Financial constraints to adequate housing: an empirical analysis of housing consumption disequilibrium and household decisions on meeting housing requirements in India

Abstract

Households can mitigate the disequilibrium in housing consumption that they face during their lifecycle by moving to another house, rebuilding, extending or altering their current house. The option of moving is rarely exercised in India due to high transaction costs. The default option is doing nothing. The purpose of this paper is to investigate the importance of access to, and availability of, formal housing finance in determining the choice of housing disequilibrium mitigating strategies, using nationwide housing survey data for those who decided to mitigate housing consumption disequilibrium through rebuilding, extending or altering their current house. Multinomial Logit method is used to model household housing consumption adjustment choice. The results indicate that when the share of own funds as a share of total construction cost reduces, and the access to formal finance increases, there is a tendency to shift towards rebuilding rather than expanding or altering. The results are discussed in the context of a recent government policy, Pradhan Mantri Awas Yojana (Prime Minister Housing Scheme), that aims to improve housing conditions.

Keywords:

• Housing improvement
• housing policy
• housing consumption
• India

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 NSS (2009) defines a pucca structure as the one whose walls and roofs are made of permanent materials such as cement, concrete, oven fired bricks, hollow cement / ash bricks, stone, stone blocks, etc. A katcha structure has walls and a roof made of non-permanent materials such as unfired bricks, bamboo, mud, grass, leaves, reeds, thatch, etc. A semi-pucca structure is generally a katcha structure but will have either the walls or the roof, but not both, made of permanent materials.

2 Due to detailed survey of the nature of construction activity and sources of finance during NSS 65th round of 2008-09, this paper uses NSS 65^th round for analysis, NSS 69^th round survey, though conducted in 2012, lacked these information.

3 Adequate housing area of 81 square feet per person is arrived at by dividing the average floor area of 323 sq. ft for house for Economically Weaker Section under the PMAY by the average household size of four members.

4 According to NSS (2009) households without secure tenure are defined as squatters.

5 Ten principal ooccupation codes as per NC0-2004 are further grouped under three categories (high, medium, and low), based on the mean consumer expenditure described in Table 2.