Low-Income Housing

Monitor Inclusive Markets has identified housing as one of the key areas where market based solutions can alter the social and economic landscape of the country and become a powerful route to social progress.

In the absence of a systematic institutional support mechanism, there is very little supply of affordable housing in India for the lower and middle income segments. We conducted a study for the National Housing Bank with active support from the World Bank to understand the market, customers, developers, land prices, financing, construction techniques, regulation, etc. for the low-income housing space. etc. We identified a target segment of customers who earn Rs. 7,000-15,000 (USD 140-300) and currently rent rooms in slums and low income neighborhoods. These people live in poorly constructed, small cramped houses, with deplorable sanitary conditions and lacking basic neighborhood amenities; and aspire to live in and can afford to buy houses between 250-400 square feet in the suburbs at current market prices. These houses, while commercially feasible, are not being built, and customers are also unable to access mortgages from traditional financial institutions. We have used our understanding of the market and the customer’s needs to develop a set of innovative solutions to address key stakeholder concerns.

Since 2007, we have been working to ‘make the market’ for low income housing in urban India and have:

• Assembled a group of financial institutions to serve customers in the low income segment, as well as incubated a housing finance company that will focus on providing mortgages to informal sector customers
• Been a critical part of the launch of a USD 100 Million low income housing ecosystem fund
• Enjoyed recent successes with developers, corporates, and entrepreneurs with proven track records, who are becoming more interested in building homes to cater to this income segment, as the top end of the market has crashed in the economic downturn

It is going to be critical over the next few years to sustain the initial interest that has been generated in low income housing and nurture a sustainable affordable housing market. We would like to encourage more developers to enter the market to both ensure that there is sufficient supply to meet the demand for homes and to maintain the low pricing that these customers require. As supply of low income homes ramps up, securing home financing for these customers will become a major challenge – we would like to attract traditional financial institutions to serve the salaried low income market, and bring in new players or induce current players to fill the lacunae in low income informal sector home loan financing. In addition to these core market marking efforts, we are also interested in broader field building initiatives, such as:

• Introducing sustainability elements and consumer education
• Working with government to create enabling policies for low income housing
• Working with financial institutions to reduce the cost to serve the formal and informal sector in this income bracket
• Disseminating lessons learned along the way

If all goes well, this will help create housing for 10 to 15 million families in urban India in the next decade – a market of over USD 100 Billion. More importantly, it will not only financially transform the lives of the customers but also have huge social implications – enhance quality of life, provide emotional security of a home and a safety net, etc. It could also have a systemic impact on urban development by providing a potential benchmark for slum rehabilitation and options for housing that in the long term may help in slum prevention.