The market at the bottom of the housing pyramid

Carlin Carr, Bangalore Community Manager
Bangalore, 25 July 2014

Lack of affordable housing across urban India has left the working poor in a fix: they have the ability to pay for better conditions but few options exist. In Bangalore there are more than 400,000 in 557 slums, many of whom are the city's maids, rickshaw drivers, security guards, drivers and small shop owners. In 2010, Ramesh Ramanathan, co-founder of Janaagraha, an NGO focused on urban governance in Bangalore, launched a low-cost housing venture, Janaadhar, to take a small step toward filling an ever-growing affordable housing gap.

Until recently, India's developers have focused on a higher-end market. Yet what's becoming increasingly clear is there is an opportunity for a socially relevant movement that will also reap financial rewards. "Till now an opportunity worth Rs 5 lakh crore [USD$83.2 billion] or more, equal to around 5 percent of GDP, is largely going begging. This is because India's builders mostly aim for buyers who can afford homes worth Rs 25 lakh [USD$41,000] or more and constantly seek to add frills to claim premium value and earn higher margins. Overall, the Indian system and its property developers, with some exceptions, are missing out on enormous wealth lying at the bottom of the housing pyramid," says an article on the initiative.

Janaadhar's first phase focused on 480 one-bedroom apartments that were all 400-square-feet in size and built in a cluster development just on the outskirts of the city. The goal in serving the "blue collar" workers of Bangalore was to price the flats below Rs 5 lakh [USD$8300] for families earning a monthly income of approximately Rs 15,000 [USD$250]. In the end, the houses were priced at nearly 50 percent more at Rs 7.3 lakh [USD$12,000], now pricing out the target households.

While there is a huge market and more financial services in place to help these households, institutional roadblocks have limited the ability of private sector housing initiatives. Ramanthan says it took nearly three years to get through the nine agencies that sanction building plans. He believes this bureaucratic confusion is a major deterrent and time spent chasing paperwork adds up to time and money lost. Also, there are many government-issued levies that drastically added to the building costs, which in turn increased the price point.

But Ramanathan cites another key miscalculation he will reconsider in his next venture: the inability of the target group to cover their current household expenditures as well as the monthly financing payments (Rs 4,000 – 5,000 [USD$66-$83]). "A middle class family can pay an EMI [estimated monthly installment] and pay their rent during the transition period, until their new home is complete. For families earning Rs 12,000 [USD$200] per month, this is very difficult," says Ramanathan in the Business Standard.

Janaadhar will move forward with its mission, but the next phase will focus on 300-square-foot homes, reducing the cost by 25 percent since building material prices had also increased during the course of the project. Another hopeful sign is that more private sector initiatives have since entered the market. Since housing is often seen as a catalyst for improving other areas of life, the potential for success in this area goes much beyond a roof over a family's head. The safety and security of homeownership could lead to children staying in school longer and overall improved family health. Affordable housing has wide-reaching social implications that will be seen as more ventures enter the arena.

Photo credit: seaview99

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