An affordable home must be equal to (or more than) 300 sq ft carpet area. Today the lowest cost of MHADA tenement is Rs. 10,000/sq ft. Thus the MHADA cost of a 300 sq ft basic unit would cost Rs. 30 lakh (and that too, far away). Is this amount affordable to those who earn about Rs. 300,000 a year? This is the income at or near the median! In short, we are altogether ignoring 50% of population below median level. Let us look at it another way. Forty percent of the population of Mumbai, about 60 lakh people, lives in slums – who are already using some land (not high FSI).

If we want to make an impact on slum rehabilitation in a substantial manner make substantial impact on affordable housing with a smaller burden on government in the next five years, we need to provide affordable and Covid appropriate housing to half the slum population, that is, 30 lakh. Assuming five-six persons per tenement, we need five lakh tenements which would be affordable to these people (not free).

It is not very material whether this is ownership or rental basis because rental accommodation must earn at least 6% net annual yield to the investor (can be tax-free) – whether it is an individual, institution or government, in the form of interest rates – which are at an all time low and it is difficult to get them any lower. We should aim at making a substantial impact on affordable housing (for all!). In fact, the Pradhan Mantri Awas Yojana (PMAY) should increase interest subsidy of 4% on the capital amount of about Rs. 2.50 lakh, which is not material for the needy. We need to increase the capital amount to up to Rs. 8 lakh (not more than 60% of the capital cost). This level is a must in expensive cities like Mumbai. The amount under the scheme can be lower where the costs are lower as compared to Mumbai. And interest subvention must be 4% and not 2% if this is a flagship scheme for providing affordable housing to all.

Treatment of land “cost”
The first is the cost of land. If it is going to be built on where slum already exists, if we can manage the same number of tenements as the current number of slum units, the land should not be a cost element. Perhaps we don’t need to provide any extra FSI if we restrict it to four floors (to avoid the lifts). We need a serious and accurate survey of land and the number of families/unit that are there in a slum which is to be rehabilitated. To manage accuracy and honesty is not very easy but one must take care of these issues for a long term and sustainable solution. We can allow an FSI up to 4, if required.  But restrict the number of floors to either four or up to nine (no lift for 4-storied ones and one lift for taller ones).

Transit accommodation
The government needs to make an investment in two buildings initially with about 80-100 tenements and afterwards four to six buildings to provide transit accommodation for about 15 months, which can be less if we are systematic and energetic. It requires excellent planning beforehand in appointing the contractor, have a detailed plan, bill of materials, purchase tie-up by providing spec, finance and storage to ensure that there is no delay in construction. We should have standardised doors, windows, toilets and other built-in features such as kitchen furniture and other ancillaries which don’t cost much but add considerable ‘value’ and improve the quality feeling for the future occupants who shouldn’t need any repairs in the first five years. To develop reputation with regard to value, quality is a must. This is possible if there are honest bulk purchases of materials and focus on smart design and quality supervision.  

Management and unified authority
The government should invest in working capital to ensure timely payment to all suppliers – a key element to ensure quality, good and honest prices. Needless to say, there should be highly motivated and efficient management for the project with full authority and clear budget, funds and staff including freedom to appoint contractors and vendors – it is difficult but not impossible. The team must agree to delivery of construction within a certain period and an incentive for the entire team to complete earlier to achieve the handover of the keys to regular occupants/owners or rentiers – who will be guaranteed timely rent payments by the authority which must have sufficient and strong legal support and team. To help overcome the obstacles and achieve project closures in time.

True costs of affordable housing
We can achieve a construction cost within Rs. 2,300/sq ft with defined amenities in large volumes without usual obstacles. Thus, the construction cost for 300 sq ft tenement is within Rs. 7 lakh. In addition, we need to add up to Rs. 500 /sq ft as location premium and municipal/govt premium should be capped at Rs. 200/sq ft. We can add 5% as the cost design and supervision and Rs 200/sq ft for administrative overheads. Thus, the final sale value would Rs. 8,20,000 for a unit which has an inferior location and a unit with the best possible location will cost up to Rs. 9,70,000 . Criteria can be defined in an objective manner as this is the heart of the matter. In the beginning, we can consider in-situ construction, that is, in place of slums. Second part would be locations other than slums. But if we build about 1,00,000 units successfully, we can achieve realistic momentum.

Financing pattern and cost benefit analysis  
We should consider a 10% equity from the buyer at the beginning of demolition and construction, and another 10% after the RCC structure is ready. Out of the balance 80%, the occupant/owner should pay 10% cost at some intermediate stage and the balance of 70% should be generated through the banking system. Considering quality and value, it would be a highly bankable proposal and we should be serious about enlarging the scope of the PMAY interest subvention. It should be sizeable. Alternately, those who can provide finance themselves (there will be quite a few) should be offered the ‘value’ in place of PMAY subvention in a paltry interest rate subsidy.

This is an ambitious scheme, but it meets two very important objectives

It will provide a post-Covid environment-friendly approach in action and not just empty promises of which there is no shortage.
 
It would be truly affordable and will shake up the property market for all. It will create real incomes for all and a substantial contributor to the real and inclusive growth rate. Let the builders be real builders – to provide good quality, economical and speedy construction. Paper work should be simpler, eligibility criteria should be logical and fair. Only RERA kind of legal machinery should be available.

People will be happy to pay for the construction and related costs which makes the overall cost well under the Rs. 4,000/sq ft. Banks can be happy to lend for this high-value bankable proposals. The total cost to the government would include: interest on working capital and administrative cost by the state, deeper and more substantial PMAY by the centre and provision of drainage, water and electricity by municipalities. It is a fair and doable deal. Overall value to the users (30% population in a period of five years) will be very high in relation to their contribution  and for government, the costs will be very small compared to substantial and long term housing solutions within Covid-appropriate overall design (including minimum acceptable open spaces but no parking spaces for four-wheeler vehicles. )

The cost and built-in complexity of getting proposals approved should be designed to be simpler and no catches which can be played by veterans which delays the project and consists of all kind of ‘padding’. After Covid, let us keep the affordability and environmental compliance as two basic targets. I am sure the cost of interest on working capital, administrative overheads etc. can be quite low if we mean business. The builder community has been spoiled with high margin expectations (although current market conditions would make them realistic and this leads to bankruptcies and loss of a lot of money by buyers and even builders). We should incorporate the value of time as its waste causes huge losses. In a digital world, we should be able to cut out time, need for intermediaries and huge costs.

Equitable and affordable housing for all is possible after handling Covid on a national scale
We need to build political and consumer group pressure. We think we have provided a highly realistic model in terms of costs and prices and scale. Even if the cost goes up by 10-15%, it is ok. But we must make the material difference to the concept of affordable housing which will positively impact the entire housing sector. Let Mumbai set a radical agenda in a post-Covid scenario. Let us not worry and bring additional flats for sale through higher FSI for well-to-do sections of society. It is possible to provide a 500 sq ft flat for those currently having 189 sq ft tenements at a negligible rent. There are already more than 1,50,000 idle flats and more are under construction. This segment will be taken care by bringing overall realism to housing. But it is highly doubtful that BDD chawls renovation which results into acute congestion (completely non-Covid-appropriate design) will find many buyers. Who would like to live in that crowded hell! Is it needed and desirable and fair? We should not encourage such select ‘rent seeking’. Let there be honest, fair deal to all citizens and informed debate on the solutions to be proposed for Covid-appropriate and fairly priced affordable housing for all.

Users should, in all cases, pay the construction cost. We can consider a variety of ways to take care of the land cost, which in principle should be recovered through the life of quality tenements. So far, no Development Plan – of Mumbai, of Delhi recently or any other city – has worked out affordable and Covid-appropriate housing for people below the median income level. ‘Housing for all’ is an unrealistic and marginal solution because we don’t address the issue on the scale. For the first time, we have brought considerable equality while handling Covid and now we should follow the same thinking to the issue of affordable housing on scale.

Ashok Datar is with Mumbai Mobility Forum.