View: EPF-linked financing, combined with a community land trust model, can complement 'housing for all'

By Bibek Debroy & Sajeesh Kumar N

India has been striving to fulfil its commitment of providing housing for all by 2022. To achieve this goal, houses must be made affordable to the poor in both urban and rural areas. Although prices have remained almost stagnant in the last couple of years, there was an escalation by about 30% since 2011. This is, of course, an average figure, with wide location-specific variations. Most of the price escalation has been because of land price increases.

To make any housing model affordable, there is a need to delink the price of housing from that of the land. Otherwise, housing will become unaffordable for the poor, crowding them out to slums and peripheries away from cities. India’s target of universal housing will depend on how this problem is addressed.

To tackle this, GoI has formulated the ‘Housing for all by 2022’ scheme, and set an ambitious target of building six crore houses. However, according to a combined study undertaken by KPMG along with the National Real Estate Development Council (Naredco), there is a requirement for nine crore houses to realise the goal. This implies that more than three crore houses have to be built, over and above the government target, to pursue the goal of universalisation of housing.

An Employees’ Provident Fund (EPF)-linked financing mechanism, combined with a community land trust model, can complement the ‘housing for all’ scheme, to cover citizens not otherwise covered.

One of the challenges to be tackled before an innovative affordable housing strategy is framed is the underlying financing model. Presently, the financing model ranges from government support and land monetisation to a credit-linked subsidy. However, if affordable housing is to be sustainable, this has to be underwritten through a viable and sustainable financing model.

One of the cornerstones of the successful public housing programme in Singapore was their Central Provident Fund (CPF)-linked housing financing model. Housing Development Boards (HDB) construct houses and develop neighbourhoods through government loans to finance mortgage lending and pay interest at the prevailing CPF savings rate.

An Element of Realty
HDBs use the loans to provide mortgage loans and mortgage insurance to buyers of leasehold flats. The cost of the house is then recovered by an HDB through CPF of house-owners. An HDB develops houses, including affordable houses, for different types of individuals depending on their income and monthly deduction towards CPF. As a result, almost everyone with a CPF account in Singapore has an apartment in HDB-developed neighbourhoods. Because of this unique model, Singapore today has more than 80% of its population living in public housing developed by HDB.

An EPF-linked affordable housing model can be an option to drive the objective of universalisation of housing in India. More than six crore people have an active Universal Account Number (UAN), with regular monthly deductions for EPF. If the land available with the government in many cities is utilised for dense development, a sufficient number of houses can be constructed for different income groups.

Government can provide funds to institutions similar to HDBs set up in various states and charge a nominal interest. These HDBs can then finance affordable housing by extending loans to individual buyers. The repayment of the loan can be linked to the EPF account.

If land monetisation and commercial exploitation of a part of the land are done effectively by HDBs, there will be sufficient funds available with housing boards to develop the trunk infrastructure and to keep prices affordable. If land is not available in the core of cities, integrated neighbourhoods with educational, health and other livelihood opportunities can be developed even at their periphery.

After the new norms introduced in 2017, EPF members can withdraw up to 90% of their accumulated funds in PF for the purchase or construction of houses, if they are members of a society registered for housing.

Withdrawals are also allowed for repayment of monthly instalment of loan to a bank or any lending agency. These modifications to EPF rules are an opportunity to structure a comprehensive mechanism based on EPFlinked housing financing.

Constructing a sufficient number of affordable houses alone will not solve the problem of price escalation. If the price of affordable housing is market-linked, there is always a problem of the poor selling these houses at market prices and living in slums, leading to unregulated settlements. To solve this problem, affordable houses can be organised along the lines of a community-based land trust.

Ring-Fence the Property
In this, the land on which the public housing is constructed can be declared as a Community Land Reserve (CLR). This land will be used only for affordable housing. The houses, thus, constructed in the CLR will be allotted to people who are eligible beneficiaries. These houses need to be ringfenced from escalation of land prices, and sales should only be allowed to other eligible beneficiaries.

The challenges of universalisation of affordable housing are global. However, different countries face specific problems that require specific solutions. Situations also differ within India, from place to place. These are ideas that can be tried out as pilots in some parts.

Debroy is chairman, Economic Advisory Council to the Prime Minister, and Kumar is director, ministry of railways