The government makes houses unaffordable
Current scenario:
Why should homes not be affordable? Who is to blame for the rise in home prices? Some would like us to believe that cement producers are the ones to be blamed because this commodity has seen a spurt in prices. But cement accounts for just around 10% of construction costs (excluding the cost of land). Steel accounts for a higher 15%. Yet nobody looks at the speculative profits steel traders make. Moreover, unlike steel, cement companies have proved they can compete effectively against imports. This is possible only when the quality is good, and the prices competitive. True, cement prices went up by 10% last year, but steel prices went up by 20% while sand and brick by a whopping 300%. Cement industry spokesmen claim price increases to be much lower.
Analysis:
Housing is very expensive for three reasons. Land costs and construction costs in India, and particularly in Mumbai, are very high. Also, there is the cost and time involved in getting sanctions from the government, and the amount the developer and architect have to spend for speeding up work.In Mumbai, land cost is high due to the low return on FSI (floor space index, a ratio which determines how much floor space you can have as a proportion of the land area). FSI should be increased so the cost of the flat or commercial area can come down. Also, there are many restricted areas—land which is in possession of MHADA (Maharashtra Housing and Area Development Authority) or the BPT (Bombay Port Trust), that should be opened up in a proper way.
There is a need to connect cities like Pune and Nashik to Mumbai. This will allow people to stay elsewhere and travel easily to Mumbai for work. That will reduce demand in Mumbai, forcing housing costs to come down.
Infrastructure within cities also needs to be developed. Today, the time and effort taken to travel between South Bombay and the suburbs is too much.
There is also the construction cost factor. The government can reduce taxes and restrictions on cement and steel.
Lastly, there is an interest cost for the time taken in getting all the sanctions for the projects. If the procedures take less time, it will bring the prices down.
