Undoubtedly, The Naya Pakistan Housing Scheme is a timely and necessary initiative taken by this government. However, in the context of emerging and developing economies, this initiative to target low income houses is not unique. Countries like India and Turkey have endeavored to provide housing for the poor for a while now, with relative success. This series of articles will analyze these programs, highlight what worked, what did not, and how our country can learn from these experiences.
We will start off this series from India’s low called housing program introduced in 2015, titled ‘Pradhan Mantri Awas Yojana’ (PMAY), or in simpler words, Housing for All by 2022.
The target set by the government in 2015 was to provide 20 million affordable houses to the urban poor and 30 million units for the rural poor by the year 2022. The ambition to build 5 million units in 5 years under the Naya Pakistan Housing Scheme seems underwhelming in comparison to Indian government’s vision of providing low cost housing unit.
Of course, the Indian economy and its population is much larger in scale, hence the bigger targets for housing, but without proper socio-economic policies promoting low cost housing, it would have been very difficult to make any progress. The relative success of their initiative is the result of a conducive environment created by the government to promote private sector involvement in the affordable housing sector.
Strategy of policy makers across the border was to converge the housing initiative with other schemes aimed at poverty alleviation. So, for instance, PMAY Housing Initiative was coupled with Swachh Bharat Abhiyan (SBA), or Clean India Mission, ensuring that all the houses built had proper sanitation facilities. Similarly, Aubhagya Yojana electricity connection, Ujjwala Yojana LPG gas connection, access to drinking water and Jan Dhan banking facilities, etc. were in one way or another linked with the housing program, ensuring that the project adequately fulfilled the needs of those occupying the houses.
As previously discussed in our housing affordability article, Indian government housing schemes target particular income segments within the economy. Through this housing program, the government provided interest subsidy of 6.5% to Economically Weaker Sections (EWS) and Low Income Groups (LIG), 4% for Middle Income Group I (MIG-I) and 3% for Middle Income Group II (MIG-II) on housing loans availed for a period of 20 years under Credit Link Subsidy Scheme (CLSS). These interest rates are significantly lower than market rates which are all above 8%.
From the fiscal side, approximately US$ 8 billion investment was approved by the government for this project, with the rest being chipped in by the private sector financial institutions such as IIFL Home Loans, ICICI Bank AU Housing Finance and Home First finance companies.
All of these financial institutions became interested in this sector only when they were ensured of adequate foreclosure laws within the country that promoted non-judicial foreclosure. We can expect the same trend of private housing loan financial institutions in Pakistan if regulatory work by the government is completed on this very important issue. (Read: Foreclosure laws article). Moreover, Real Estate Regulatory Framework in India has also played a very important role in efficiently streamlining this project.
Overall, this low-cost housing program in India has met with varied success. Statements from Indian Union Housing and Urban Affairs Minister paint a very rosy picture of the project, suggesting that the government may even achieve its housing targets earlier in 2020 rather than in 2022. That is perhaps not the case.
Fact checking suggests that about 1.44 million houses have been constructed under the PMAY-Urban scheme and 1.39 million have been occupied up till January 31, 2019, according to the latest Ministry of Housing data presented to the Lok Sabha in February 2019. This is only 20% of 7.26 million houses sanctioned for construction till January 31, 2019. Thus, there seems to be some progress, even if it is slower than the ambitious targets set up by the government.
Occupancy rate of the built houses overall presents an impressive figure. This is important because at times, people do not end up moving to these new units due to locality and infrastructural issues, such as not being adequately connected to the city center. According to housing ministry officials, around 164,000 low-cost homes are vacant. Indian government should ensure that they provide support infrastructure to these housing localities to ensure that the homes do not end up deteriorating, and the communities do not become ghettos.
Further criticism of this program suggests that this initiative is still not as affordable as it can be. It bypasses homeless people who cannot afford mortgage payments. As suggested by representatives of Centre of Equity Studies in India ‘Those who really need these homes cannot afford them, and those who can afford them don’t want them’.
From this experience, policy experts in India are voicing for the development of affordable rental housing as a far more effective solution to tackle shortage.
In conclusion, it can be argued that the Indian Housing for All Initiative has shown some progress. However, the targets have not been met, which suggests two things. Firstly, as is the case with Naya Pakistan Housing Scheme as well, the targets from the start seemed too ambitious. Secondly, it signals that much more can be done to ensure further success of the program by enticing the private sector with more policy incentives.
In part 2 of this series, we will study in depth some of the features that have ensured partial success of this housing program.