Policy makers all over the world are increasingly reaching for old Keynesian fiscal policy tools to salvage economies sliding into recession.
Chris Thomas of Speedwall Building Technologies (www.speedwall.com) commented that governments have to concentrate their spending on public projects with the biggest social and economic spin-offs. Of these low-cost housing would rank high when it comes to a positive multiplier effect. He states that Indian demand for low-cost housing today is estimated at over 24 million dwelling units and building these houses engages a large number of trades and trademen and finance. Ultimately an asset is created which allows the house-owner to have more options in financing the family's future growth.
A comprehensive programme to build low-cost housing, which is aimed at incentivising the buyers (and not just the builders) could not only revive the demand for iron, steel and cement, but also protect the livelihood of countless unskilled construction labourers. For lenders, low-cost homes are a safer mortgage because of low price volatility, as compared to premium mortgages which have contributed to the asset price bubbles.
A well thought out interest rate subsidy to banks would significantly lower the equated monthly instalments (EMI) burden on buyers and also give comfort to banks. The demand certainly exists. An affordable housing project by a private developer at the outskirts of Mumbai city received 66,000 applications for its first phase of 3,000 units, of which 40% are one-room-kitchen flats, measuring 300 sq ft and priced at Rs 3 lakh each.
This at a time when other developers in the heart of the city are fighting a slowdown in sales. The project aims to create affordable housing for low-income groups without government subsidies, while being commercially viable. In 2007, a strategy consulting firm that has been doing extensive work in the area of affordable housing in India, conducted research that highlighted enormous demand for housing among low-income groups.
Key Asian economies are already lining up various stimuli to support the property market. The package announced by China has a slice for low-rent housing, while Singapore is willing to offer certain rights to foreigners who invest in their properties (though in this case not low-cost ones).
India which has so far felt only the ripples of a global fiasco, is now beginning to see the country’s steel and car makers slashing production. Ambitious infrastructure projects may lack sponsors and not many lenders think these are bankable. But low-cost homes will always find takers.
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