Is Rental Housing the Answer to India’s Housing Shortage Crisis?
Akshay Naik 08 December 2022
India has a housing conundrum—on the one hand, there is a housing shortage which fails to meet the needs of a burgeoning population, while, paradoxically, the number of vacant houses in the country remains staggeringly high. The estimated housing shortage in India has risen by 54% to 29mn (million) in 2018 from 18.78mn in 2012. On the other hand, according to Census 2011, the number of vacant houses in the country increased from 6.3% in 2001 to 7.5% in 2011.
Why is the percentage of vacant homes so high? Generally, a large vacant housing stock is indicative of the rising problem of affordability and also a mismatch in the needs of the working population that is perhaps not keen on investing in a home at their present stage in life. 
As India has rapidly urbanised in recent decades, with the urban population growing to 377.1mn in 2011 from 62.4mn in 1951 (as per Census data), its cities have continued to fail in providing sufficient affordable housing for all residents, especially for migrant populations. Amidst rapid urbanisation and worsening urban poverty, cities in India continue to struggle with the challenge of inadequate housing. Furthermore, with the influx of urban migrant workforce seeking better life opportunities in urban centres, construction and supply of informal dwellings and residences in slums are on the rise.
The housing market in India has often been characterised by policy advocates, as having an excess demand for affordable housing, a small rental market and an oversupply of high-end housing especially in urban areas. Ongoing urbanisation and urban migration has intensified the demand for affordable housing especially at the low end of the market. But, the often-stated vision for housing policies in India—of providing ‘housing for all’—has come to mean ownership of houses, while failing to equally promote other affordable alternatives.
Flawed Housing Policies
Housing policies in recent decades, have been focused on home-ownership and incentives, or fiscal benefits, have worked towards the promotion of home-ownership. However, purchasing a house may not necessarily be a financially viable decision for many people; hence, many prefer to rent rather than own homes. Rising prices of real estate have meant that home-ownership continues to remain a distant dream for many. 
Unaffordable housing prices and rents, coupled with an unresponsive supply from the formal housing market, are cited most often as the key factors for the unabated increase in the number of urban households living in physically inadequate housing and in slums. Policy inputs from the government, over the years, have ranged from carrying out land reforms, providing subsidies to households for purchasing a home and construction, providing subsidies to private suppliers of formal housing, formalising informal housing through granting of property rights and undertaking redevelopment of slums.
Alongside such policies from the Union government, many state-level initiatives have been undertaken for promotion of housing projects for the economically weaker section (EWS) and lower income group (LIG) households. However, most measures and approaches by the Central and state governments have suffered from similar shortcomings—a lack of understanding of the needs of beneficiaries because of the lack of greater community participation, cornering of benefits from schemes meant for lower-income households by higher-income households, fragmented design and implementation of programmes, lack of viable rehabilitation options for evicted slum households, and lack of convergence between housing schemes and schemes relating to employment and health of lower-income households.
Perhaps a common misstep in all these policies has been the objective to make housing more affordable for ownership. There has been a clear lack of understanding from a policy perspective about the other forms of housing which could potentially supplement the housing needs in India.
Rental Housing – A Viable Alternative?
Affordable rental housing has, generally, been one of the lowest steps in the housing ladder. However, it continues to remain the preferred choice for some households and special interest groups, such as young households, who do not have adequate savings to avail housing loans, households where affordability is a concern and migrants, refugees or those with disabilities and in need of care. In many cases, rental housing could be preferred to owner-occupied housing for reasons like its compatibility with labour mobility. Renting a house allows tenants to save financial resources for investments in other avenues.
India’s growing millennial population and a larger urban migrant workforce have resulted in a growing demand for rental housing as opposed to ownership-based housing in urban centres. The country’s steady rate of urbanisation, increasing migration to urban areas and the supply lag of housing, including adequate rental housing, have resulted in limited household demand and choices. Urban population has experienced a gradual increase over the past few decades, from 28.5% of the total population in 2001, the proportion of urban dwellers increased to 31% in 2011, adding about 9mn each year to the country’s urban population (as per Census data). This population boom in urban centres has meant a growth in the demand for affordable housing.
Rapid urbanisation has further emphasised the need to address the serious issue of urban housing shortage in a more strategic manner. A significant portion of this shortage could perhaps be attributed to the growing population of urban poor who are left without viable and affordable housing options in urban cities. While subsidised ownership housing, as introduced under the government’s many housing schemes, could be one of the means to address the housing shortage, typically, low-income households with seasonal incomes and transitory employment patterns cannot afford to buy such a house. Small monthly rents are more suited to such segments of the population.
Rapid urbanisation has also increased migration from rural areas and small towns to cities for the purposes of work, education, etc. The pressure of accommodating these migrants has increased considerably and many such migrants prefer rental housing over traditional home-ownership. Vibrant rental markets are necessary for workers’ mobility. It is much easier and less costly to move when a person is a renter than when he is an owner. Selling a house means high transaction costs including realty fees, transfer taxes and, potentially, capital gains taxes. Ownership can create disincentives to relocate closer to jobs, becoming a mobility trap. 
In general, when a worker needs to move to take a job in a different city, terminating a lease is easier than selling a home. Although it is possible, in some cases, to rent the owned home to tenants and to rent a home in the new city, these options need a vibrant rental market across the country.
It is clear that a robust rental housing policy is a must for a country to efficiently tackle its housing shortage problem. Affordable rental housing is rapidly becoming an important necessity for a growing population of millennials and also the urban migrant workforce. Furthermore, successful global housing markets such as those in the United Kingdom or Germany, indicate that rental housing rather than being relegated as inferior or undesirable, should instead be equally promoted along with ownership-based housing and backed by well defined government policies or subsidies. 
In India, government policies, focused as they are on ownership housing alone, have traditionally neglected rental housing. The absence of government policy interventions has been one of the primary deterrents in the creation of rental housing stock in India. The draft National Urban Housing Rental Housing Policy (NURHP) and draft Model Tenancy Act (MTA) aim to rectify this situation. However, for these policies to be successful, the government needs to play an active role by encouraging all states to be equal partners in the endeavour.
Overall, for India to realise its goal of ‘housing for all’ and to meet the housing demands of the urban poor, a more serious analysis is required to promote and support rental housing accommodation as an affordable alternative. As a first step, this requires a change in focus on the national policy level as well a change in the laws governing rental housing. The government has only recently acknowledged the need to revise and reshape existing rental housing laws, putting forward drafts of NURHP and MTA. There remains an urgency to ensure such policies are implemented at the earliest to adequately meet the housing needs of India’s growing population.
Want to know more? Topics covered in this article are explained in detail in Moneylife Foundation’s Rental Housing Report, which can be accessed here
1 year ago
The law is tilted in favour of tenants and landlords are worried that even after all the legal documents, there's no way to evict an unreasonable tenant, because cases can drag on in courts, to the benefit of the tenant. Only when laws become more reasonable, with a balance between the owner rights and tenant rights, will more houses be available on rent. The second point is that rents are very low compared to the market value of flats, which means that it is far better to get capital appreciation than give flats on rent.
1 year ago
This is a very relevant article. The topic is very relevant today. The author has done good research and articulated the scenario. There are in fact a lot of houses vacant, but house owners are reluctant to rent since there are no clear laws and enforcement about tenancy rules. A big fear of a house owner is what to do if a tenant does not vacate the house. The new policy regarding the renting should be a good step forward. Great article. Thank you.
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