_Population and Urbanisation Trend

Throughout human history, people across the world have mostly lived in rural areas or small communities. Over the past few centuries, and particularly in recent decades, there has been a dramatic shift. Globally, we have witnessed a mass migration of populations from rural to urban areas.

According to the United Nations data, ten years ago, 52 percent of the population across the world lived in urban areas, at present the share has increased to 57 percent and as per the projections, it will reach 61 percent by 2031. The share of the urban population is much higher in the developed countries (81 percent) than the developing countries (52 percent) as of the year 2021.

Urbanisation’s biggest problem is that it has not kept pace with the housing demand of those living in towns and others migrating to cities in search of employment. With most megacities and medium-sized cities witnessing a high concentration of urban population, there has been rising pressure on housing as well as basic urban infrastructure and services.

There has been a strong relationship between urbanisation and income: as countries get richer, they tend to become more urbanised. Urban areas attract migrants, as they are the principal drivers of economic growth and livelihood opportunity. Urbanisation is complex, however, there are many recognised benefits of urban settings (when developed successfully) which include a high-density of economic activity, however, it results in higher population density (person per sq km), i.e. less liveable space available in the country.

Urban housing shortage in India

The growth of urbanisation in India has resulted in increasing pressure on the housing sector as well as the basic urban infrastructure and services provided in the cities. Substantial housing shortage looms in urban India and a wide gap exists between the demand and supply of affordable housing, both in terms of quantity and quality.

In India, where the total population is around 1.25 bn (Census of India, 2011 ), and the country is the second-most populated in the world, more than 31 percent of the total population, i.e. about 377 mn, live in urban areas. This population is living in 7,933 urban centers, including 53 cities with populations above 1 mn and 3 megacities with populations above 10 mn (Greater Mumbai, Delhi, and Kolkata).

As per the National Commission on Population – Government of India, by the year 2030 approximately 40 percent of the total population of India would be residing in urban areas.

Major challenges causing a global affordable housing shortage

Globally, the urban housing shortage primarily comprises of low-income segment population as the majority of the housing supply that is being built across urban areas is beyond their affordability. There are various supply and demand-side challenges that hold back the process of bridging the need gap of affordable housing, especially in developing economies.

Supply-side challenges:

• Land acquisition and securing title: High population density in urban areas leads to a huge demand for urban land, thus increasing the cost of land. The unavailability of affordable land with a clear title is one of the biggest barriers to the creation of affordable housing in cities.

• Land Use – Zoning and regulations: Various governments can typically use two simple tools – zoning and regulation – to either restrict housing supply and inflate prices or spur growth in affordable housing units and stabilise prices. The regulatory concerns such as restricted development regulations, i.e. lower FAR, restricted height, uneven population density distribution, etc. limits the healthy supply of housing stock, resulting in high land values and income to affordability mismatch, resulting in a housing shortage.

• Infrastructure: Considering the high cost of land, as well as better returns from other asset classes, it is unviable for developers to undertake affordable housing projects in prime areas. Even if affordable housing is feasible on the outskirts of the city, there is no civic infrastructure to support the same, which creates a bottleneck in the utilisation of land in the city outskirts to make affordable housing a viable proposition.

• Funding affordable housing: An adequate financing structure and funding are critical to addressing the affordable housing shortage. The funding instruments and sources of capital typically consist of private equity (PE) funds, developers’ equity, banks, Non- Banking Financing Companies (NBFCs), and other financial institutions. Development finance can be in the form of debt or equity. Private players tend to target luxury, high-end and upper mid housing segments owing to the higher returns that can be gained from such projects and the responsibility of provision of affordable housing mostly falls on the back of government and social impact organisations.

• Housing design & development costs: Affordable housing developments are extremely cost  
   sensitive, hence, the ability to efficiently manage costs is the key performance indicator for such
   development.

Demand-side challenges:

• Affordability: The majority of the urban poor are not able to purchase a home, as even with the help of proper financing, many are not able to pay monthly installments due to the very issue of affordability.

• Determining eligibility: Demand-side challenges concern the ability of the urban population to rent a home or credit access to purchase a home, which includes determining the eligibility of households to access government subsidies or affordable housing programs. Affordable housing can follow either a targeted approach or a universal approach. In countries such as the US, Canada, Malaysia, and India, vulnerable and low-income households are targeted for the provision of affordable housing. In countries such as Singapore, Netherlands, Sweden, and Denmark, the entire population is eligible for affordable housing. The prime challenge is to ensure that the scheme benefits reach the intended beneficiary.

• Unavailability of affordable rental housing supply: Most of the urban poor, especially in developing economies, are engaged in the informal sector and are faced with income uncertainties due to the absence of job security. Moreover, they need to be mobile to respond to employment opportunities and therefore cannot afford to be rooted geographically in a single city. Given these characteristics of low-income households, rental housing can be a viable housing option for them. A rental market also makes it easier for young people to move around inside the city as their needs change in terms of proximity to educational institutions, workplaces, public transit, and social and cultural amenities.

The above-stated challenges clearly indicate the market inefficiencies that are plaguing the sustainable development of affordable housing.