Will Affordable Housing Scheme Create Artificial Demand Bubble?

Dec 02, 2017 Share

With property pundits predicting a phenomenal growth rate, the affordable housing segment is expected to be the next big growth driver of Indian economy. According to Knight Frank India, a real estate consultancy, there has already been a significant surge in affordable housing projects across eight major cities.
In 2015, Prime Minister Narendra Modi announced the 'Housing for All by 2022' scheme targeting 2 crore homes to be built across all urban locations over the next 5 years. To give a thrust to this segment, Government has given affordable housing sector an infrastructure status. And now affordable housing is losing its 'down market' label and is turning into a highly regarded sector.
Also there is another aspect to this situation. Will affordable housing  segment create artificial demand bubble?
'Housing for All' will have homes upto 150 sq m under the affordable housing scheme and the builders are also taking initiative in the same. The only question is that “Will the government be able to deliver by 2022?”
Apart from the overall market opinion, the Government has compelled people to opt for the wait and watch approach. Now that government is boosting the affordable segment housing, there would be artificial demand and create a housing bubble that may not last for long.
For example:
Americas 2008 Crisis
In US, the then-president George Bush dreamt that each American family must have his own house. To make this come true, US government made a policy of home loans backed by government assurance in case of loan default, which led to artificial demand. This created a housing bubble in the financial market which grew so much that when it bursted, it affected the entire world. It is considered that in 2008, the economic crisis in USA started with Housing scheme, which was backed by subprime loans. Department of Housing and Urban Development pressurized lenders to extend mortgages to borrowers who previously did not qualify. In this situation, risky mortgages to under-qualified borrowers were encouraged by the federal government.
In 2001, Fed chairman Alan Greenspan slashed the federal funds rate from 6.25 to 1.75 percent. It was reduced further in 2002 and 2003, reaching a record low of 1 percent in mid-2003—where it stayed for a year. This created excessive liquidity and generated a huge demand bubble. The economic damage caused by ill-advised federal housing policies has costed U.S economy far more than $50 billion tax in Department of Housing and Urban Development budget. The real estate housing bubble of America affected more than half of the U.S. states.
Amit Chandra, Associate Director  (Policy & Advisory). Centre for Civil Society mentioned  “If you look at the total number of court cases in India, you would find that the court cases related to property disputes is the largest. Property price is determined more by external factors such as location, connectivity and activities in the neighbourhood,”. One of the many things that the real estate sector needs urgently is digitization with all records available online. This would not only bring transparency but open up the market for genuine buyers and sellers. Some efforts have started in this direction.

Namita Wahi , fellow , Centre for Policy Research, says: “On the basis of our review of all land acquisition cases before the Supreme Court over the past 66 years (1950 to 2016), 9.2% of all litigation regarding land acquisition is with respect to housing. This includes, affordable housing (73.5% of all housing-related litigation), private housing (14.5%) and government housing (12%).”

The biggest concern for the government is that it must not lead to an artificial bubble as the real estate market is one of the most distorted markets in India. Creating affordable housing for common men can be achieved only through various efforts by the Government.

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