The need to create rental housing, not only as an interim arrangement for those saving up to own a home, but also for those who simply cannot afford to buy, has finally been recognised by the Union government.
The acknowledgment comes in the form of the draft National Urban Rental Housing Policy, 2015, which will, for the first time, provide a policy framework to address the issue that has until now been overshadowed by an overbearing emphasis on ownership housing.
However, the policy document, prepared by the Ministry of Housing and Urban Poverty Alleviation (MHUPA), might just be a case of too little, too late. The draft is primarily a prescriptive detailing the roles expected out of the state governments and urban local bodies. The Centre, on its part, has refrained from making any financial commitment to promote rental housing. Officials concede that the very cause of promoting rental housing was defeated the moment the government decided to exclude the rental component from the purview of the ‘Housing for All’ by 2022.
The mission was unveiled as the Pradhan Mantri Awas Yojana (PMAY) by Prime Minister Narendra Modi in July this year.
Mission Vs policy
In its report submitted in 2013, a Union government Task Force for Rental Housing had pointed out that since the poor do not have accumulated savings to buy a house, affordable rental housing “addresses the issues of the underprivileged and inclusive growth, in an even more direct manner than affordable ownership housing”. In keeping with the task force’s report, housing ministry officials concurred that PMAY should include Central assistance for rental housing. Such an intervention was seen as necessary to stem slum proliferation. It was aimed mainly at migrant labour and destitute populations that cannot afford to buy a house from the market and hence are forced to live in informal settlements.
Accordingly the Expenditure Finance Committee cleared an outlay of Rs 6,000 crore for a rental component in the mission. The official note placed before the committee shows that the central government had committed to contribute 75 per cent of the amount required to build such dwelling units while the remaining would be borne by the state, urban local bodies (ULBs) or by NGOs/ through CSR activities of private sector. The units, single room for migrant labourers and 25-30 square metre homes for families, were to be let out on a five-year fixed tenor leases after which the tenants were expected to save enough to move to a better place.
However, when the NDA government’s flagship shelter mission was finally launched, it was only about providing 20 million houses on ownership basis by 2022 with an approximate central commitment of Rs 3 lakh crore. There was no mention anywhere about ensuring that 20 per cent of the units should be for rental housing, as was proposed earlier.
“Unlike the mission, which provides for Central grants and links it to certain reforms that the state and ULBs have to undertake, a policy is not binding on anyone. States are at liberty to accept or reject it and without any funding commitment for rental housing from the Centre, there is no reason why the state government would take on the responsibility,” said an official.
Akshaya Kumar Sen, from the Human Settlement Management Institute, who is part of the panel that drafted the new policy pointed out that presently there is no formal public rental housing provided by the state in India. “Rental housing was meant to be part of PMAY earlier but since that didn’t happen, the draft policy will serve as a guideline for states,” he said.
The urban rental policy
Three months after PMAY’s launch, the ministry has come out with the draft urban rental policy based on the 13 recommendations made by the task force. It rightly identified categories where the state is expected to promote directly such as ‘shelters’ for homeless, ‘social rental housing’ for urban poor and ‘need-based rental housing’ for migrant labourers, single women, men, students or other target groups.
Then there are those that states are required to provide a better enabling environment for such as ‘market driven rental housing’ and ‘institutional rental housing’ such as hostels and paying guest accommodations for working class.
The policy acknowledges the fact that historically, all interventions by the government have been focused on home ownership. This it says, is “unlikely to solve the housing shortage in urban India keeping in view that majority of the urban housing shortage pertains to EWS and LIG categories”.
Nonetheless, the draft policy limits the role of the Centre to that of a ‘facilitator’ or ‘enabler’ while listing what is expected of the states and ULBs so as to bolster rental housing. It expects states to ensure that a certain per cent of houses in all new constructions are reserved for social renting, create an online portal of database on rental housing stock and provide incentives like exemptions from stamp duty registration charge and property tax. ULBs are required to allocate land for social and need-based rental housing projects.
Sen said that once the policy is approved, it will lay the ground for the Centre too to take up measures to promote rental housing. “We have discussed issues such as increasing tax exemption for rental income from 30 per cent to 50 per cent while giving woman headed households full exemption,” said Sen.
Unlike PMAY, the Centre, in this case, offers no financial assistance for increasing the rental stock itself. The fiscal measures that states and ULBs are expected to take, including tax exemptions and rent assistant programmes such as issuing housing vouchers, are mostly meant as demand side interventions and not so much geared towards increasing supply of social or need-based rental units. In comparison, social rental housing accounts for between 20 to 35 per cent of the total housing stock in countries such as Netherlands, the UK, Austria and Hong Kong.
Development economist Amitabh Kundu said that the under the second five-year plan, there was public sector creation of rental housing. “But they soon realised that managing rental housing is impossible from the point of recovering rents or getting repossession of the units. Since the sixties, there has been no major public sector intervention with regards to rental housing.” As per census 2011 data, 11.09 million houses are vacant in urban areas. This has been attributed mainly to the low rental yield, problems with repossession and lack of incentives for renting property.
To resolve some of these issues, the recently drafted Model Tenancy Act has spelled out the contractual agreement between tenants and landlords. It provides for fast adjudication through rent tribunals and formalises and standardises rental housing on a nationwide basis. However, it requires states to take the politically-sensitive call of amending their existing rent control acts and officials concede that the response from states so far has been tepid.