Description
Low-income housing, also called affordable housing, is housing for individuals or families with low incomes. Although housing has been recognized as a human right under a number of international conventions, its availability for low-income people is often problematic.
In India, more than 60 million urban and rural households do not have access to adequate housing. To address this issue, the government plan of ‘Housing for all by 2022’ was launched in 2015 under Pradhan Mantri Awas Yojana (PMAY) initiative. Under this scheme, affordable housing will be provided to the urban poor with a target of building 20 million affordable houses by 31 March 2022. However, inadequate land availability, high cost of capital, etc are coming in the way of its success.
The Blue circle organized an exclusive webinar, ‘Affordable Housing Outlook in 2021’, to discuss the drivers, speed breakers, and emerging dynamics of affordable housing in India. The session was chaired and moderated by G. Raghavan (Former Corporate CEO - Across Sectors, Certified Independent Director & Director, Blue Circle) and included leading panelists Ashish Karamchandani (Senior Advisor, FSG), S Mallanna (Chief Operating Officer, Bhartiya Urban) and Jaime P Luque (Director, ESCP Institute of Real Estate Finance and Management & Associate Professor, ESCP Business School).
Affordable Housing Programs
Like in India, affordable housing is a major issue across the world, states Jaime. “In Greece, Spain, United States and United Kingdom an average household spends between 50 and 60% of their monthly income on rent whereas housing is considered affordable if the household spends less than 30%. In fact, it is a major election issue in several cities like Paris, London etc.”
So, depending on the context, countries and cities have floated different types of public policies, adds Luque. “It could be for rental housing or owner-occupied housing, low-income housing, housing for the homeless etc.”
“Supply side in some countries/ cities is motivated by incentivizing the developers through subsidies to work in certain areas. Demand is manipulated by giving out money to buyers and vouchers for rental. However, a recent study by London School of Economics found that giving out money to buyers ends up increasing prices of houses,” shares Jaime. “Since it is a free market, surplus money ends up increasing the price of houses.”
Programs Running in the US
In the US, two programs are very powerful, notes Jaime, the country where he worked earlier. “One is the low-income housing tax credit (LIHTC), started in the 70s and the other is the tax increment financing (TIF). There are thousands of TIF districts operating in US now.”
Tax increment financing is a beautiful program, claims Luque. “A vacant land is given to builder to develop low-cost rental housing, who then pays property tax for 23 years to the municipality, once the project is completed. So, along with providing affordable housing, a vacant land now gives 5 times the returns to the municipality.”
The Low-Income Housing Tax Credit (LIHTC) subsidizes the acquisition, construction, and rehabilitation of affordable rental housing for low and moderate-income tenants, shares Luque. “The US federal government issues tax credits to state and territorial governments. State housing agencies then award the credits to private developers of affordable rental housing projects through a competitive process. Developers generally sell the credits to private investors to obtain funding. Once the housing project is made available to tenants, investors can claim the LIHTC over a 10-year period.”
To avoid misuse of the tax credit, the regulatory authority ensures enough competition among developers who share proposals and vie for the project, says Jaime. “Otherwise, with just 2-odd developers in the fray, there is high probability of misappropriation of funds by the one who wins the project, and often the project not completing.”
Disciplines
Publication Date
April 29, 2021
Citation Information
Jaime Luque. "Jaime Luque Shares Some of the Successful Global Practices Followed in Affordable Housing - Blue Circle" (2021) Available at: http://works.bepress.com/luque/67/