Understanding the Urban Housing Shortages
The newly elected NDA government in its first meeting decided to construct 30 million additional houses covering both rural and urban areas of India. The Finance Minister in this year's Interim Budget mentioned about construction of an additional 20 million houses for rural areas over the next five years. So urban areas are expected to get 10 million additional houses which falls way short of the urban housing shortage of 29 million in 2018 as estimated by the Indian Council for Research on International Economic Relations (ICRIER) Report 2020.
As of 10th June 2024, under the PMAY – Urban, flagship central scheme for urban housing, around 11.86 million houses have been sanctioned, of which 11.43 million houses have been grounded for construction and 8.37 million houses are completed. So, the incidence of housing shortages remains a serious policy concern in the cities. ICRIER Report (2020) indicated that 99 per cent of the urban residents experiencing housing shortages belonged to the lower income groups. Their access to the housing market is constrained due to limited access to credit and lack of affordability as they are mainly engaged in the informal sector or are self-employed.
Accounting Official Housing Policies
However, the official housing policies in India including the present PMAY-U tend to conflate the 'housing for all' with ownership of houses for all residents. During its inception phase, the PMAY- U as part of the Housing for All by 2022 Mission pondered on earmarking 20 per cent of the 20 million houses to be constructed exclusively for rent.
The Expenditure Finance Committee subsequently cleared an outlay of Rs 6,000 crores for a rental component in PMAY-U. However, the PMAY–U was finally introduced in late 2015 with provisions of only ownership housing along its four verticals — in-situ redevelopment of slums; credit-linked subsidy scheme with provision of obtaining interest rate subsidy from the government to purchase houses; affordable housing in partnership with the provision of subsidy for the developers; and financial assistance for beneficiary-led house construction or enhancement. In practice, legislative and administrative difficulties in the provision of land title, insufficiency of interest rate subsidy to match housing costs, inconvenient location of housing units and lukewarm private sector response have impinged the scheme's effectiveness in addressing the urban housing shortages.
Exploring the Rental Housing
The complete absence of rental housing in the PMAY-U scheme contradicts the urban households' housing preferences in Indian cities. Rental housing offers greater labour mobility, especially for low-income households with volatile incomes. As per Census 2011 data, 27.5 per cent of the urban households live in the rented houses and between 2001 and 2011, the number of urban households living in the rented houses increased by 6.4 million.
Interestingly, the same time period recorded an increase of 4.6 million vacant houses in the urban areas, indicating the coexistence of unmet demand for rental housing and vacant residential units. NSSO 2018 report indicates that one-third of all the urban households in India live in rented houses with the same being higher in million-plus cities. About 70 per cent of renters do not have any contractual agreements with the landlord and their average monthly rent is Rs. 3150.
The landlord and the tenant prefer to mutually agree on rents that tend to be higher than the standard rents. Rented households have poorer access to individual toilet and water supply than owned households. Even the renters residing in a million-plus city do not enjoy better access to basic services. Moreover, the proportion of urban households living in rented houses increases as one moves from the bottom to the top MPCE (monthly per capita expenditure) quintile categories. This indicates limited access to the rental housing market for households bracketed in lower-income groups for whom access to housing is more important than ownership.
Identifying the Problems and Prospects
Over-reliance on ownership-oriented housing policies and the prevalence of the Rent Control Act with a ceiling on the chargeable rents to the tenants have created supply constraints in the rental housing market and made it informal. Low rental yield (annual rent as a share of the property price) is a serious problem as the IDFC 2018 report shows that the residential rental yields in Indian cities hover between 2 to 4 per cent. Moreover, the tenancy disputes including evictions involve time-consuming redressal mechanisms. All these disincentivise the landlords to offer housing units available for rent. They even hardly make any attempt to maintain and upgrade or extend the housing units. The supply constraint, in turn, fuel up the market rents and makes the rental housing unaffordable for the urban poor.
On a positive note, the Model Tenancy Act (MTA) was introduced in 2021 with the potential to address the distortions in the rental housing markets. Several provisions, for example, capping of the security deposit to a maximum of two months' rent, heavy penalty on the tenant for failing to vacate the premises on time, restrictions on landlords for arbitrarily hiking up rentals during mid-lease without sufficient cause and notice seem to balance the interests and conflicts of both landlords and tenants.
Provision for establishing Rent Courts and Rent Tribunals to quickly solve rental housing disputes can better ensure effective enforcement of rental contracts. Nevertheless, only four states, Tamil Nadu, Andhra Pradesh, Uttar Pradesh, and Assam, have revised their tenancy laws on the lines of the MTA 2021. Moreover, mandatory registration of contractual agreements with the Rent Authority and provision of any upper limits on rental hikes could potentially increase the cost of compliance and housing rents. In addition, plausible difficulties in deciphering the legal jargon of rental contracts and the absence of anti-discrimination clauses to safeguard the interests of socially backward classes including the minorities might demotivate the renters, especially the urban poor, from entering into formal contractual rental agreements.
The Way Forward
In essence, as India is urbanising with millions moving to towns and cities, demand for housing will continue to grow in future. The potential of rental housing to meet these demands should not be ignored. This necessitates a major policy shift in favour of rental housing in the form of including it as one of the verticals under the PMAY-U. It is also important to explore the possibilities of involving the rental management committees to professionally manage the renting practices. Equally important is to fast-track the implementation of MTA with suitable amendments safeguarding the interests of the vulnerable sections. This would make the housing market inclusive and aid in achieving the dream of ‘Housing for All’.
