“A strong economy causes an increase in the demand for housing; the increased demand for housing drives real-estate prices and rentals through the roof. And then affordable housing becomes completely inaccessible.”

Author William Baldwin

This is a conundrum that is all too familiar in India. Affordability is a luxury that but a margin of our population enjoys. What is affordability in the real sense? How do we define it?

In simplistic terms affordable can be defined as ‘what you are financially capable of’.

Image Courtesy: Economic Times

The confusion in this matter arises out of the fact that what might be affordable for you might not be affordable for your maid or car driver. In the same vein, what might seem affordable for your boss might just be a pipe dream for you.

There is and has always been a wide disparity in the Indian real estate market for many decades now. We have builders and real estate developers tripping over their feet to cater to a very small percentage of the population who can afford two, three and four bedroom apartments and villas but what about the rest?

The economically weaker section who earn less than 5 Lakhs per annum can’t afford a home yet their demand outstrips the rest of the society. Today India faces a shortage of 7.5 Million houses because the low-income group lives in slums and hutments in abysmally bad areas. Year after year the situation is only going to get worse as these people migrate in large numbers to the city in search of employment.

Who is going to build homes for them?

It’s a question that many people don’t ask and with reason.

Let’s analyse the multiple dimensions of affordability, as it would help us understood this problem in a better fashion.

Some of the parameters that are traditionally considered to define affordability are –

  1. Area of the dwelling unit
  2. Maximum price
  3. Monthly income
  4. EMI capacity of the buyer

Government’s task force report on Affordable Housing have defined them as –

  1. 60% of the Floor Area Ratio/Floor Space Index (FAR/FSI) to be used for apartments of carpet area of not more than 60 sq.m.
  2. 15% of the total FAR/FSI or 35% of total number of apartments are reserved for EWS households.

The report also recommended that the affordable housing price should be kept at a ratio of 5:1 as per the buyer’s income level. Though this type of task report gives a benchmark on how an affordable housing unit should be priced, it is as far away from ground reality. For one thing, it fails to consider the present rate at which the unit area is being sold in the market. If you are trying to build an affordable dwelling unit of say 500 Sq. ft. built up area then unless it is priced lower than Rs. 1500 per sq. ft. it really isn’t affordable for the economically weaker section. In Indian Real Estate scenario, the price of the apartment is determined by the area where it is situated so asking a builder to offer a 500 sq. ft. apartment to a buyer from economically weaker section is an impractical idea.

However, this did bring home the fact price based affordability is their best bet to reach the right target audience rather than area based rates (which wouldn’t be affordable anyway!).

Most government schemes that have been conceived for the economically weaker section ignores the most important fact of them all – geographical location. An ordinary working class man depends on public transport to commute to his/her place of work. That’s probably why the so-called affordable housing schemes fail miserably because most of them are developed in the outskirts of the city and the low-income customer does not wish to travel for long hours.

Apart from the geographical location, there are other parameters that one needs to remember while developing affordable housing schemes for the low-income group consumers.