The world faces a growing housing crisis, with billions lacking proper shelter. explore affordability, economic impact, government initiatives, and sustainable solutions in India and beyond
Subash Chandra Misra
The UN Urban Development Agency estimated that 2.8 billion people worldwide lack adequate housing. This includes 1.12 billion living in slums and 100 million homeless. As the population is growing rapidly in Asia and Africa, the urban areas are unable to cope with the housing needs, giving rise to slums lacking basic needs like water and sanitation. An ADB paper mentions that over one-third of the urban population in the developing world, 60% of the urban population in Africa, and 40% in South Asia live in slums. Many developed nations like the USA, UK, France, Australia, Germany, and Canada have people living on the streets and in temporary shelters. We are amidst a global housing crisis.
The 1948 UN Universal Declaration of Human Rights gives every person the right to an adequate standard of living. Housing impacts the economy in many ways, for which governments encourage housing activity to boost their growth rate. Housing activity promotes ancillary industries like steel, cement, paints, sanitary fittings, electricals, air conditioners, water storage, and employs many. The earlier generations used to save to buy a house, but the current generation avails credit to buy a house.
2008 US Crisis
Housing supports domestic savings, capital formation, and the credit market. Housing loans are one of the important credit portfolios of many financial institutions. Mismanagement of the housing loan portfolios by financial institutions in the USA triggered the Global financial crisis in 2007-08. In larger cities, houses are bought for investment, which supports the secondary market. One study found a correlation between the growth in consumption demand and the rise in housing prices, even when the house is not sold. The appreciation in price gives more confidence and a sense of security to the owner, and his consumption increases.
The relationship was found to be 0.5 in Europe, which implies that when the house price appreciates by 100, the consumption increases by 50. Housing also impacts the economy indirectly, as living conditions have a strong impact on the productivity of people. Poor living conditions, including overcrowding, inadequate heating, and unhygienic water infrastructure, can lead to ill health and increased sick leave, lack of productivity at work, and higher medical expenses.
A 1985 study concluded that homeowners are generally more satisfied with their lives than people living in rental houses. Better housing leads to better education and mobility. A 1998 study in Scotland in which 1,500 respondents participated, concluded that homeowners have relatively better health than non-owners. A 1990 study concluded that homeowners enjoy a stronger general sense of well-being. The divorce rates in Finland were 50% lower for owner-occupants. The economic impact of the housing crisis is visible in some of the big cities of Canada and the Netherlands, where the Governments have instructed universities to restrict admission of international students as the cities are unable to provide affordable housing to students.
Housing Affordability
Considering the importance of housing for the economy, countries strive to facilitate people acquiring affordable housing. Affordable housing does not necessarily mean cheap housing. The 2023 International Housing Affordability survey conducted by Demographia found the least affordable housing markets are in Honolulu, San Jose, Los Angeles, Auckland, San Francisco, Melbourne, and Toronto.
Growth in house prices in the USA outpaced the rise in income over the past 40 years, making housing very expensive, and the majority of Americans find it difficult to buy a house. The survey reported that between 2019 and 2024, house prices in India have increased by 76% in NCR Delhi, followed by Hyderabad (59%), Bengaluru (50%), Ahmedabad (37%), and Pune (32%) despite the effect of COVID-19. The 50 city indices published by the National Housing Bank also report 35-40% growth in prices between 2018 and 2024.
Affordability implies that the household does not spend more than 30% of its monthly income on housing. A policy framework set by the World Green Building Council for the affordable and sustainable housing requires that the housing provide a healthy and comfortable environment, access to transport, and services like electricity, water, and waste management, community and cultural life, safety, and natural solutions for net-zero carbon emission.
Sub-Sahara Region
But several parts of the world are facing challenges in providing affordable and sustainable housing solutions to their people. These are typically fast-growing regions like India, Africa, and some parts of Asia. The African continent is experiencing the fastest urban growth in the world, with the population projected to double by 2050. Two-thirds of this growth will be absorbed by urban areas, with cities becoming the new home to over 40,000 people every day over the next 30 years. Almost 53 million people in Africa live in slums. There is hardly any urban planning in the sub-Saharan region.
As per the 2011 Census of India, there were 17.73 lakh homeless people. This includes 9.38 lakh in urban and 8.35 lakh in rural areas. Another estimate shows about 7 crore people live in slums in various cities and towns. Several initiatives have been taken by the Government to improve the living conditions of people. To make housing affordable for the poor, the unit size and the unit cost have been laid down. Subsidies are given, or the entire cost is met by the Government, to provide a roof over the heads of the poor.
To achieve the objective of “Housing for All” in rural areas, the Government of India introduced the National Urban Housing and Habitat Policy (NUHHP) in 2007 under the PPP model for achieving the objective of “Affordable Housing for All”. The government launched the Pradhan Mantri Awas Yojana – Gramin (PMAY-G) in April 2016 with a target of construction of 2.95 crore houses with basic amenities by March 2024 and 2 crore more houses by March 2029. Pradhan Mantri Awas Yojana for the urban poor plans to assist one crore urban poor and middle-class families through States/Union Territories to construct, purchase, or rent a house in 5 years. The government also offers tax incentives for individuals to acquire houses and an interest subsidy for rural housing. NHB maintains an Urban Infrastructure Development Fund (UIDF), and banks are allowed to contribute to the UIDF against the priority sector shortfall.
Role of Banks
Banks and Housing finance companies play a major role in the housing landscape in India. At the end of September 2024, the total finance extended by the financial institutions to individual housing units was Rs. 33.54 lakh crore (NHB data), of which the finance to rural areas was Rs. 2.56 lakh crore. The overall housing loans outstanding are growing at 10-15% per annum. NHB endeavours to promote affordable housing with innovative and green housing technologies, for which it has partnered with various institutions like KfW Germany, the UK Government, and the French Government to promote green housing.
In the 2024 World Economic forum, some suggestions like (a) constructing affordable houses on PPP basis (b) using 3D printed homes model where all components are made in the factory and assembled on site (c ) using low cost material like glass fibre instead of brick and mortar for construction and (d ) adoption of community land trusts model in which the land is allotted to communities on 100 year lease for construction of houses on cooperative basis with a restriction on resale etc emerged.
The World Green Building Council estimated that there are 42 million unoccupied homes worldwide, which means roughly one in 10 homes is vacant. Converting unused buildings into residential ones, repairing and renovating existing homes can address the chronic housing crisis in many cities.
(The author is a Retired Chief General Manager of the Reserve Bank of India, Mumbai. Views expressed are personal.)