Affordable Housing: PMAY - Series 1

PMAY Scheme offers, Public Private Partnerships (PPP). The fundamental strategy underlying Public Private Partnerships as an implementation strategy for affordable housing is to combine the strengths of the private sector with those of the public sector in order to overcome challenges faced by affordable housing and to achieve superior outcomes.

Solving for the Affordable Housing Challenge: Alternative Choices of PPP Strategies

·        Enhancing Access to Low Cost Land: The issue of availability and cost of well-located land is central to the issue of affordable housing. Depending on project location, land costs can vary anywhere between 20 to 60% of the total project cost.

·        Private Land for affordable housing in exchange for permission for more intensive utilization of land:

All schemes that seek to trade higher FAR/FSI granted to the private sector for affordable housing fall in this category. This kind of PPP is essentially a form of cross subsidy where the private sector is made to direct a portion of higher earnings provided by a higher FAR/FSI for the provisioning of affordable housing.

·        Private Land for affordable housing in exchange for permission to build high-end housing:

Government seeks to monetize its power to regulate real estate development and use it to get private sector to provide land and affordable housing. Private sector builders are required to provide affordable housing as a condition to be allowed to create high-end housing for which there is a profitable market. It can be safely assumed that under this strategy the builder shall, effectively, pass on a substantial part of the “burden” of the cost of creating affordable housing to the consumers of the high-end component of the project.

·        Government Land for affordable housing by unlocking unutilized/underutilized parcels of government owned lands:

This can be a direct way of enhancing the land pool, available for creation of affordable housing. Many Central and State government departments and agencies own vast tracts of land, in excess of their requirements in the foreseeable future, those are very poorly utilized and are often illegally encroached. A systematic policy and effort can bring such lands under affordable housing and further be made available to the private sector, at a low cost, to develop and build affordable housing projects using private capital and efficiencies under suitable PPP structures.

·        Land for affordable housing through Redevelopment of underutilized urban areas:

In Indian cities like Mumbai, Delhi and Kolkata, vast tracts of some of the world’s most expensive land can today be found covered by slums. Even when the lands are privately owned and developed, they often host large number of ramshackle single storey or double storey tenements under CI sheet roofs. These structures are more like makeshift temporary structures rather than urban buildings on expensive land.

Redevelopment represents a win-win strategy in which all parties gain by better and more intensive utilization of the scarce land resources. Public Private Partnerships in such programs have the potential to create value by combining government’s abilities to marshal public lands with private sector’s ability to create world-class designs, construct superior real estate and unlock its value through creative marketing.

·        Land for affordable housing through Policy reform on Change of Land Use (CLU) of Agricultural Lands:

Ultimately, a sizeable and sustainable response from PPP will require strategic changes in policy to allow a self-propelled market to address the challenge of cost of land and affordable housing on a large scale with a low, or no dependence on direct interventions by government through subsidies or cross subsidies. The prices of welllocated lands have to decline to levels at which the low income and poor citizens of India can participate in the market. For the prices of land to decline to affordable levels, government can create an enabling environment, for a dramatic increase in the supply of land and of vertically dense development of houses and supporting infrastructure, through a controlled but easy and inexpensive process of change in land use.

·        Reducing Costs through Efficiency Gains in Construction and Operations:

The private sector can be expected to contribute to efficiency gains in the development of land, construction, operations and maintenance for affordable housing through the use of technology, better management and construction practices. In addition the private sector should be expected to bring economies of scale from large projects and by involving a larger number of private partners. Delivery of projects at a lower cost and, without cost and time overruns, can potentially contribute to availability of affordable housing.

·        Access to Financing and Capital Markets:

Traditionally, Public Private Partnerships have also been seen as a source of private financing for a project. The private sector partner can indeed be expected to contribute to financing for affordable housing as well. Limited contributions could perhaps be garnered for this purpose through CSR funding. However, direct cash subsidies, if envisaged, will have to come primarily from governments.

The private sector may be called upon to provide or direct commercial funding seeking a fair return on investment for affordable housing. This could take the form of financing to cover the land and constructions costs, subject to recovery, in lump sum or installments, of the investment with a reasonable return upon successful delivery of the housing for purchase by the allottees.