Affordable housing is steadily declining in terms of market share, which may call for policy support. Although the inventory of unsold housing stock in this segment is declining, the pace is not inspiring. This is reflective of post-Covid consumption pattern that favours premiumisation. Luxury houses and cars have fuelled this consumption growth, but it is unsustainable if sales of small homes and cars do not move into the fast lane. Housing developers are wary of the affordable segment, citing rising costs and thinning margins. Yet the segment is vital to the housing market, and there is a need to address market imperfections that have crept in.
Since real wage growth is weak, demand is not growing fast enough to absorb the existing unsold affordable housing inventory. The supply response is weak and will continue to remain if inventory does not clear. A quick fix would be to redefine affordability to draw in both buyers and sellers. A benchmark for affordability could be income instead of an absolute price. Purchase and construction support thus become dynamic, and it is easier for the market to clear. But this does not address the fundamental issue of land prices outpacing incomes.
A cap on affordable house prices can work only if the price of the principal input-land-is capped as well. Incentives to raise demand and supply are mainly directed at income and construction costs. Yet the main issue remains unaddressed: keeping land value in check through higher supply. State governments have a critical role here and must become more proactive in clearing the market for affordable housing. India has an expensive property market relative to the level of its urbanisation. The affordable segment is the most sensitive to prices but also has enormous economic and labour linkages. Creating the requisite affordable housing stock at prices that sell may need a rethink about the nature of government intervention.
Since real wage growth is weak, demand is not growing fast enough to absorb the existing unsold affordable housing inventory. The supply response is weak and will continue to remain if inventory does not clear. A quick fix would be to redefine affordability to draw in both buyers and sellers. A benchmark for affordability could be income instead of an absolute price. Purchase and construction support thus become dynamic, and it is easier for the market to clear. But this does not address the fundamental issue of land prices outpacing incomes.
A cap on affordable house prices can work only if the price of the principal input-land-is capped as well. Incentives to raise demand and supply are mainly directed at income and construction costs. Yet the main issue remains unaddressed: keeping land value in check through higher supply. State governments have a critical role here and must become more proactive in clearing the market for affordable housing. India has an expensive property market relative to the level of its urbanisation. The affordable segment is the most sensitive to prices but also has enormous economic and labour linkages. Creating the requisite affordable housing stock at prices that sell may need a rethink about the nature of government intervention.
