Indian cities should make space for low-cost housing Rising slum and squatter settlements in cities is a clear sign that the demand for the low-cost housing is not being met through formal housing stock. In the next six years, urban India needs to build at least 10.5 million houses to meet the demand for housing that accompanies rising levels of urbanization. With the financial crisis bringing affordable housing back on the radar of promoters and builders, it is worthwhile to estimate the extent of unmet demand for low-cost houses. As much as 65% of the demand in India’s top 112 cities is for houses measuring less than 1,000 sq. ft. This translates into approximately 6.8 million new homes. Interestingly, about 70% of the demand would be for houses with two rooms or less. This means 7.4 million new houses need to meet these specifications. This is because 90% of the urban households have incomes under Rs 5 lakh per annum. Source: Housing Skyline of India Demand Curve

Thus, the demand for majority of the urban housing would be in this category. Greater housing demand originates from two sources—those who have arrived earlier and residing in makeshift tenements, shacks and slums, and those who are expected to migrate into these areas. The requirements are different. Typically recent in-migrants require smaller areas, but as they stay on, their families join them and expand, and their incomes and wealth also increase. This translates into requirements for marginally larger carpet areas. The cities that have the largest requirement for such housing are those that attract migrants—Mumbai and New Delhi and their surrounding areas, Bangalore, Pune, Surat, Coimbatore, etc. These cities either saw large migration in the recent past but are slowly stagnating (for instance, Mumbai), or continue to have great levels of in-migration (New Delhi, Surat and Pune, for example). Either way, these cities are already bursting at their seams. The need to expand opportunities in other cities is paramount, as is the need to get a better grip on land utilization within these cities. Typically, government bodies have almost monopolistic control over land, and this is a serious problem as land management is riddled with bureaucracy and poor governance. What is needed is a much more aggressive and forward-looking approach that looks at the requirements for each city specifically. Ensuring there is regular availability of land for low-cost housing within a city is among the first and foremost steps. The supply side constraints for provision of low-cost housing are well known and these problems have been made worse due to the rapid increase in real estate values. As a result, the largest action in urban housing has been in suburban areas surrounding the large cities— rural Bangalore, Ranga Reddy near Hyderabad, the Gurgaon, Noida, Faridabad and Ghaziabad quadrilateral surrounding New Delhi, and Howrah and North and South 24 Parganas near Kolkata are well-known examples. The bulk of new housing is occurring on converted agriculture land around these cities. This need not have been the case, had local governments been more responsive to emerging requirements. Unfortunately, unplanned and unstructured development is a hallmark of urban India and is unlikely to change very soon. Demand Curve is a weekly column by research firm Indicus Analytics Pvt . Ltd on consumer trends and markets.