Thursday, January 04, 2018
Public Rental Housing under Social Security: A New Slant
By Nimish Sany*
Problems with the Indian rental housing market are manifold. While private rental markets have never been free from government intervention, public rental housing projects have never been coherent with market realities. Consequently, the demand–supply mismatch in the rental housing market in India is enormous with policy inconsistency widening the gap.
As per the findings of the Technical Group on Urban Housing Shortage set up by the Ministry of Housing and Urban Poverty Alleviation (MoHUPA), there exists an unmet demand of 7 million rental housing units across Indian cities, but recent reports put it at 19 million. If these figures are indeed true, such a huge demand can never be met with public resources alone. The Public Rental Housing Estates (PRHE) of Kolkata stands a stark reminder of this. Around 20,000 rental housing units were built across the city during the 1970s to provide affordable housing to the large influx of migrant labour, using central and state resources. However, a rental structure disengaged from the market led to the infeasibility of the project. This, coupled with the lack of transparency in allowing these units to low-income groups kept the units from circulating to those in need, ultimately forcing the state government to discontinue the misadventure.
The inclusion of private sectors is necessary to meet the market demand for rental housing. However, the Public–Private Partnership (PPP) model should pose minimum risks for all parties involved. The Mumbai Metropolitan Region Development Authority–Rental Housing Scheme (MMRDA-RHS) of 2008 is an example of a flawed PPP model that caused crores of taxpayers’ money to go down the drain. Private developers were to buy the land under this model, and incentives were given to the developers to balance this risk. But the shortage of housing stock and demand for luxury housing led to private developers misusing an incentive structure that was already unsound, resulting in poorly constructed structures that were uninhabitable. The most appalling of all was the oversight in leaving rental housing with MMRDA, which had no executive powers to implement several aspects of the PPP model. The Direct Relation Rental Housing (DRRH) model put forward by the MoHUPA in its Draft PPP for Affordable Housing in India, too, puts the risk of construction and rent collection on the private developer. Such a high-risk model would never attract private developers and governments should think twice before incentivising such models.
The requirements of affordable public rental housing do not stop at a stable PPP model. The regulatory environment should facilitate market dynamics in the rental market by revisiting the Rent Control Act. There exist vast differences in municipal tax structures and fees for civic services between owned and rented housing. Such regulations have an adverse bearing on the rental market and keep the pressure on public housing stocks. The immediate strategy should be to enable the market to utilise the existing housing stock completely to meet the rising demand.
The long-term strategy should be to approach public rental housing as a temporary housing solution under universal social security coverage. The principle should be to enable households to settle down and grow by utilising the social security assistance towards private rental markets. The HartzIV model for unemployment benefits devised in Germany was a hugely unpopular one, but had merit in reducing unemployment, owing to the assistance granted for a limited period and its allocation following a gradient along the individual’s efforts to secure employment. A similar model could be implemented with the public housing stock to keep the pressure off the market and circulate affordable rental housing units to the maximum number. As Milton Friedman points out in one of his lectures on public housing, the repeated failures of (public) housing projects show it is not the particular programme but the system that needs to be changed.
*Nimish Sany is Research Assistant at Centre for Public Policy Research. Views expressed by the author is personal and does not represent that of CPPR