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Inclusionary Housing

Now that governments all over the world have stopped building public housing, alternative policies are needed to ensure that the lower income groups in towns and cities have access to decent and affordable housing. "Inclusionary housing" offers a set of policies to meet this need. Its central feature is that whenever any new floor space is built, for whatever reason, a portion of the built space is set aside for housing those who cannot afford what the market offers by way of rental or ownership housing. Building such accommodation is the responsibility of the developer; managing it thereafter is in the hands of a different agency, and subsidising the families that live there is a third function separated from the first two.

COMMENTARY

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Inclusionary Housing Shirish B Patel carry out his development. The concept originated in the United States in the 1970s, but has since been adopted in Canada, the UK, France, Spain, Italy and other countries. Thus, inclusionary housing is

Now that governments all over the world have stopped building public housing, alternative policies are needed to ensure that the lower income groups in towns and cities have access to decent and affordable housing. “Inclusionary housing” offers a set of policies to meet this need. Its central feature is that whenever any new floor space is built, for whatever reason, a portion of the built space is set aside for housing those who cannot afford what the market offers by way of rental or ownership housing. Building such accommodation is the responsibility of the developer; managing it thereafter is in the hands of a different agency, and subsidising the families that live there is a third function separated from the first two.

Shirish B Patel (shirish@spacpl.com) is a civil engineer and urban planner and chairman of the Bangalore-based Indian Institute for Human Settlements.

Economic & Political Weekly

EPW
october 22, 2011

“Public housing” is commonly un

derstood as housing that is built

by a government agency. It is then

either sold or rented at less than market

rates to deserving families. More often

than not it is also maintained and man

aged by a government agency. Recently,

however, many countries have moved to

regimes of what is called “inclusionary

housing”, where the three distinct matters

of building – the housing, maintaining

and managing it and subsidising the occu

pants – are divided among three separate

entities, each best skilled at carrying out

its particular function.

Housing for the Poor

“Social housing” is housing managed by a government agency or (in the United Kingdom) by a registered social landlord, a non-profit housing association which is in the business of managing and maintaining housing estates. Rents are usually below market rents. “Affordable housing” is social housing where the occupying family’s rental or ownership payment is subsidised in one way or another, and thus, means housing mainly for poorer people.

“Inclusionary housing” refers to a set of programmes or policies which make it mandatory for a private developer to provide social or affordable housing as a condition for the permission given to him to

vol xlvi no 43

social housing that is mixed in with higher value development. The authors of a recent book consider “…the emergence of inclusionary housing as arguably the most significant new policy direction in the realm of social and affordable housing in recent decades” (Calavita, Nico and Alan Mallach (2010): “Inclusionary Housing in International Perspective: Affordable Housing, Social Inclusion and Land Value Recapture”).

The underlying principle is simple. In the past, when you built a bungalow, you were required to also build servants’ quarters in your compound to house your own domestic staff. Similarly, in inclusionary housing, when a developer builds anything, whether it is high-value residential apartments, or an office, or a cinema, or a mall, he is required to also build and set aside something like 25% of the total built floor space (in Spain it is 50%) for inclusionary housing. In many countries this is required to be provided in situ, that is, on the same plot as the high-value development. In some countries, it can be at another location, but ideally wherever it is, it must be mixed up with housing for higher income groups, and not isolated in a ghetto of the poor. France experienced riots in 2005 by disaffected and alienated youths, who lived in physically and socially segregated suburbs for the poor. There is learning and evidence from many countries now that the building of

COMMENTARY

mono- tenure estates and concentrated deve lopments for poorer people can only have bad outcomes for the residents and the rest of society.

Production, Management and Affordability

Three distinct kinds of entities are involved in the production, management and ensuring affordability of the inclusionary housing.

The developer builds the housing. He has all the skills needed for design and construction. The construction cost of the inclusionary housing he builds is reimbursed to him, so he is not out-of-pocket and does not need to skimp on specifications. Only the land for the inclusionary housing is provided by him without charge: but this is the condition on which he gets to commercially exploit the rest of the plot. Naturally no developer, in any country, likes this regulation that mandates inclusionary housing. But it is nevertheless widely adopted.

Management of the housing is often in the hands of a non-profit organisation that specialises in managing and maintaining housing. In the UK, for example, housing associations bid against each other for the right to manage a particular estate. They can borrow from banks against mortgages of the property they own. They can either sell or rent out apartments. They earn the rental, collect government’s subsidies for some of the families occupying the housing, and from these revenues they maintain the buildings and also pay their staff. Some chief executive officers of housing associations in the UK are said to earn more than the prime minister. Because the association is non-profit, surplus funds must be reinvested in other housing schemes. These associations are subject to fairly stiff regulation by the government.

Notice the separation of the function of constructing the housing from the function of administering the estate. The former is with the developer, the latter is not. The developer is reimbursed the cost of construction of the inclusionary housing and nothing more. Thereafter, he is no longer on the scene. Allotment of the tenements, maintenance of the property, the collection of dues and dealing with complaints are all the responsibility of the agency selected to perform these functions. It makes a sense to appoint the housing estate management agency before the construction of the inclusionary housing begins. That way they can participate in the framing of specifications, agree on costs and supervise the work as it proceeds.

Subsidies are on a family-by-family basis. The starting point is the widely shared belief that every family has the right to live in a decent home, which is not a blot on the environment. The size of accommodation allotted depends on family size. The amount of subsidy depends on the income of its family members. The subsidy scheme is administered by the government. The amount of subsidy is presumably adjusted from time to time as the family’s economic status improves or declines.

In the Community Land Trusts (CLTs), another type of association in the UK for the management of housing estates, there is an agreed formula between the CLT and the individual owner which specifies how the capital gain on resale will be divided between CLT and the individual home owner. The CLT uses the funds it earns to improve the estate, or to help finance a new incoming occupant.

The Indian Context

We should note that inclusionary housing seems to be sufficient in itself as a policy in western countries, where those who cannot afford market prices form perhaps a quarter of the total population. In our case, where decent housing is not affordable by a majority of the urban population, inclusionary housing may be only one of a cluster of policies we need to put in place to address the problem. In particular, apart from improving conditions in the existing slums in cities, an issue addressed by the Rajiv Awas Yojana (RAY), we need to look at the extending transport networks to bring more land within commuting range; and on this land building mixed-use and mixedincome developments, where the higher value plots cross-subsidise the lower value plots, on which sites and services are encouraged as a way that allows the poor to spread their investment in housing over many years, an important factor in making low-income group housing affordable.

To return to inclusionary housing, we need to reiterate two of its key features: First, that it is distributed throughout the city. The gains from not geographically separating the poor from the rich are hard to discern: certainly reduced commuting time would be one gain, but more important, no doubt is the fact that rich and poor share the same public space. They are hardly likely to interact socially (all the evidence is that they do not), but there may nevertheless be some value in the occasional, inevitable, unpredicted contact, with the consequently raised awareness among everyone that urban society is a composite of a wide range of income groups sharing the same common spaces. Riots of the kind France experienced are hopefully less likely.

The second key feature is that it is often not possible to tell who is in subsidised housing and who is not, nor who is in ownership and who is on rental. All forms of tenure are mixed up in the locality and often in the same building. There is no social exclusion because a family’s earned income is below a certain level. This surely matters, particularly to a child. It is bound to shape that child’s attitudes. And those attitudes will carry through to later life. So inclusionary housing is not just about the physical disposition of where such housing should be. It is about the direction we want our society to take.

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october 22, 2011 vol xlvi no 43

EPW
Economic & Political Weekly

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