Will market-friendly model help?
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The Public-private partnership concept proposed by TNHB may not deliver the required social housing and needs to be reviewed, writes A.Srivathsan
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Photo: Mohammed Yousuf
Crisis on view: Housing shortage has become acute with Tamil Nadu topping the list after Maharashtra.
The numbers are staggering. Housing shortage in the country has reached 24.7 million and expected to rise to 26.53 million by 2012. Tamil Nadu tops the list after Maharashtra as the state with a huge shortage – 2.83 million (2007 estimate) houses. Of this 99 per cent pertains to the EWS and LIG. One of the ideas doing the rounds, to tide over this crisis, is to explore creative financing - read Public-private partnership (PPP) - to provide affordable housing. Recently, Tamil Nadu amended its Housing Board Act to allow for joint venture between Housing Board and private developers. Last week, the norms for such partnerships were notified and the first project for joint development in K.K. Nagar, Chennai has been announced.
Will these measures deliver affordable housing we badly need? The Public-private partnership, as UNCHS defines, is a mechanism by which comparative advantages of State, for profit or not for profit organisations are integrated in a mutually-supportive way. In the proposed TNHB model, TNHB will provide the land parcels it holds and the private developer will provide the capital and managerial efficiency. In K.K. Nagar, the first ever public-private partnership project in Tamil Nadu, TNHB will give the 3.37 acres plot it holds to the highest bidder. Jones Lang LaSalle Meghraj, consultant to the TNHB, has fixed the upset price of the land and has recommended the model for development. About 55 per cent of the built up area will be residential apartments, 30 per cent would be commercial including a multiplex and 15 per cent would be serviced apartments. Theoretically, the project would deliver about 2.5 lakh square feet of housing. But how much of this would be affordable housing?
Contentious part
The contentious part of the Government order is the stipulation regarding the maximum built up space that the private developer would hand over to the TNHB. The order states that in all the PPP projects including KK Nagar, only a maximum of 25 per cent of the total built up area need be handed over to TNHB free of cost. In other words, in KK Nagar what the TNHB would get free of cost is only about 60, 000 square feet of housing. P. Rama Mohan Rao, Chairman-cum-Managing Director of TNHB, defends this model. He says that TNHB will get the entire cost of land upfront or in instalments from the bidder and 25 per cent of the built up area would be over and above the land cost. Rao’s argument is that plots such as KK Nagar are prime plots and it would be better to maximise the land price and plough the money in other TNHB projects where the land prices are relatively low. His answer skirts two points.
One, this model still does not explain why the private bidder should not be asked to provide more than 25 per cent of the total built up area free of cost for housing. Even if the TNHB is right about prime areas like KK Nagar, it needs more housing under its dispensation to make up in places where the land prices are low.
Instead of allowing norms to be evolved from project to project basis, the TNHB model freezes the private developers’ commitment to affordable housing.
The second point that the TNHB overlooks, is the fact that many of the plots which it is putting up for joint development were in a way was forcefully acquired for the social purpose of building affordable housing.
In such a case and when the mandate of TNHB demands that it conducts itself as an organisation committed to affordable housing, can it proceed like a private realtor with a for-profit only model?
Private pubic partnership to improve affordable housing stock is not a new concept. It is in vogue for a long time and in India, West Bengal was the first state to implement this idea in 1993.The government here insists that the low- and middle-income housing in such projects should be sold at lower prices with no or little profit. However, the prices of high-income apartments are left to the discretion of the private builder partner. When it comes to the share of affordable housing in a PPP project, the West Bengal government stipulates what should be the minimum and not the maximum area to be reserved for affordable housing.
Norms vary with the projects. In one of the projects, 73 per cent of the housing units were reserved for the lower and middle-income groups.
TNHB needs to first articulate what affordable housing is and look at models that will deliver them . Studies elsewhere show that an housing is considered affordable when an household can buy or rent the housing unit for an amount up to 30 per cent of its household income. How much of what TNHB proposes to develop will meet this criterion?
Need for review
Tamil Nadu is one of the States that set up housing and slum improvement boards very early on to provide housing for different income groups. Both the boards have been active till 1990’s. Housing colonies such as Anna Nagar, KK.Nagar and Beasant nagar were successfully built. But the scenario has changed since the 1990’s.
Not only the Government of Tamil Nadu but also the other State governments have withdrawn from the housing sector. During this time housing finance options were improved and subsequently commercial banks got into the housing sector. Income tax exemption towards repayment of housing loan also contributed to the spurt in housing. Private developers stepped into such a facilitated market.
These incentives have paid. Today most of the housing is provided by private developers. But the housing deficit has been on the rise. This is not surprising because the private developers have focused only on the higher income groups.
With the State withdrawing, affordable housing options have reduced. For the last five years TNHB has hardly built any housing units. Now it wants to rediscover its role in housing by opting for a market friendly model. This may turn TNHB into a cash rich and profitable organisation, but will it improve the affordable housing stock in the city? The proposed PPP model needs a serious rethinking. Mr. Rao, says that the KK Nagar project is a beginning and TNHB will fine tune its model as it progresses.
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