Rent a Solution?

“ Fair housing is not an option- it is the law ”??Carl Harris

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Housing in first glance seems to be a clear cut mundane sector but within those yellow boxes lays a whole set of diversified and complex system that it can make anyone perplexed. These scenarios exceed in terms of Housing in Developing nations like India, where the number of poor is high and pooling investments low,?“One out of ten are denied liveable housing” Dr.U.K Roy, IIT Roorkee.?Though Government of India has looked in to shorten the gap of housing need like introducing “Housing for All by 2022” initiative, which includes many embedded scheme of?PMAY (Pradhan Mantri Awas Yojana)?where a certain percentage of the cost of building a house will be covered by the government, also lucrative loans are also provided with the base being the urban poor, the scheme targets building 20 million affordable houses by 31 March 2022.?But things may not be smooth?as stated by Rajesh Krishnan, CEO, Brick Eagle Group and a well-known face in the housing sector, “In order to suffice the housing need in the nation 30 million housing units are required which will cost around a trillion dollars of investment, 3lakh acres of land and 15 billion sqft of construction”, these stats are limited to present data as the future influx of people in urban areas will increase, ownership housing may not be an ideal option.

So people are now shifting their focus into Rental housing system which will be quick, simple and can remarkably cover the urban poor, as the demand is 5 million housing units annual in India with only supply being under 10% of demand (Rajesh Krishnan), rental housing can be a suitable alternative to solve this impending problem, with lower investments and lesser burden on Urban Local Bodies to cater the demand, the shift towards renting can also be seen in government decisions, after the migrant worker crisis recently, rental housing was also included in PMAY scheme which aims in providing low rent housing for migrants workers.?(Bathla, 2020)

What is Rental Housing?

Rental housing means a property occupied by another person than the owner for which the tenant pays an agreed rent to the owner periodically, to put it in the simple term but there are many types depending on the need of tenant and practicality of owner.

According to the National Urban Rental Housing Policy 2015, the definitions are as follows:-

?“Formal rental housing” means rental housing based on an agreement entered into between the owner and the tenant, which is registered with the competent authority under the law for the time being in force.

“Informal rental housing” means rental housing which is not based on an agreement entered into between the owner and the tenant, and is not registered with the competent authority under the law for the time being in force

‘Market Driven/Private Rental Housing’ means rental housing provided by individual owners or institutions/entities or private rental housing operators (such as hostel owners) wherein owners finance the construction and management of rental housing, independent of government assistance.

“Need-Based Rental Housing” means rental housing based on need/requirement of different groups (such as students, teachers, working women/men, nurses, construction workers, migrants) who have a source of income, but find it difficult to afford the rent towards rental housing.

“Public Rental Housing” means social rental housing that is owned by the government, local authority or its entities.

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Some terminologies which need to understand before addressing through rental Housing concept are

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“Owner” means a person who, for the time being, is receiving, or is entitled to receive, the rent of any residential rental premises, whether on his own account or on account of or on behalf of, or for the benefit of, any other person, or as a trustee, guardian or receiver of any person/institution who would so receive the rent or be entitled to receive the rent, if the premises were let to a tenant, and shall include his successor-interest

“Tenant” means a person who has entered into a rental housing agreement, for any residential rental premises, with the owner, in lieu of rent payable towards the same.

“Incentives” means a payment or concession to stimulate greater output or investment in rental housing, which may be fiscal and/or non-fiscal incentives (such as grants, low-interest loans, tax abatements etc.) that promotes housing to be accessible to those that cannot afford market rents

Economically Weaker Section (EWS)?means households having an annual income up to Rs. 3,00,000 (Rupees Three Lakhs)

Low Income Group (LIG)?means households having an annual income above Rs.3,00,000 (Rupees Three Lakhs) and up to Rs.6,00,000 (Rupees Six Lakhs). (Ministry of Housing and Urban Poverty Alleviation, 2015)

Stakeholders

Rental housing has two major players, in the supply side are the?owners?and towards the demand side are the?tenants.?Data access is limited and misleading such as to avoid taxation some properties may be listed as owner-occupied whereas in on-ground it is being used for rental housing, some may stay in a rented house owned by a relative, etc.

Owner

Individuals or small-scale owners-?They comprise a major chunk of the rental market. Some of these property owners may grow into professional investors by accumulating units in various buildings or by buying cheap properties.

Institutional investors- In the second category of landlords are medium- and large-scale institutional owners and investors with long-term profit purposes. Residential real estate is a relatively risky and illiquid asset; it may also be a low-return asset.

Non-profit or limited-profit providers of social rental housing- Social rental housing generally serves targeted populations, such as low-income families, the elderly, the disabled, and families relocated because of development or relocation, in most cases including government investments. Social Impact investors?are quite active in providing necessary funds for the philanthropic purpose, like Unitus Capital, Lok Capital and Villgro, etc.?

Tenant

The rental sector is a natural outlet for households that do not have sufficient income to afford a home, do not have income that is formal enough to qualify for a mortgage, have not saved enough to meet down-payment requirements for ownership, or simply do not want to own a home. (WorldBank, 2013).

Rent control

Rent regulation is a method through which authorities put a cap on rent that can be demanded by the landowner these are usually enacted by ULBs and vary with region. Though it aims at keeping the living cost affordable for low-income residence as research show that areas that have had strong rent control systems did so to protect the tenants. However, over time, it became clear that rent control inhibited development (WorldBank, 2013).

The Rent Control Act, passed in 1947, led to the freezing of rents, which disincentivized private capital from creating housing stock for rental purposes. In 1973, the Rent Control Act was amended to provide all the tenants’ rights to the licensees, making the rental business even more difficult for the private sector?(Y.Zhang, 2016)

Rental housing vs Ownership

As job market is becoming competitive and companies at times need employees to shift to other branches at that time dynamic rental markets become essential for the mobility of workers, as it becomes easier for a renter to move compared to when one owns the property. Ownership can create disincentives to relocate closer to jobs, becoming a “mobility trap” (R.Green & P.Hendershott, 2001). Owning a rented property can act as an income source especially for retired individuals acting as pension fund. For low-middle income group owning a residence becomes the largest component of family wealth, also acts as a social status which has qualitative benefits especially in developing nations, where government benefits are not easily accessible, thus also acting as a social security for the family.

Rental Housing in India

India is the perfect test case to set up a mass scale Rental Housing scheme due to the shortage of low-cost housing projects. Rental housing can be an affordable approach to cater the huge floating population in metro-cities, but as developed nations have successfully implemented rental housing to cater to the segment were property buying is out of budget, India is yet to find success in Rental Housing. “Yield in the rental housing project is 2-4% while appreciation in?real estate?investment is 10%, which makes no business sense in investing in Rental Housing projects” Ashwinder Raj Singh JLL India.

Major Setback?

The primary need for affordable housing is the EWS and LIG groups as they account for 80% of housing deficiency in India (NURHP2015). This creates an extra burden for authorities and stakeholder to produce housing projects at low cost and also generate enough revenue to lure investors. Economic survey 2017-18 done by Ministry of Finance, found that Mumbai has five lakh vacant houses, which are kept vacant for better returns from the housing market, turning these units into rent is a daunting task as owners are reluctant as returns are less in renting also removing the tenant becomes an obstacle for them. FDI or Foreign Equity trends in India have shown a reluctance towards entering housing development as approval process becomes major hindrance to lure the private players. One reason why rental housing is rarely promoted might be a belief that the only way for a government to encourage its development is to create social housing or public housing, which will entail a host of negative perceptions (WorldBank, 2013).?

International Organisation

As the UN-HABITAT report recommended “Governments should thus modify the regulatory framework, develop credit programs and other forms of assistance to support housing production, with a view to creating more rental housing and to improve the existing stock”

World Bank has stated some benefits offered by rental housing:-

• Aiding a city in developing or redeveloping its urban core?
• Providing shelter to transitional workers and to those who are poor or disabled?
• Giving short-term workers flexibility and mobility.

?Conclusion

A roof over the head is undeniably the most intolerable fundamental requirement. Enabling one to own the home; it is not economical to just hire a little home in most metres. For those moving from small towns to larger cities for education and employment, things become more difficult. In such case Rental Housing can be a practical approach to reach the?Housing for All?initiative. “Rent-to-own” method can be used were the buyer and the seller sign an arrangement in which, following a?rent?period, the seller undertakes to transfer complete ownership of the unit in future. Many such ventures and hybrid process can be applied depending on each region’s complexity and need, but renting has more chances to become the next normal as demand increases.

Bibliography

Bathla, N. (2020, May 16). Housing the migrant worker. Retrieved from Indian EXpress: https://indianexpress.com/article/opinion/columns/coronavirus-migrant-workers-housing-scheme-6412035/

Ministry of Housing and Urban Poverty Alleviation, N. (2015). National Urban Rental Housing Policy. New Delhi: Government of India.

R.Diwakar. (2018, April 2). Realty.com. Retrieved June 7, 2020, from EconomicTimes.India: https://realty.economictimes.indiatimes.com/news/residential/is-affordable-rental-housing-a-luxury-in-india/63580489

R.Green, & P.Hendershott. (2001). Home-ownership and the duration of unemployment: a test of the Oswald hypothesis. University of Aberdeen and National Bureau of Economic Research.

Sharma, A. (2018, june 4). LiveMint. Retrieved June 7, 2020, from https://www.livemint.com/Money/Dgo8LODjRjyLEJy8UTw7fL/What-is-rental-housing.html

WorldBank. (2013). Rental Housing. Washington D.C: World Bank.

Y.Zhang. (2016, March 3). Wilson Centre. Retrieved from Building a Slum-Free Mumba: https://www.wilsoncenter.org/article/building-slum-free-mumbai