By Matthew Kredell
USC Price Professor Richard Green, director of the USC Lusk Center for Real Estate, traveled to India in December to be the lead speaker in a development seminar on the intractable problem of housing, hosted by Brookings India, a non-partisan policy think tank based in New Delhi.
Shamika Ravi, director of research at Brookings India, introduced the topic by noting that the “housing for all” initiative is one of the largest flagship programs of India Prime Minister Narendra Modi. With the massive growth of urbanization in India, she expects affordable housing to continue to be an issue in the coming decades.
Green asserted that affordable housing is not a problem unique to India. In fact, he contended that Norway was the one country in the world he knew to do a good job housing people by placing everybody in homes that they can afford and are reasonably close to employment and good schools. Norway succeeds by having a small and wealthy population with income equality.
“This is a problem faced almost everywhere,” Green said. “We in the U.S. have a housing problem. We have lots of people either spending half their income on housing or taking two hours one way to get to work. This is a worldwide problem. The intractability issue I think is very much a function of how much income you have and how evenly is it distributed.”
Green attested that India and the U.S. share a common problem in that small numbers of property owners keep windfalls from government policy changes, such as rezoning and infrastructure provision. He advocates for auctioning off of air rights to build upward in the move from lower to higher density zoning, and then using the revenues to fund infrastructure and housing for low and middle income people.
Green added that, in India, margins are high because developers have no competition. In Texas, which he said does housing better than any other economic place in the U.S., margins are incredibly thin because there are a “zillion” developers who make money on volume, not any particular development.
Green cautioned that overregulation can limit the construction of affordable housing.
“In the U.S., when we build something called ‘affordable housing,’ it costs 30 percent more than the private market stuff to build, and that’s because of the length of time and bureaucratic processes it has to go through that layers cost on cost,” he said. “That’s just crazy.”
He recommended that government subsidies be provided to individuals rather than developers.
“To me, there’s overwhelming evidence that subsidies to individuals go further than subsidies for building,” Green said. “If you give people a voucher, 85 percent of every dollar goes to the intended recipient. Because vouchers allow people to move to places they want to move, you get positive externalities. The problem is somehow people don’t mind when the government builds buildings, but they mind when you hand money over to other people.”
Green made his final plea for the rental market. Housing policy in emerging countries tends to focus on ownership, according to Green, and that shouldn’t be the case.
He shared that he met with the Indian Minister of Housing during his visit and asked him about rental housing. The response he received was that it would be addressed after the election, and he fears that’s the same response he would get in another five years. He noted that UN Habitat endorses the importance of renting.
“Think in India how much less pressure there is on cashflow if you’re a renter rather than an owner,” Green said. “It reserves savings for other kinds of investments. Maybe I don’t want to put money into real estate, maybe I want to put money into a small business. It also makes labor mobility easier. When you don’t have a commitment to a house, you don’t have to sell the house when moving from one city to another.
“We need to think more about developing robust rental markets, not just in India but other countries throughout the world.”
Director and Chair of the USC Lusk Center for Real Estate
Chair, Department of Real Estate Development