Affordable community housing solutions could help first time migrants get a foothold in cities, by giving them better access to government services. Only, its uptake & effectiveness needs to be studied to ascertain impact, writes Dhaval Monani
India has one of the lowest rentals to total housing ratios in the world. As per a RICS- Knight Frank report , nearly 30% of the people in India live in rental homes, compared to50% in developed countries, such as Switzerland (56.6%), Hong Kong (49%), South Korea (44.8%), Germany (48.1%), UK (36.5%) and the United States (36.2%). Looking at the 2011 National Sample Survey, only 25% of the population rent homes. Of this total, only 5% are formal and 20% are informal. This ratio has been steadily decreasing over the years, even as India witnesses one of the largest rates of migration in history.
Some of the reasons for such low rental to total housing ratio can be attributed to a lack of reliable and updated data, outdated urban classification criteria and informal rental practices. Large areas, especially on the peripheries of cities that are urban in character are still classified as rural. These areas also account for a large chunk of affordable housing stock. Based on satellite imaging , real urbanisation is estimated to be close to 63% in 2011, while the Census of the same year pegged it as low as 31%.It can be inferred here that this gap is largely bridged by informal rental and the large number of undocumented renters living in slums and peri-urban areas.
Migrants constitute a significant share of informal renters in the country. When migrants move to cities, they mostly end up in accommodation provided by their employer, in slums or in informal rentals on the peripheries. These grey areas are part of the urban agglomeration, but still classified as rural, making rental data difficult to gauge as they are a combination of slum, informal and rural developments.A research by American RAND Corporation, in collaboration with Indian School of Business, estimated that the percentage of renters could be as high as 60% on peri urban settlements in industrial zones.
Looking broadly at the numbers, if we accept the census data of 30% urban households as renters, within the31% official urbanisation rates, we are looking at 21 million households out of a total of 70 million. If we consider a further 32% of unaccounted urbanisation based on satellite data at 50% rental — this adds a further 37 million renters. This will push up the rental percentage to 40%, for a total of 145 million renter households. We can also presume that the percentage of informal rental would be much higher, when considering the unaccounted 37 million households.
While data on the informal sector is hard to get, it is well known that informal rentals are widely prevalent. Moreover, informal and/or semi-formal housing developments seem to offer better rental yield of around 6%, as per some studies, including the Indian School of Business’ report on rental housing models for factory workers (Ashray Affordable Housing Pilot Project near Rajkot, India). The occupancy of Ashray was around 95% with more than half being rental. It stands to reason that the informal sector in some ways negates the inefficiency of the system. We see further anecdotal evidence of better yields in informal and/or semi-formal housing in industrial zones of Rewari in NCR, Vapi in Gujarat and Oragadam in Tamil Nadu.
While formal rental housing markets are curtailed by structural issues like low yields and high costs, eviction challenges and liquidity concerns, informal rental markets some what negate these issues and partially address the needs of migrants and urban poor.
Yields vs.costs: One of the main reasons for limited rental stock is attributed to low rental yields. This problem is accentuated by tax on rental income and differentiated and higher tariffs for utilities in organised rental markets. Residential rental yields are as low as 1 to 3% whereas a 10-year government bond yields 5.7%. These factors discourage property owners from renting, and instead rely on capital appreciation for returns. Informal rentals, though, tend to have higher yields nearing 6%.
Eviction: Tenants have almost no rights in the informal markets as they usually rent based on a verbal contract with the landlord, leaving them with no legal protection. It is unlikely that informal tenants would be able to establish rights or take legal possession in case of a dispute. This greatly reduces the risk for the landlord.
Liquidity: Real estate assets are high value, illiquid and entail transactional compliances that are time consuming and cumbersome. In comparison the informal market is much more liquid with lower transaction costs. In states like Punjab and Tamil Nadu, the stamp duty and registration costs amount to about 11% of the total, making formal transactions expensive and difficult. It can be argued that incorporating functional aspects of informal rental markets in current rental policies and practices could help ease some of these bottlenecks and increase the rental stock. The Union government could consider the following:
Yields: Make rental income up to a certain threshold tax-free. For individuals it can be `5 lakhs. This is unlikely to impact the exchequer but could be a big step forward in formalising rental agreements.
Eviction: For a vibrant rental market, laws need to lean towards landlords and evictions should be enforceable in a stipulated but reasonable time, such as between 30 and 60 days.
Access to finance: Organised rental remains a challenge in India as the difference between cost of funds and yield is quite high. It is not possible to bridge the gap unless the cost of funds are significantly reduced. This could be possible by enabling access to cheaper funds by developers of affordable rentals and rental operators through priority sector lending and impact capital.
Taking the case of migrants, mobility and seasonality are important factors influencing their decisions. Early findings from our surveys indicate that the majority among them go back home one to three times every year. Their cash and income flows are erratic and they are not in a position to get into long term rental agreements. As a result, they mostly choose to live in poor conditions and rarely establish a permanent base in the migrated cities. This goes on the show that migrants’ shelter needs are diverse and are influenced by their migration patterns, nature of work, affordability considerations etc and addressing their housing challenges need a multi-pronged approach. Therefore, the housing challenges of the migrants need multiple approaches. The Center for Sustainability at Anant National University is working on a semi permanent expandable housing solution for on-site deployment, which can potentially inform regulation.
Affordable community housing solutions could also help first time migrants get a foothold in cities, by giving them better access to government services. The Affordable Rental Housing Complex (ARHC) scheme is a good first step, but its uptake and effectiveness need to be studied to ascertain its impact. In addition, a hybrid model between night shelters and ARHC could address the inherent challenges of seasonal migration, short notice periods & possible income shocks faced by construction workers.
The writer is Director of Affordable Housing at Anant National University & Sriraman is a Senior Specialist — Market Systems at the Habitat for Humanity’s Terwilliger Center for Innovation in Shelter
