it with a strong industrial base while some others conduct their operations to provide financial base to sustain the pace of economic growth. The latter category included financial institutions, which are required to manage finance for other institutions. Finance is the life blood of almost all the activities, involved in operating an economy. The housing finance institutions, as a whole, may be said that precursor of the new era of finance. The existing housing finance institutions though have done pioneering job in the nation building but in recent years it has been felt that they have not been able to shoulder that social responsibility, to a desirable extent. Indeed, this was the very crux of establishing the housing finance institutions in the country so as to improve the standard of life the major chunk of the rank and file.
Man is a social creature, which brings some amenities like food, clothing, and shelter mandatory for his existence. Generally after food and clothing, shelter is an important benchmark for the existence of the human being. The rate of inflation has played its part in changing the mindset of people, now not a palatial accommodation but a small house is perhaps the dream of millions of people. The standard of living can be judged by the adequacy of housing but millions of people are still vagrant in our country as well as in the world, so there is a very wild housing problem in our nation and world also. It is well known that the housing problem in India is alarming problem in both rural and the urban areas. To overcome this problem some financial institution are coming forward to provide money to public. In present, housing finance
companies provides loans to individual person, association of person, firm, company, corporations, union or state government and municipal or any local or public authority for purchase of house or land, construction, maintenance, reconstruction, improvement and development of house property, building, flat, office, shop, factory and warehouse etc. There are some housing finance companies such as Housing and Urban Development Corporation Limited (HUDCO), Housing Development Corporation Limited (HDFC), Life Insurance Corporation of India (LIC) Housing Finance Limited, Bank of Borada Housing Finance Limited, Deewan Housing Finance Corporation Limited, State Bank of India (SBI) Housing Finance, Canara Bank -
INTRODUCTION It’s the serendipity that we are born in the breed that is known to be the most adroit among all living being. We are known for acumen but are it sufficient. Man is a social creature, which brings some amenities like food, clothing, and shelter mandatory for his existence. Generally after food and clothing, shelter is an important benchmark for the existence of the human being. Shelter is a basic human need next only to food and clothing. The rate of inflation has played its part in changing the mindset of people. Now not a palatial accommodation but a small house is perhaps the dream of millions of people. The standard of living can be judged by the adequacy of housing but millions of people are still vagrant in our country as well as in the world. So there is a very wild housing problem in our nation and world also. It is well known that the housing problem in India is alarming problem in both rural and urban areas. To overcome this problem some financial institution are coming forward to provide money to public. “The need to have a roof over our heads dates back to the time when our ancestors first left the shelter of the trees for life on the open areas. They either built a simple shelter or found an unoccupied caves in which people lived. But unfortunately, life today, is more complicated than that. In our industrialized urban areas, when it comes to finding somewhere to live, our choices are limited to renting a dwelling or buying one, more often than not with the help of a housing loan.” After this they lived in huts. For making dwelling units people took loans. For this purpose in previous century, there was housing finance provided by mahajans, sahukars and moneylenders. But unfortunately, today taking loans is more complicated than it was during our past time. In recent years we have banks and corporate HFC’s for this purpose. Against the milieu of rapid urbanization and a changing socio-economic scenario, the demand for housing has grown explosively. The importance of the housing sector in the economy can be illustrated by a few key statistics. “Housing property forms an important share of the total wealth of households in India and an estimate made put it to be as high as 28% of the household property.” “A study made by the United Nations reveals that developing countries like India should go in for the annual construction rate of least 8 to 10 dwelling units per thousand populations
in the ensuing 2-3 decades to prevent further deterioration of housing situation. The observation deserves greater attention in the context that at present only 2 or 3 dwelling units is being constructed for a population of 1,000 per year.” It has been estimated that as against the requirement of 5 dwelling units per one thousand populations per year due to growth of population along, the net addition to the housing stock was only 2-3 dwelling units per thousand per year up to 1971. Between 1971- 1981 this rate increased to 4 dwelling per thousand per year. The need for improvement in the existing standards and replacement of old stock further adds to the housing shortage.
IDENTIFICATION OF THE PROBLEM We dream of living in an affluent society, to take the first step towards achieving it, proper accommodation is mandatory. Which in turn is a behemoth problem in Indian scenario? The problem of housing is not unique for India alone but it is pandemic. This problem has led to large scale housing shortage both in the rural and urban areas especially among the poor and miserable communities. The housing problem has been further accentuated with the increase in population in the country. The shortage of housing in India persists since independence. Against the milieu of rapid urbanization and a changing socio economic scenario the demand for housing has grownup explosively. According to the National Building Organization the total demand for housing is estimated at 2 million units per year and total housing shortfall is estimated to be 19.4 million units in both the rural and urban areas.
OBJECTIVES OF THE STUDY 1. To study the net resources invested by housing finance company in India since their incorporation. 2.
To find the area where efficiency can be improved.
3.
To locate the area where cost reduction is possible.
4.
To make possible the efficient and effective utilization of resources.
RESEARCH METHODOLOGY The proposed study, "Growth of Housing Requirements and Housing Finance in India" will be based both on primary and secondary data. The primary data will be collected through questionnaire and personal interviews with the official of the housing finance companies
concerned. The secondary data will be collected through published financial. The data thus collected will be tabulated, classified and grouped for the purpose of interpretation, analysis, finding and conclusions.
HYPOTHESIS In the course of study the following hypotheses will be tested:a. The positive growth is registered by housing finance industry in India. b. There is no significant difference between the growth and requirement of housing finance companies in India. c. The efficient working of the housing finance companies will have common men to have confidence in the housing finance industry. d. The trend has moved in favor of the private sector with regards to the total resources investment by the housing finance companies.
LIMITATION OF THE STUDY The proposed study is bound to have a few limitations. Firstly, the analysis and measurement of growth of housing requirements would be based on primary and secondary data so the limitations or shortcoming of primary and secondary data affects the conclusion and results of the study. Secondly the study is subjected to general human limitations.
HOUSING POLICIES With a view to solve this problem of housing there was a need of a well-organized National Housing Policy. It is encouraging to note that efforts have been made to establish housing enterprises and institutions at the national and state levels such as the Central Building Research Institution and the National Building Organization and State Housing Boards. The major financial institutions in the area of housing, operating either directly or through agencies dealing with the housing sector, can be broadly classified into two groups, depending upon whether housing finance is their primary field of operation or a secondary or incidental function. “The formal sources of housing finance in gist comprise (1) budgetary allocations by the Central and State Government, including market borrowings, (2) general financial institutions namely the Life Insurance Corporation, the General Insurance Corporation and its four subsidiaries, the Provident Fund, National and State Municipal Finance Corporations, and the Commercial Banks & Credit Institutions. The involvement of these in housing finance is rather incidental or secondary and hence they keep aside a specified portion of their funds at the disposal of the housing sector, (3) specialized housing finance institutions as the name suggests include mainly the NHB, the HUDCO, Apex and Cooperative Finance Institutions, in the public sector HDFC and few other housing finance companies set up in the private sector.” Although housing is primarily a State subject, the Central Government has been formulating National Housing Policies to provide guidance to the State Government to meet the growing housing shortage. The GOI has had schemes and projects for the housing problem in every five years plan but there was no such housing policy for the country as a whole before 1988. This process started in 1986. As a follow-up of the Global Shelter Strategy, NHP was announced in 1988. The long term goal of the NHP was to eradicate house-lessens, improve the housing conditions of the inadequately housed and provide a minimum level of basic services and amenities to all. The role of government was conceived, as a provider for the poorest and vulnerable sections and as a facilitator for other income groups and private sector by the removal of constraints and the increased supply of land and services. In 1991, India adopted a more growth oriented view of economic development by emphasizing that it must integrate with the global economy. In pursuance of this, it reduced custom duties and welcomed FDI in several sectors of the economy. The NHP
1994 was a product of this economic point of view. The 1994 Policy sought to increase
supply of land serviced by basic minimum services with a view to promoting a healthy environment. The National Housing & Habitat Policy, 1998 laid greater emphasis on the aspect of Habitat as a supplementary focus to housing. The emphasis on providing housing continued in this policy with emphasis on both quality and cost-effectiveness especially to vulnerable sections of society. The policy envisages a shift in the government’s role from a builder to an enabler, with the government committed to remove barriers like access to land, finance and technology and forging strong public-private partnerships to accelerate the pace of house construction mainly for the disadvantaged sections. NRI’s/PIO’s are permitted to invest up to 100% in the following housing and real estate development projects: • Development of serviced plots and construction of built up residential premises. • Real estate covering construction of residential and commercial premises including business enterprise centers and offices. •
Development of townships.
•
City and regional level urban infrastructure facilities, including both roads and bridges.
•
Manufacture of building materials.
•
Preparatory ventures in these above and
•
Investment in housing finance institutions.
It means, 100% FDI’s permitted to development of integrated townships (Including housing, commercial premises, hotels, resorts etc) requires prior government approval. The ‘National Urban Housing & Habitat Policy’ 2007, has been formulated keeping in view the changing socio-economic parameters of the urban areas and growing requirement of shelter and related infrastructure. The policy seeks to promote various types of public-private partnerships for realizing the goal of Affordable Housing for all with special emphasis on the urban poor. The National Urban Housing & Habitat Policy, 2007 seeks to enhance the spotlight on habitat with a regional planning approach as well as further deepens the role of government as a facilitator and regulator. Moreover, the new policy lays emphasis on earmarking of land for the EWS/LIG groups in new housing projects. The policy lays emphasis on Government, retaining its role in social housing, so that affordable housing is made available to EWS and LIG of the population.
The Policy envisages specific roles for the Central Government, State Governments, local bodies, banks & HFC’s, public agencies. The housing problem has been viewed as a serious issue. It is also a fact that housing cannot be considered in an isolated sector and therefore, there is an urgent need to co-ordinate action by different ministries viz. Works and Housing Industrial Development. Finance and Labour and other related departments to solve the problem of housing in an integrated way.
“In India there was no such problem as housing till 1941. It was only after in 1951 when the deficit trend was started and which is continuing with an escalating magnitude. As per the estimate of National Building Organization there has been a deficit of 2.11 crore houses in our country during the year 1981 and the deficit increased to 2.47 crore (1.88 crore in rural area and 0.59 crore in urban area) by the end of March 31, 1985. The deficit is increased to 3.13 crore in urban area) the end of 1991 and likely to increase 4.16 crore units by 2000 AD (1.61 crore in urban areas and 2.55 crore in the rural areas).” The Policies of Urban Development and Housing in India have come a long way since 1950’s. The pressure of urban population and lack of housing and basic services were very much evident in the early 1950’s. The positive aspects of cities as engines of economic growth in the context of national economic policies were not much appreciated and, therefore, the problems of urban areas were treated more as welfare problems and sectors of residual investment rather than as issues of national economic importance.
ROLE AND OBJECTIVES OF NATIONAL HOUSING POLICY The basic role, objectives of the NHP are: • To assist all people and in particular the houseless and inadequately house and vulnerable sections, to secure for themselves affordable shelter through access to developed land, building materials, finance and technology. • To create an enabling environment for housing activity by eliminating constraints and the developing an efficient system for delivery of housing inputs. • To expand infrastructure facilities in rural and urban areas in order to improve the environment of human settlement, increase the access of poorer households to basic services and to increase the supply of developed land for housing. • To undertake, within the overall context of policies for poverty alleviation and employment, steps for improving the housing situation of the poorest sections and vulnerable groups by direct initiative and financial support of the state. • To help mobiles resources and facilitate expansion of investment in housing in order to meet the needs of housing construction, up-gradation and augmentation of infrastructure, and
• To promote a more equal distribution of land and houses in urban and rural areas and to curb speculation in land and housing in consonance with the macro-economic policies for efficient and equitable growth. Though the draft NHP is yet to take a final shape, the shelter sector has been recognized as an important vehicle for economic activity and provides the most direct and indirect employment in the semi urban and urban areas. For achieving the basic objectives of NHP, the government should take initiative for directing the activities of public agencies towards increasing the supply of serviced land for various groups and
essential purposes with the preponderant proportion for the poor sections. The major weakness of the national housing policy, however, lies in the fact that the policy does not set any time bound targets owing to resource constraints. But without commitment, the policies remain only on paper. Various tax incentives proposed in the draft policy for private sector and NRI investment in the housing sector that cannot solve the problem to any significant extent.
Table: Plan Outlay in Housing and Urban Development Sector (Rs. in crore) Percentage share in the total 2.36
Five Year’s Plan First Plan
Total Outlay 2,068.80
Housing & Urban Development 48.80
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
Fourth Plan
15,900.00
2700.20
1.70
Fifth 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 Eleventh Plan
1,525,639.00 3,644,718.00
40500.00 36870.00
2.65 1.01
Sources-mhupa.gov.in (modified) Table shows there is a fluctuation in the sanctioned amount of plans. In the First Five Year Plan (1951-56), the emphasis was given on institution building and on construction of houses for Government employees and weaker sections. The Ministry of Works & Housing was constituted and National Building Organization and Town & Country Planning Organization were set up. A sizeable part of the plan outlay was
spent for rehabilitation of the refugees from Pakistan and on building the new city of Chandigarh. An Industrial Housing Scheme was also initiated. The GOI had introduced the Centre Subsidy Scheme to the extent of 50% towards the cost of land and construction. The scope of housing program for the poor was expanded in the Second Plan (1956-61). The Industrial Housing Scheme was widened to cover all workers. Three new schemes were introduced, namely, Rural Housing, Slum Clearance and Sweepers Housing. Town & Country Planning Legislations were enacted in many states and necessary enterprises were also set up for preparation of master plans for important towns. Government had earmarked in the second five years plan, substantial portion of its funds towards expansion of infrastructure, which had resulted in development of housing sector. The general directions for housing programs in the Third Plan (1961-66) were co- ordination of efforts of all agencies and orienting the programs to the needs of the LIG’s A Scheme was introduced in 1959 to give loans to State Governments, for a period of 10 years for acquisition and development of land in order to make available building sites in sufficient numbers. Master Plans for major cities were prepared and the State capitals of Gandhi Nagar and Bhubaneswar were developed. During the period from 1966 to 1969 owing to unstable Government, there had occurred a plan holiday, which had affected the growth of housing sector. The balanced urban growth was accorded high priority in the Fourth Plan (1969-74). The Plan stressed the need to prevent further growth of population in large cities and need for decongestion or dispersal of population. This was envisaged to be achieved by creation of smaller towns and by planning the spatial location of economic activity. HUDCO was established to fund the remunerative housing and urban development programs, promising a quick turnover. A Scheme for Environmental Improvement or Urban Slums was undertaken in the central sector from 1972-73 with a view to provide a minimum level of services, like, water supply, sewerage, drainage, street pavements in 11 cities with a population of 8 lakh and above. The scheme was later extended to 9 more cities. The Fifth Plan (1974-79) reiterated the policies of the preceding plans to promote smaller towns in new urban centers, in order to ease the increasing pressure on urbanization. This was to be supplemented by efforts to augment civic services in urban areas with particular emphasis on a comprehensive and regional approach to problems in metropolitan cities. A task force was set up for development of small and medium towns. The Urban Land (Ceiling & Regulation) Act was enacted to prevent concentration of land holding in urban areas and to make available urban land for construction of houses for the MIG and LIG’s. The thrust of the planning in the Sixth Plan (1980-85) was on integrated provision of services along with shelter, particularly for the poor. The Integrated Development of Small and Medium Towns was launched in towns with population below one lakh for provision of roads, pavements, minor civic works, bus stands, markets, shopping complex etc. Positive inducements were proposed for setting up new industries,
commercial and professional establishments in small, medium and intermediate towns. The sixth five years plan clearly states that the provision of shelter is a basic need. The objectives in respect of housing in the plan were; (1) Provision of house sites and assistance for the construction of dwelling for rural landless laborers. (2) In view of the severe constraints of public resources, public sector social housing schemes have been designed to benefit the maximum number of people. (3) Specific efforts must be made to secure reduction in cost in public housing schemes by using cheap and alternative building materials. The Seventh Plan (1985-90) stressed on the need to entrust major responsibility of housing construction on the private sector. A three-fold role was assigned to the public sector, namely, mobilization for resources for housing, provision for subsidized housing for the poor and acquisition and development of land. The NHB was set up to expand the base of housing finance. NBO was reconstituted and a new enterprise called Building Material Technology Promotion Council was set up for promoting commercial production of innovative building materials. A network of building centers was also set up during this plan period. The Seventh Plan explicitly recognized the problems of the urban poor and for the first time an Urban Poverty Alleviation Scheme known as Urban Basic Services for the Poor was launched. During the year 1990-91 there was a plan disturb because of shortage of funds. In the backdrop of this report the Eighth Plan (1992-97) for the first time explicitly recognized the role and importance of urban sector for the national economy. While growth rate of employment in the urban areas averaged around 3.8% per annum, it dropped to about 1.6% in the rural areas. The Plan identified the key issues in the emerging urban scenario: • The widening gap between demand and supply of infrastructural services badly hitting the poor, whose access to the basic services like drinking water, sanitation, education and basic health services is shrinking. • Unabated growth of urban population aggravated the accumulated backlog of housing shortages, resulting in proliferation of slums and squatter settlement and decay of city environment, and •
High incidence of marginal employment and urban poverty as reflected in NSS
43rd round that 4.18 crore urban people lived below the poverty line. The Planning Commission suggested modification of the Housing policy to incorporate affordable housing program for the BPL category. Considerable efforts were made during Ninth and Tenth Five Year Plans to enlarge the resource base and initiate innovative institutional mechanisms to augment housing delivery in urban areas. Focused efforts were also initiated to cover the poor and vulnerable groups of society to enable them to access basic shelter related services. Fiscal concessions coupled with legislative measures were also initiated to encourage increased investments in housing by individuals and corporate. The National Common Minimum Program has stated that housing for weaker sections in rural areas extended on a large scale. The Tenth Plan, therefore, had suggested
provision of free housing only to the landless SC/ST families and shift to a credit-cum subsidy scheme for the other BPL families. The repeal of the Urban Land (Ceiling and Regulation) Act, 1976 has been a significant step towards reform in the urban land market. Following the repeal of the central legislation, a number of state governments had also repealed the state-level law. Having identified housing as a priority in the Ninth Five year plan (1997-2002), the NHP has envisaged an investment target of Rs. 15880.00 crore for this sector. In order to achieve this investment target, the Government needs to make low cost funds easily available and enforce legal and regulatory reforms. In order to improve the quality of life in urban areas, the Eleventh Five Year Plan (20072012) has stressed the need for improved housing stock through urban renewal, in city slum improvement and development of new housing stock in existing cities as well as new townships. Furthermore, the Bharat Nirman Program has also recognized and accorded due priority to the need to end shelter. The Program has set a target to construct 60 lakh houses from 2005 to 2009. The housing component under the Program is being implemented in parallel with Indira Awas Yojana scheme. For the Eleventh Plan, the focus is on targeting the poorest of the poor. Till June 1982, the following social housing schemes had been taken up in the country (I) Integrated Subsidized Housing Scheme for Industrial Worker’s and EWS of Community 1952, (ii) Low Income Group Housing Scheme 1954, (iii) Subsidized Housing Scheme for Plantation Workers 1956, (iv) Middle Income Group Housing Schemes for State Government Employees 1956, (v) Slum Clearance/Improvement Scheme 1956, (vi) Village Housing Projects Scheme 1957, (vii) Land Acquisition and Development Scheme 1959 and (viii) Provision of House Sites to Landless Workers in Rural Areas 1971. From July 1982, the existing Social Housing Schemes, except the subsidized housing scheme for plantation workers, which continue to be in the central sector and the scheme for provision of houses sites to landless workers have been reclassified in 4 categories on the basis of income criteria as: (I) Housing Scheme for Economically Weaker Sections, (ii) Low Income Group Housing Scheme, (iii) Middle Income Group Housing Scheme and (iv) Rental Housing Scheme for State Government Employees. In the last four decades, the urban population in India has grown from about 7.00 crore to 60.00 crore. There has been a distinct decline in housing investment in proportion to the total investment. Around 20% of the population is either houseless or is seriously under-housed. That is a grim picture indeed, notwithstanding the fact that presently the total number of dwelling units in the country number about 12.50 crore (as per housing finance an unpublished document of HDFC). To bridge the current gap of housing alone we need about Rs. 80,000 crore at a conservative estimate at today’s prices. The estimate is only likely to increase with over the period.
In India, because of the lack of fund mobilization, the system of housing finance has remained largely undeveloped. In a workshop held under the aegis of the Housing and Public Work Committee of the FICCI and NHB, it was pointed out that an investment of about Rs. 190,000 crore was required for housing by the end of 2001. A study
conducted by FICCI revealed that an investment of Rs. 51,576 crore at December, 1989 prices would be needed during the Eight Plan. Financial experts have estimated that the public and private sectors have to invest an average of Rs. 15,000 crore during 199095 to meet the growing demand. Our endeavor here is to assess the financial measures being undertaken by the government towards the housing problems. Are these enough to mobilize the required level of investment, in the housing sector? If not, what new measures could be undertaken for enhancing the level of investment? With the growing recognition of housing finance in a developing economy like India, where housing finance industry has assumed all the more significance and presently over 400 entities, including HFC’s and nationalized banks, foreign as well as co-operative have entered the scene. In the market situation, there is room for many numbers of players to remain active. But it is important for a player to fulfill its obligations to its clients both in terms of disbursement made at a comparatively lower cost and also the quality of service. The HFC’s, which are approved by NHB and are taking NHB refinance, can improve their position of funds through the securitization route. Besides, though the service quality has improved overall there is need and scope for further improvement in this field. The HFC in the country is suffering mainly from the big cost of funds and even after reduction in rates of interest in the recent year, the rate of interest for the long terms loans is 5-6% more than rates in USA. The legal system of the country requires strengthening and also streamlining because this is necessary from the documentation point of view as well as for remedial actions for foreclosure of the loans in case of default The Apartment Ownership Act, Stamp Duty Act, Land Acquisition. Act, Transfer of Property Act, Regional Planning & Development Control Regulation Act, Rent Control Act, Housing Board Act, Urban Land Ceiling Act, Cooperative Act 2006, Negotiable Instrument Act 1881, The Indian Contract Act 1872, The Companies Act 1956, Code of Civil Procedure 1908, Criminal Procedure Code 1973, Banking Companies Act 1949, Banker Book Evidence Act and Indian Banking (Regulation) Act 1949 (Revised in September 1956) and Reserve Bank of India Act 1934 etc., which directly or indirectly have a bearing on the housing sector, needs to be modified and some sort of uniformity may be introduced.
1
OVERVIEW
This report provides an overview of the major findings that have emerged out of the third AHURI-funded National Research Venture (NRV3), Housing Affordability for Lower Income Australians. It identifies the major risks and challenges in relation to Australia’s housing problem in the 21st century, as well as drawing out policy implications.
The major conclusions of the three-year NRV3 research program are as follows:
Æ Housing affordability is a large and widespread problem.
Æ Housing affordability is a structural problem.
Æ Causes of affordability problems are complex and diverse. Major driving factors can be
found both within the housing system and beyond it.
Æ Housing affordability problems are predicted to increase in the first half of the 21st century as
a result of anticipated demographic and housing market changes.
Æ Affordability problems have specific spatial and cyclical dimensions.
Æ 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.
Æ Housing markets have failed to provide an adequate supply of affordable housing for lower-
income households.
Æ Individual households experience and address housing affordability problems in different
ways.
Æ While housing provides shelter, it also influences a raft of non-shelter outcomes for
individual households, such as workforce participation, access to jobs and services, family stability and educational attainment.
Æ 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.
Together these conclusions explain the title given to this report: housing affordability is a 21st century problem.
Figure 2.5: Determinants of housing affordability Supply of housing
Dwelling prices/rents
Affordability
Interest rates
Household income
Demand for housing
Demographic factors
2.3.2 Risk factors that can affect affordability outcomes
In addition to the underlying structural issues affecting housing affordability, which have been the focus of this chapter, a number of relatively recent changes have taken place that increase the systemic risk that affordability problems may be even greater in the future than they have been in the past, particularly for lower-income households. These 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 it.
Labour markets are less regulated than they were in the past. There is greater reliance on fixed-term contracts, part-time work and a casualised workforce, all of which put incomes of the working poor at risk. The steady growth experienced over the past decade has provided a strong element of protection against the risks that such changes impose on individual workers but there is no guarantee that the economic boom will continue or that it will continue to benefit all workers, including the low-skilled. A downturn will affect purchasers who depend on overtime or additional part-time work to pay their mortgage and aspirant purchasers who rely on this to help save a deposit.
Structural change has contributed to a reduction in the high rates of inflation and an associated nominal wage growth that dominated the economic environment in the 1970s and 1980s. In turn, this means that marginal home purchasers undertaking mortgages at the limit of what they can afford no longer can rely on inflation to reduce their repayment burden.
Household relationships are more flexible than they have been in the past and single-person households are becoming increasingly dominant. Any transition from a household with more than one income earner to one with one or no earners increases the risk that contractual housing costs will become unaffordable. Transactions costs can make it difficult for households to adjust to changed circumstances.
Æ Part of the rise in single person households is associated with the ageing of the population. Demographic change creates the additional risk that the existing dwelling stock does not reflect the needs of smaller and older households in relation to both form and location. Mismatches between what is appropriate and what is available can contribute to affordability pressures if households are unable to choose the type of housing that best suits their current needs. The ageing of the population brings with it a further risk associated with the pressures that arise if the current generation of workers are not outright owners by the time they reach retirement age.
The move from collective to individualised provision for retirement incomes via contributory superannuation schemes where payouts depend on fund earnings means households bear the risk of their retirement incomes being inadequate to meet both their housing and non-housing needs. Households constrained from gaining access to owner-occupation face the risk of higher housing costs in their retirement years than those faced by previous generations of retirees for whom home ownership has provided considerable protection from housing stress.
Tax incentives designed to encourage personal superannuation benefit high- income and highwealth households and run the risk of creating an economy in which income and wealth are even more unevenly distributed than at present. Such inequalities may impose greater pressures on the housing market than have been felt in the past and create additional affordability problems for those whose incomes and wealth have not kept pace with the national average.
Incentives designed to encourage investment in superannuation may also have the unintended consequence of reducing individual investment in the private rental market. Any reduction in such investment either will add to pressures on rents or will result in a reduction in the supply of rental dwellings at a time when an increasing proportion of the population are being discouraged from entering home ownership for either lifestyle or affordability reasons.
More generally, moves from collective to individual responsibility for health, education and retirement provision, to name just a few of the services that were centrally provided in the past, have meant that households face increased demands on budgets already squeezed by rising housing costs.
Æ Lower-income households seeking to avoid the burdens imposed by high housing cost ratios are forced to relocate to regions where housing costs are lower and where, in many cases, there is a general lack of services and where they may lose the support provided by family and community networks.
India According to the last census conducted in India in 1991, the country had a population of 846.3 million out of which 217.6 million lived in cities and towns. The total number of households was estimated at 153.2 million for the same year. As against this figure, the housing stock in the country was of the order of 148 million – 39.3 million units in urban areas (26.6%) and 108.7 million in rural areas (73.4%). During the period 1971-1991, while the number of households increased by 58%, the number of housing units went up by about 59%. Although India has been facing the problem of housing shortage for a long time, the increase in housing stock in recent decades has been more than that in the number of households. Table 1 portrays some salient data regarding the housing situation in India at the 1991 Census.
Approximately 40% of households in 1991 were in single room tenaments; about 30% lived in tworoom units. Only about 15% of households had four or more rooms. Table 2 shows the percentage break-up of households by the number of rooms occupied.
Table 1
Housing Situation in India: 1971, 1981 & 1991 Population & Households: Total Population (Million) Rural Population (Million) Urban Population (Million) Slum Population (Million) Total Households (Million) Rural Households (Million) Urban Households (Million) Household Size: Total Household Size: Rural Household Size: Urban Households per Dwelling Persons per Dwelling Housing Units (Million): Housing Stock: Total Housing Stock: Rural Housing Stock Urban Housing Shortage: Total Housing Shortage: Rural Housing Shortage: Urban
1971
1981
1991
548.20 439.10 109.10 97.10 78.00 19.10 5.65 5.63 5.71 1.04 5.89
683.30 523.80 159.50 27.91 123.40 94.10 29.30 5.54 5.57 5.44 1.06 5.86
846.30 628.70 217.60 46.73 153.20 112.50 40.70 5.52 5.59 5.35 1.03 5.72
93.00 74.50 18.50 14.60 11.60 3.00
116.70 88.70 28.00 23.30 16.30 7.00
148.00 108.70 39.30 23.90 14.67 8.23
Source: Government of India – National Buildings Organisation, Ministry of Urban Affairs & Employment: Prominent Facts on Housing 1997.
Table 2 Distribution of Households by Number of Rooms Occupied (Percent) One Room: Rural Urban Two Rooms: Rural Urban Three Rooms: Rural Urban Four or More Rooms: Rural Urban No Exclusive Room and Unspecified Rooms Rural Urban
1971
1981
1991
47.3 50.0
44.3 45.8
40.8 39.6
28.5 27.0
28.9 27.8
30.6 30.4
12.1 11.4
12.3 12.2
13.5 14.8
12.0 11.4
12.1 12.1
14.0 14.7
0.1 0.2
2.4 2.1
1.1 0.5
Source: Government of India – National Buildings Organisation, Ministry of Urban Affairs & Employment: Prominent Facts on Housing 1997. At the 1991 Census, more than 95% of the households living in rural areas had buildings of their own whereas the figure for urban areas was much lower – at 63.1%. However, over the period 1971-91 though the percentage of households owning buildings rose in both rural and urban areas, the rise in case of the latter was impressive – the figure going up from 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 of housing units in the country. During the decade 1981-91, the number of pucca (permanent) housing units increased by 64.64%, which is much higher than the growth of 53.39% occurring during the decade 1971-81. Over the period 1981-91, the number of semi-pucca houses declined by about 8% (from 6.80 million in 1981 to 6.23 million in 1991), while the number of kutcha (thatched, huts, etc.) houses showed only a marginal increase of about 6% (from 3.1 million in 1981 to 3.2 million in 1991). Table 3 provides some important information regarding the housing conditions in the country. Insofar as the provision of civic amenities is concerned, there have been considerable improvements in the access of people to such amenities over the years although shortages in housing and infrastructure do continue. Table 4 shows the percentage of households in the country as a whole having access to safe drinking water, toilet facilities and supply of electricity during the decade 1981-1991.
Table 3
Housing Conditions in India: 1971, 1981 & 1991 Tenure Status of Households (%) Owned: Rural Urban Rented: Rural Urban Type of Structure (%) Pucca: Rural Urban Semi Pucca: Rural Urban Kutcha: (Serviceable): Rural Urban Kutcha: (Unserviceable): Rural Urban
1971
1981
1991
93.8 47.1
93.0 53.5
94.5 63.1
6.2 52.9
7.0 46.5
5.5 36.9
19.0 63.8
21.1 64.6
33.0 75.8
37.0 23.5
37.6 24.3
34.2 15.8
32.0 12.7
29.0 11.1
22.8 8.4
12.0 -
12.3 -
10.0 -
Source: Government of India – National Buildings Organisation, Ministry of Urban Affairs & Employment: Prominent Facts on Housing 1997. Table 4 Access of Households to Basic Amenities: 1981-1991 Households having Safe Drinking Water Households having Toilet Facility Households with Electricity
1981 74.14%
1991 81.59%
57.4%
63.58%
61.6%
75.93%
Source: Government of India – National Buildings Organisation, Ministry of Urban Affairs & Employment: Prominent Facts on Housing 1997 Housing Shortage Housing shortage is estimated in terms of excess households over houses including houseless households, congestion (number of married couples requiring separate room/house), replacement/upgradation of kutcha/unserviceable kutcha houses and obsolescence/replacement of old houses. Table 5 shows the components of housing shortage in the country at the beginning of 1991. Table 6 shows the estimates of housing shortage in urban areas based on the Report of the Ninth Plan Working Group of the Government of India, Ministry of Urban Affairs & Employment
Table 5 Components of Housing Shortage: 1991
Million Units
Excess of Households over Houses including Houseless Households Congestion (No. of Married couples requiring separate Room/House) Replacement/Upgradation of Kutcha/Unserviceable Kutcha Houses Obsolescence/Replacement of Old Houses Total
Total 5.16
Rural 3.76
Urban 1.40
1.91
-
1.91
14.20
10.91
3.29
1.63
-
1.63
22.90
14.67
8.63
Source: Government of India – National Buildings Organisation, Ministry of Urban Affairs & Employment: Prominent Facts 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 for congestion and obsolescence of existing units Source: Ministry of Urban Affairs & Employment 1996. Report of the Working Group on Urban Housing for the Ninth Five-year Plan. Government of India, Delhi. India’s National Report for Habitat II Conference in Istanbul estimates that by 2021, the country would face a housing shortage of 44.9 million units and that the investment required for tackling this shortage over a period of 25 years at 1991 prices would be of the order of Rs.6580 billion. The Ninth Plan Working Group of the Government of India, Ministry of Urban Affairs & Employment estimated the new housing/old housing upgradation requirement at 16.76 million units for the 9th plan period (1997-2002). About 70% of the units are estimated to be required for the urban poor/economically weaker sections of society while about 20% is for lowincome groups. About 10% of the urban requirement is for addressing the middle and higher income group segments. It is estimated that for urban housing alone, the total requirement of investment would be of the order of Rs.1213.7 billion for 1997-2002 to address the housing shortage of 7.57 million, upgradation of 0.32 million semipucca Economically Weaker Sections (EWS) units and the additional construction of 8.67 million units. The total requirement of funds for urban and rural housing put
together for 1997-2002 was estimated to be of the order of Rs.1500 billion (see Table 7). Against this amount, about Rs.520 billion is likely to be available if the past trends of housing finance are assumed to continue. Table 7 Investment Requirement for Housing: Ninth Five Year Plan
(1997-2002) Segment Rural Urban Total
No of Units to be Constructed (Million) 162.5 176.6 330.1
Fund Requirement (Rs. Billion)
Likely Availability
290 1,214 1,504
180 340 520
Source: Government of India, Ministry of Urban Affairs & Employment: Ninth Plan Working Group on Housing (1996) Shortage in Civic Services In addition to shortage in housing, India is faced with the problem of inadequate civic services. The coverage in terms of organised sewerage systems ranges from 35% in small towns to 75% in large cities. According to estimates prepared by the Ministry of Urban Affairs and Employment, Government of India, only about 50% of the urban population had access to sanitation facilities in 1997-98. Approximately one third of the urban centres are not covered by proper drainage systems; storm-water drainage facilities are estimated to cover no more than 66% of the urban population. The National Sample Survey Organisation (NSSO) 44th round Survey (1988-89) reveals that 31.08% of the urban population does not posses any latrine/toilet facility. Only 66% of the urbanites have access to toilet facilities within their premises. Out of those urban residents having toilets, only 39.06% have a flush system, 37.49% a septic tank system and the rest service latrines. As estimated under the Low Cost Sanitation Programme of the Government of India, there are about 3.3 million dry latrines yet to be converted into water-borne toilets in the towns with a population of less than 500,000. It is estimated that 28% of the urban population do not have access to refuse collection and disposal services. A study in 1989 shows that the solid wastes collection efficiency (solid wastes collected as percentage of solid wastes generated) ranged from 82.8% in 6 metropolitan cities to 63.5% in 19 cities with population ranging from 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 After independence, housing was accorded a relatively low priority in the national development programme in India, presumably with the objective of keeping it basically a private sector activity. The low budgetary support given to the housing sector is evident from the fact that the First Five Year Plan of India allocated 7.4% of the total plan resources for housing; the share of housing in the subsequent plan resources ranged between 1.2% and 4.9%. The governmental agencies, however, played a strong supporting role for the provision of housing for the poorer sections of society, including allocation of land. Over the years there has been a gradual shift in
the role of the Government from a ‘provider’ to a ‘facilitator’, ensuring access to developed land, basic services, building materials, technology, construction skills and finance so that housing can be undertaken as a people's programme. The facilitating approach aims at fostering strong public-private partnerships with the provision of appropriate incentives to the private sector, promotion of housing finance institutions, propagation of alternate building materials and technologies and extension of support to NGOs, CBOs, co-operatives and the private sector. The Government of India and State Governments have adopted a two-pronged approach to housing development for the poor in the past, i. e., sites and services and
permanent housing. Under sites and services, basic infrastructure facilities like drinking water, internal roads, approach roads, drainage, community toilet, etc., were provided to develop layouts. The beneficiaries were also given construction assistance for erecting a small shelter. The permanent housing programme, which has replaced sites and services, was initially confined to those beneficiaries who could avail loan facility. Later, several modifications have come up in the programme to address the housing needs of different target groups. The broad elements of the approach of the Government of India to tackle the problem of housing the poor are: special programmes/targeted subsidy to the poor and vulnerable groups, loan assistance to governmental agencies/beneficiaries at below-market interest rate for housing and at normal rate for infrastructure through the Housing and Urban Development Corporation (HUDCO), creation of housing assets as part of employment and income generation programmes, promotion of cost-effective and ecofriendly building materials and technologies and creation of an enabling environment for private sector initiative. Indira Awas Yojana (IAY) is an example of housing for 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 of social atrocities, SC/ST households headed by widows and unmarried women, SC/ST households affected by flood, fire accident, earthquake, cyclone and similar natural calamities, freed bonded labourers, families/widows of personnel from defence services/para-military forces killed in action, ex-servicemen and retired members of para-military forces, persons displaced on account of developmental projects, nomadic, semi-nomadic and de- notified tribals and families with disabled members, subject to the conditions that these households belong to below poverty line category. As per the Government of India guidelines, IAY houses are being allotted in the name of the female member of family or alternatively in the joint name of both wife and husband. The programme is fully subsidised by the Government of India. Housing Programmes: Unit Costs The contents and unit costs adopted for various types of housing programmes differ between States and have been revised from time to time. Table 8 depicts the latest unit costs adopted by the State of Andhra Pradesh for the programmes implemented by it.
Table 8 Unit Cost Particulars of Housing Schemes: Andhra Pradesh (In Rupees) Scheme
Year
Unit Cost
(1)
(2)
(3)
Beneficiary Contribution (4)
1981
1000
1998-99 1998-99
Sites & Services Semi Permanent Rural Housing Rural Permanent Housing
Government Subsidy Loan
State
Central
Total
(5)
(6)
(7)
(8)
-
-
1000
-
1000
7500
500
-
7000
-
7000
17500
500
10000
7000
-
7000
Urban Permanent Housing Weavers Housing: (i) House-cum – Workshed (Rural) (ii)House-cum – Workshed (Urban) (iii) Exclusive Worksheds Workshed (Rural) Workshed (Urban) Rural Landless Employment Guarantee (RLEGP) Housing Beedi Workers Housing Fishermen Housing Indira Awas Yojana Housing: In Plain Areas In Black Cotton Soils Special Housing Cyclone Housing (i) By APSHCL (ii) By NGO’s a) 0-5 Kms. From Sea Coast b) In Other Areas Economically Weaker Sections (EWS) Housing Scheme for
1986-87
12,000
300
10700
1000
-
1000
1998-99
35000
4000
8000
5000
18000
23000
1998-99
45000
6000
14000
5000
20000
25000
1996-97 1998-99 1998-99
6000 9000 14000
500 2000
-
1500 2000 2000
4000 7000 10000
5500 9000 12000
1987-88
10200
-
-
2040
8160
10200
1998-99
18000
1000
6500
1500
9000
9000
1998-99
20000
1250
7000
-
-
11750
1996-97
16500
-
-
3300
13200
16500
1998-99 1998-99
20000 20000
500
12500
4000 7000
16000
20000 7000
1996-97
16500
-
10000
6500
-
6500
1996-97 1996-97
30000 20000
15000 10000
-
15000 10000
-
15000 10000
1998-99 1991-92
25000 4000
2000 -
20000 3000
3000 400
600
3000 1000
CGG Working Papers—4/2003 Housing & Shelter Upgradation EWS (Special Cyclone) EWS (Special) Township Housing Source: Andhra Corporation Ltd.
to 1996-97 1996-97 1998-99 1998-99
30000 30000 50000
Pradesh
State
4500 2000 2000
25500 25000 43000
3000 5000
-
3000 5000
Housing
Housing and Urban Development Corporation The Housing and Urban Development Corporation (HUDCO) was established as a fully- owned enterprise of the Government of India in 1970 with an equity base of Rs.20 million to function as a national techno-financial institution to promote housing and urban development. The objectives of HUDCO include the following: ƒ
To finance and undertake housing and urban development programmes in urban and rural areas; ƒ To finance and undertake either wholly or partly, the setting up of new towns or satellite towns covering infrastructure needs in urban and rural areas; ƒ To finance and undertake the setting up of building material industries; ƒ To provide consultancy services for projects of housing and urban development within the country and abroad. At present HUDCO has an authorised capital base of Rs.12.50 billion ($297 million), paid-up equity of Rs.8.98 billion ($213 million), reserve of Rs.5.75 billion ($136 million) and net worth of Rs.14.83 billion ($349 million). The total borrowings by HUDCO stand at Rs.121.68 billion ($2897 million). Thus the debt-equity ratio of HUDCO works out to 7.77. The key activities of HUDCO include: ƒ Lending for housing programmes through various schemes such as urban housing, rural housing, staff rental housing, cooperative housing, working women's housing, housing schemes through NGOs and CBOs and housing through private builders; ƒ Lending for urban infrastructure, including land acquisition for projects, integrated land acquisition and development, city level infrastructure water supply (rehabilitation, augmentation, new source development/transmission projects), sanitation (rehabilitation, augmentation, new sewerage and drainage projects, conversion of dry latrines, construction of 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 infrastructure (health, education, parks, playgrounds), commercial infrastructure (shopping centres, commercial complexes, office complexes), and integrated area development/new township projects, etc.; ƒ Consultancy services in the field of housing, township development and
infrastructure development; ƒ Promotion of Building Centres for technology transfer and support to building material industries; and ƒ Training in human settlements and technical assistance to borrowing agencies.
The borrowers of HUDCO are: State Urban Infrastructure Finance 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 far sanctioned 14821 projects with a project cost of Rs.48.51 billion ($11.54 billion). The amount of 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 far contributed to the development of 10.14 million dwelling units and 4.7 million low-cost sanitation units. HUDCO’s infrastructure financing portfolio is growing at a phenomenal rate. During the last 10 years HUDCO has sanctioned Rs.12.24 billion ($2.9 billion) for infrastructure projects covering water supply, sewerage, drainage, solid waste management, low cost sanitation, etc. HUDCO’s operations extend over 1,760 towns and thousands of villages in the country. Cost-effective & Eco-friendly Technologies Building materials account for about 60% of basic inputs in any housing programme and their costs can go as much as 75% of the cost of a house for low-income groups. There is a growing concern that persisting shortage of cost-effective building materials for the vast majority of population is a serious impediment to improving the housing conditions of the people. While popular traditional materials are short in supply, high demand for them has resulted in their high prices and taking them out of the reach of the poor. Most of the new alternate materials developed in recent past are cost-effective and environment-friendly. But they are yet to be translated into marketable products for mass application. Excepting cement and steel, all other materials required for housing are likely to have constraints of supply. Keeping the above aspects in view, the Government of India and State Governments have been promoting research in the fields housing and construction activities. This has led to a number of new alternative building materials and techniques aimed at reducing the cost of house construction and improving the performance of conventional building materials and techniques. Energy-efficient manufacturing processes and use of renewable raw material resources of wastes and byproducts of industry, agriculture and forestry, etc., have resulted in Cost-Effective and EcoFriendly (CEEF) products. As it was seen that the use of CEEF building materials and techniques was hampered by the general lack of understanding on part of beneficiaries due to ignorance and illiteracy, the Government has initiated a massive programme of demonstration, education and counseling for the poor. Rural masons are considered as the “rural housing engineers” by the beneficiaries and therefore, care is being taken to train and motivate masons in addition to beneficiaries. Building Centres Movement Recognising that the propagation and extension of new cost-effective, energyefficient and eco-friendly building technologies to the grassroots level require a
focused approach, a Centrally-sponsored scheme for setting up a national network of Building Centres (Nirmithi Kendras) was initiated in different States. Over 350 such
centres have already become fully operational. These Building Centres are promoting use of cost-effective building materials based on locally available raw materials and wastes. They provide a variety of services such as practical demonstration and propagation of new technologies, training of artisans, entrepreneurs and small contractors, counseling of householders and production of low-cost materials and components to meet the local housing construction needs. A large number of centres are also undertaking construction of housing projects and other public buildings. HUDCO provides funding support to Building Centres for setting up production units of new building materials and components. To encourage Building Centres in technology extension activities, the Government of India has exempted the levy of excise duty on materials and components produced by these Centres. The training to entrepreneurs in several States has led to setting up of their production units for lowcost 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 of the Government as facilitator rather than provider of housing services. The National Housing & Habitat Policy-1988 (NH&HP) is a continuation of the NHP. It calls for a housing revolution in the country and focuses on the changed roles of various stakeholders in the housing development process in the new economic environment of liberalisation and globalisation. The policy emphasises the need to persuade the private and cooperative sectors to take greater initiatives in the promotion and development of housing through fiscal concessions and other incentives. Though the move towards disassociation of governmental agencies from direct construction is being witnessed since the early 70s, the NH&HP calls for a continued positive role by the Government in housing of the poor. Rapid growth of population and increased urbanisation on one hand and escalating land prices on the other are responsible for widening the gap between demand for and supply of housing units. These factors squeeze the poor off land and marginalise them in urban housing markets. Recognising this, the NH&HP suggests a number of areas of intervention for governmental agencies to promote affordable housing for the poor, including availability of sites, housing loans at below-market rates, low-cost building materials and civic services. The broad aims of the National Habitat and Housing Policy-1998 (NH&HP) are: ƒ Creation of surpluses in housing stock either on rental or ownership basis; ƒ Providing quality and cost-effective housing and shelter options to the citizens, especially the vulnerable groups and the poor; ƒ Guiding urban and rural settlements to ensure planned and balanced growth and a healthy environment; ƒ Making urban transport as an integral part of the urban Master Plan; ƒ Using the housing sector to generate more employment and to achieve skill upgradation in housing and building activities; ƒ Promoting accessibility of dwelling units to basic facilities like sanitation and drinking water; ƒ Removing legal, financial and administrative barriers for accessing land, finance and technology for housing; ƒ Forging strong partnerships between private, public and co-operative sectors in housing and habitat projects.
The NH&HP envisages a key role for the Government of India in promoting policy and legal reforms, facilitating flow of resources to housing and infrastructure through measures such as fiscal concessions to investors and promoting the creation of a secondary mortgage market. The State Governments are expected to gradually withdraw from direct construction of houses, liberalise legal and regulatory regime to give a boost to housing and support infrastructure, promote private sector and cooperatives, and facilitate access of the poor to land, finance, low-cost and locallysuited engineering solutions and participatory designs. Two Million Housing Programme The National Agenda for Governance–the election manifesto of the present Government recognises Housing for All as a national priority. It has set a target for the construction of 2 million additional houses every year – 0.7 million in urban areas and 1.3 million in rural areas. A programme of this magnitude is expected to result in an investment of about Rs.80 billion in housing construction activity. This would also facilitate cement, steel and other building materials industries in addition to creating substantial employment in this sector. Every million of rupees spent by the construction industry generates about 75 man-years of employment. Recent Budgetary Initiatives In recent years, housing and construction have emerged as ‘top priority’ sectors for policy-makers. Faced with recession and slow-down of economic activities, the Government of India has realised the key role that construction Industry can play in jump-starting the economy and provide gainful employment to people. Housing construction has many forward 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 of 1998-99 and 1999-2000 have laid a great deal of emphasis on creating an enabling environment for housing activities in the country through the private sector. The measures initiated by the Union Budgets to boost up housing activities include: ƒ
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Additional equity support to HUDCO to the tune of Rs.1.92 billion in the 1998-99 budget and Rs.2.71 billion in the 1999-2000 budget of the Ministry of Urban Affairs and Employment and Rs.0.5 billion in the1998-99 budget of the Ministry of Rural Affairs and Employment. These measures augmented the equity base of HUDCO by Rs.5.13 billion in a period of just two years as against the infusion of Rs.3.85 billion by the Government of India over a period of 27 years from the creation of HUDCO. The addition of Rs.5.13 billion of equity would enable HUDCO to leverage about Rs.42 billion from the market for housing and urban infrastructure activities. HUDCO would be in a position to support the creation of 1.5 million houses each year out of which 1 million will be towards achieving the target under the Two Million Housing Programme; Extension of tax holidays for approved housing projects allowing a deduction of 100% of the profits for the first five assessment years and 30% deduction for another five years. This was made applicable to housing units upto 1500 sq. ft. in the budget of 1999-2000. The facility will promote private sector participation in housing activities;
Increase in deduction against income from house property for repairs and collection charges from 1/5th to 1/4th and increase in the deduction for interest on borrowed capital in the case of self-occupied property from Rs.15,000 to
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Rs.30,000 in 1998-99 budget. The latter figure was revised drastically to Rs.75,000 in the budget of 1999-2000. This will promote better maintenance of constructed housing stock in addition to promoting larger individual investments in housing; Enhancement in the percentage of incremental deposits into housing activities from the banking sector from 1.5% to 3% to enable inflow of Rs.3.8 billion for low-cost housing; Inclusion of micro-credit and tiny sector as part of priority sector lending of banks to give a fillip to weaker section/low-income housing; Extension of depreciation benefits in corporate employees housing from 20% to 40% to encourage corporate houses to take up housing for their employees; Repeal of the Urban Land Ceiling and Regulation Act in 1998 to free the supply of land for housing in urban areas, especially metropolitan cities.
Andhra Pradesh Model: Self-help & Mutual Help The State of Andhra Pradesh is a pioneer in India in implementing innovative housing programmes for the poor on a large scale. Though the A.P. State Housing Corporation Limited (APSHCL) was established in 1979 to formulate, promote and execute housing schemes for the weaker sections of society, the Corporation has constructed about 3.62 million houses by 31.03.2000 out of which 2.4 million are in rural areas. It ranked first in the country in the implementation of housing for the poor in rural areas from the year 1991–92 onwards. Households with an annual income of Rs.13,000 or less are eligible for sanction of houses under various schemes from 1996–97 onwards. 50% of the houses are earmarked for Scheduled Castes and Scheduled Tribes, 33% for Backward Castes, 7% for Minorities and the remaining 10% for other Economically Weaker Sections. The funding of the housing programme includes subsidy from the Government and loan from various financial institutions for the repayment of which the Government stands guarantee irrespective of the ultimate recovery from beneficiaries. Loans are mobilised from HUDCO, Life Insurance Corporation, General Insurance Corporation and Commercial Banks. The basic concepts and features based on which the entire Weaker Sections Housing Programme is being implemented in the State of Andhra Pradesh are: ƒ ƒ
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“Self-help and Mutual help” by the beneficiaries and their full participation in decision-making and implementation, consequently resulting in their capacity building; The concept of “Core House” which is easily expandable depending upon the improvement in the economic position of the beneficiary and his need. The adequacy of the accommodation is not relevant and it does not come in the way of implementation of the housing programme. The issue of adequacy of subsidycum-loan assistance is also irrelevant as the Government gives only a fixed financial assistance to the beneficiary; Cost-Effective and Eco-Friendly (CEEF) building materials and construction technologies;
Principal Bank Branch System (PBBS) in handling of finances. Amount due the beneficiary is directly credited to individual bank accounts of beneficiaries. One bank is designated as the nodal or principal bank for each scheme. The nodal bank promotes banking habit and thrift and credit among beneficiaries.
Some Directions for Future Although the National Housing and Habitat Policy emphasises the facilitating role of the
Government in housing, the public sector agencies are not absolved of the responsibility of providing housing to those segments of the people who cannot be served by the market. However, a new approach is called for issues such as beneficiary consultations on the location, design and cost aspects of shelter, affordable shelter options for the very poor, integration of income generation and housing, eligibility criteria for availing housing finance and providing a collateral for the same, easier availability of plots and houses from public and private providers, assistance for house construction, speedy approvals for construction of infrastructural services, simplification of documentation and procedures, etc. Housing subsidies often benefit the salaried employees of the organised sector including the Government and the recipients of tax concessions for housing investment. Implicit subsidies to beneficiaries of social housing schemes arise from loan waivers, low cost recovery rate, concessional interest and inefficiencies absorbed by the agencies. The schemes involving a combination of concessional loan and subsidy affect the extension of viable finance on non-subsidised terms, based on rigorously enforced cost recovery. These issues need to be re-examined. Part of the resources needed for the shelter of the urban poor could be diverted from current outlays by an objective review of all subsidies and mis-applied resources, and by channelling institutional finance. Additional resource mobilisation could be by a combination of measures to activate beneficiary savings and channelling loans on viable terms by financial institutions. These measures could be catalysed and leveraged by budget provisions for land and services, equity for housing agencies and support to open market lending on credit-rated terms. Steps are needed for avoiding the dispensation of ex-post and implicit subsidies, to provide for transparent and well-targeted subsidies, and to prevent the leakages of subsidies under government programmes and unwarranted fiscal concessions to better-off sections. Subsidies may perhaps be administered in the form of subventions through credible NGOs for group shelter activity and savings effort. The State governments need to adopt a state-wide policy on the regularisation of tenure and conferment of 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 of occupancy rights to slum-dwellers and providing support for progressive slum redevelopment and upgradation schemes. The slums and squatter settlements could be categorised as those needing urgent relocation, those that can be considered for conferment of occupancy rights/title and upgradation or redevelopment in situ, and those which can be provided with basic services without conferment of title. This categorisation process should be dovetailed with the process of Master Plan revision and formulation of flexible development planning norms. It would enable the relocation of slum-dwellers and change in land use plans to incorporate the regularised slums into the plan-scape of the city. Also, physical and social planning should be on city-wide basis so as to integrate the informal sector in the city's economy and social life. The State and city agencies need to be encouraged to formulate city plans for developing varied shelter options for the urban poor, such as the provision of essential services,
shelter upgradation and extension including toilets, renewal of congested inner city chawls, serviced sites for the poor, in situ redevelopment of slums with assistance of the private sector and co-operative involvement, night-shelter and sanitation facilities for the new migrant landless persons, relocation of families from sites urgently required for public purposes, and financial and technical assistance on a group or individual basis for incremental construction. In order to facilitate greater private and co-operative sector participation in housing activity, as well as public-private partnership, there is the need to: first, undertake legal reforms; second, to undertake land policy reform to provide easier access to developed land; third, provide suitable fiscal measures and incentives to encourage investment of
household savings in home ownership and to induce the corporate sector to invest in employee housing; fourth, carefully assign property rights and make them legally enforceable; fifth, create enabling institutions for providing an enabling environment by restructuring existing institutions and by creating new ones, if required; and sixth, widen the existing database for strategic planning to cover aspects relating to ownership of land and property, housing starts and completions, etc. With the Union Budgets for 1998-1999 and 1999-2000 according a new thrust to housing in the National Agenda for Governance, the Central and State Governments have initiated a reform agenda for housing sector reforms. The reform areas include the following: ƒ
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Public-Private Partnerships to ensure a fair return on investment to the private land owners/developers through guided development and availability of serviced sites for allotment to low income families at affordable prices. Fiscal incentives and provision of infrastructure can induce private sector entrepreneurs to housing including that for the poor; Measures to control the continuing spiral of land prices, speculation, shortage of developed land, and increasing pace of unregulated and environmentally damaging land development; Increased availability of developed land through measures such as reservation of 5% of the land in larger layouts as land bank for economically weaker sections and low-income groups, land pooling, land readjustment, etc., steep vacant land tax, etc.; Restructuring of Housing Finance Institutions (HFIs) to meet the housing finance needs of the formal sector as well as the poor and the informal sector. A revision of current eligibility norms that inhibit the flow of a significant proportion of funds from the formal sector to the poorer sections of the population is called for; Establishment of linkage with informal credit systems along with grant of security of tenure to slum-dwellers and reforms related to land title, building regulations, etc., with a view to assisting the poor with access to institutional finance for housing; Community resource mobilisation through schemes such as Insurance-Linked Savings-cum-Loan-cum-Subsidy scheme for shelter for the poor engaged in informal sector activities. Under the scheme for a nominal one-time premium of Rs.150 per house, the houses are insured for Rs.25,000 against damages due to fire, lightning, flood, storms, tempests, cyclones, etc.; Increased involvement of NGOs/CBOs/Cooperatives to promote self-help, mutual-help, thrift and credit, self-management, community empowerment, etc. There is a need for shifting to community-based non-subsidised loan mechanism, as
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adopted by Self Employed Women’s Association (SEWA) in Gujarat State, targeted at poor and sustained by beneficiary savings for shelter and group guarantee; Promotion of high density housing in selected areas in cities through appropriate amendments to zoning and land use regulations to obviate the necessity of costly land acquisition and to avoid high infrastructure costs; Adoption of small lot zoning in parts of large lot layouts making it mandatory on the part of developers to divide part of the lands being developed into small plots to make them available to poor beneficiaries; Promotion of rental housing through the balancing of landowner and tenant interest so that supply of rental housing at affordable rents is ensured and there is an incentive for people to build houses for themselves and for others; Propagation of cost-effective and eco-friendly building materials and technologies and up-scaling of innovative products to make them marketable and amenable for mass application; Municipalisation of programmes of poverty alleviation and slum-upgradation in urban areas to make elected Municipalities responsible for these functions and mobilise local support and effort.
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. It 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 problem? 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’. In 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. It 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 overestimate the extent of the problem. (RP3) It is also conservative for a second reason. It 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). Æ
In 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 households with unacceptably high housing cost ratios Unacceptable housing costs 16% = 1.2 m households
Housing stress = 862,000 households
Acceptable housing costs 84% = 6.5m households Æ
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.
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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:
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Æ 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 households at risk Lower income private renters
Incidence of stress (%)
100 Lower income purchasers
80 60 40 Moderate income private renters
Moderate income purchasers
0 0
100
200
300
400
500
600
Numbers in stress ('000s) Æ
In 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 lowerincome 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)
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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)
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Figure 3.3: Characteristics of selected lower-income households at risk 100
Single purchaser, 35-44
Single renter, 25-34
Incidence of stress (%)
80
60
Single renter, 35-44 Single renter, <25
Couple with children purchaser, 35- 44
Couple with children purchaser, 25-34
40 Couple with children purchaser, 45-54
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Single renter, 65+
0 0
20
40
60
80
Numbers in stress ('000s) Æ 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)
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In 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)
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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)
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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 Intergenerational Reports, there are likely to be at least half a million more households in housing stress than at present, increasing the number of lowerincome 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.
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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)
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Æ 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: Æ
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.
Æ 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: Æ The risk of being stigmatised with poor credit histories because of rental arrears Æ
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.
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Making trade-offs regarding dwelling quality and location which affect their access to employment, education and health services
Æ Having their future aspirations for ownership blocked Æ Fearing that there will be no relief from this stress in the foreseeable future.
Experiences for stressed recent purchasers include: Æ Fearing that an interest rate rise will mean they may not be able to meet mortgage
repayments and be pushed into foreclosure
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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
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For those on high loan to valuation ratios, fearing that any downturn in finances will put them in a position of negative equity
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Being unable to undertake essential repairs to their dwelling or to furnish the home appropriately
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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: Æ
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.
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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 homeownership 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 nonhousing 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 affordability problems 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. In 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) Indicative 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: Æ Strugglers – 30% (approx 140,000 nationally) Æ Backsliders – 10% (approx 46,000 nationally) Æ Pragmatists – 30% (approx 140,000 nationally) Æ Aspirant purchasers – 30% (approx 140,000 nationally)
Strugglers 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. Backsliders 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: Æ Stretched – 40% (approx 106,000 nationally) Æ Focused – 20% (approx 23,000 nationally) Æ 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. In 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. Ambivalent 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 5–10 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. Table 3.1: Households-at-risk assessment
Typology
Risk assessment
Normative measure: 30/40 rule
Subjective measure: feel stressed
Duration: long-term problems
Renters Strugglers/ Backsliders
Affordability problems, no foreseeable way out
Yes
Yes
Yes
Pragmatists
Affordability problems, but short- Yes term
Yes
Mixed
Aspirant purchasers
At risk of affordability problems
Yes
No
No
Stretched
Affordability problems, no foreseeable way out
Yes
Yes
?
Focused
Affordability problems, but short- Yes term
Yes
Mixed
Ambivalent
At risk of affordability problems
No
No
Purchasers
Yes
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. It 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. In Table 3.1, they are described as having no foreseeable way out of the affordability problems that arise from their being in housing stress. In 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 affordability problems approx 25% (200,000 households)
Coping but at risk
approx 50% (450,000 households)
Housing affordability problems
approx 25% (200,000 households)
Severe housing affordability problems
Housing stress (862,000 households)
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.
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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. It 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. In 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 social 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. In the first place, it can affect the macro economy. In 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. In 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. Æ
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)
Æ
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)
Æ High house prices may also contribute to inflationary pressures. (RP4)
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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. Æ
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. If pronounced, this can undercut the competitive advantage of firms locating in the region. (RP5)
Æ
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. It 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. Æ
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)
Æ
Intergenerational 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)
Increasing disparities in wealth add to the risks of a loss of social cohesion. Increasingly 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
In 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: Æ The known impact it has on individual households and the consequent risk it
imposes on the achievement of social objectives
Æ 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. It 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. It 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. If 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. In 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. In 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. In 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. Increases 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 Policy 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 policy principles 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
Individual 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. Æ
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.
Æ
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.
Æ
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.
Æ
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. Æ
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.
Æ
The regulatory framework in the private rental market does not address the needs of long-term renters.
In the broader environment, policies that affect housing have contributed to the increased risk of affordability problems. For example: Æ
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.
Æ
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
Æ
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
Æ
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. In 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. It is through adjustments in these key areas that actions to alleviate housing stress in the shortterm 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 affordability outcomes
Labour market policies
Fiscal and monetary policies
Income 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. 26 It 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: Æ
Ensure that actions outside the housing policy arena do not have adverse effects on housing affordability
Æ
Prevent fragmentation of the effort directed towards tackling affordability across different government bodies
Æ
Encourage more integrated approaches to interventions on the supply and demand side and to the delivery of different forms and mixes of housing assistance.
40
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: Policy objectives for a national affordable housing policy framework Primary objective Affordable housing
To improve access to existing housing that is affordable for both lowand 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: Æ size and type of household Æ cultural needs of households Æ occupant circumstances (eg need for support services; stability) Æ 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: Æ incentives for workforce participation Æ support for family life and work/family balance Æ ways of supporting the health, wellbeing and education needs of occupants Æ enabling ageing in place Æ development of socially cohesive communities and communitybuilding processes.
41
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-forprofit 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.
