Solving India's affordable housing challenge

The shortage of affordable housing in India is estimated at 18.78 million homes - and this number is expected to grow to 46 million by 2022. The housing deficit is both quantitative as new houses are needed and qualitative because there is a need to repair and improve homes that are made out of temporary material such as thatch roofs or mud walls.This significant deficit must be urgently addressed. About 56% of the demand for urban housing comes from the economically weaker sections (EWS), and 40% comes from Low Income Groups (LIG) segments. To address these issues, the ShelterTech Accelerator is committed to find innovative solutions by tapping startups and entrepreneurs working on housing solutions for low-income households.

Why Startups ?

Startups have proven to be quite successful in cracking open the challenging problems in different sectors like healthcare, agriculture, and clean energy, including those that are usually the focus of public sector interventions. By developing and testing new products, services, and business models, entrepreneurs often have the flexibility to look at an old problem in a new & creative way and efficiently scale-up the solutions.

When it comes to affordable housing, recent efforts from the government have served as a welcome push for new programs and projects in the area. However, we believe that public sector initiatives alone are not sufficient to drive sectorial changes that will be required to meet the growing housing deficit.

But how can entrepreneurs make an impact?

At present, there are two major ways that low-income households acquire or improve their shelter in India:

Developer-led construction

Private developers generally partner with land owners to develop affordable housing projects. They contribute to roughly 35% of the housing supply and include large, medium and small sized companies that have capacity to develop affordable housing for the low-income segments. Under this system, Private Public Partnership (PPP), Credit Linked Subsidy Scheme (CLSS), InSitu constructions are just some of the things already under PMAY. However, the supply of homes is usually still restricted to urban and semi urban areas.

Owner-driven construction

It consists of land-owners who directly construct their own houses, at times incrementally, in peri-urban and rural is via a process known as incremental housing. This contributes to more than 65% of affordable housing supply in India.


Finally, players must also consider alternative solutions to home-ownership, which include shared accommodation, rentals, movable homes and other modalities. Currently, these represent a significantly small percentage of the overall supply of affordable houses, but they offer an option to the existing models, and the potential of disruption of existing major incumbents, through innovative business models.


Therefore, the question is:

How can startups enable a significant increase in the supply of affordable housing?

Startup founders can begin solving the affordable housing challenge by:

  • Being value-chain enablers of housing by creating solutions that allow developers and self-builders to build faster, more affordable, and better quality shelter.
  • Enabling home-owners to improve and maintain their homes providing modular, smart designs, materials and services that increase the overall living experience.
  • Disrupting the existing value chain through new business models to deliver products and services.

Core themes

Theme 01a: Helping developers scale

Developers are the main players catering to the urban affordable housing market, especially in Tier 1 and Tier 2 cities, and often in areas with higher land costs.

Enablers in this segment would need to focus on the means to increase the volume of construction, enhance sales velocity, provide unique financing models, allow for improved quality construction, and facilitate approvals, clearances and compliance.

Theme 01b: Improving owner-driven construction

Currently the main way that low income households in periurban and rural areas, as well as Tier 2 cities and below, build and improve their homes is thru owner-driven construction.

The enablers in this space must focus on the ease of construction solutions such as access to home loans/micro-mortgages/housing micro-finance, basic construction management and professional services such as design services, site planning, advice as well as innovations that result in improved construction practices and subsequently into quality housing outcomes.

Theme 02: Enhance livability

Playing an important role in the success of any community, the livability of space and community has a big influence in the housing experience. As of now, there is very little focus on enhancing the livability of housing communities.

Disrupters in this arena must think of housing as an experience. The key solution provider in this space would build and enhance the dwelling unit as an asset for the families and contribute to their social and financial standing within the community. The target of this theme are organizations that work on facilitating an adequate social infrastructure, community facilities, energy efficiency, or water management measures, to name a few.

Theme 03: Disrupting existing value chains

The affordable housing market needs interventions, from novel alternatives to adaptation of mainstream housing and construction practices. Mobile buildings, manufactured buildings, 3D printing and other techniques have been gaining foothold in adjacent, commercial and high end markets. Many of these applications are already prevalent in international markets. At the same time, shared accommodation, shared ownership and rental management are disrupting the mode of house ownership and becoming economically viable alternatives.

While we are yet to see a trickle down of some of these alternatives into the affordable housing markets in India, they have the potential to disrupt the fundamental value chain and create radically new value propositions for the stakeholders.

Possible focus areas for startup founders

As a startup, while your solution may align to the abovementioned core themes, some of the challenges enumerated below can serve as a good starting point:

Land, titling & construction permissions

Land, perhaps, is the costliest aspect of the construction and remains most elusive. Mostly a state topic, majority of the reform in the land will be through a push from government. Some of the top challenges faced by individual and institutional stakeholders is the lack of information available on land plots, and of authentic information on the tenure and titling.

A typical affordable housing project requires approximately 24-32 months for construction to commence after the land acquisition. More transparency in land inventory, titling and tenure, along with reduction in time taken for approvals, would not only impact the turnaround time for a construction project, but also reduce the waiting time for buyers and bring down costs.

Best for solutions that increase transparency in discovery and traceability of land parcels, enable Urban Local Bodies to issue relevant construction permits faster, simplify approvals and facilitate faster construction.

Construction technology and new materials

Construction costs1 account for more than 60% of a housing unit. Material quality, technology and related logistics tend to affect the cost and quality of construction, and may lead to higher maintenance costs in the long term. There has been significant advancements in identifying appropriate construction materials and technologies for affordable housing construction. However, this research has often been restricted to pilot projects or laboratory solutions and has not been mainstreamed to low income markets, rendering them ineffective in their innovation.

A majority of challenges in taking up new materials and technologies is due to lack of know-how and aspiration gap. Other contributing factors have been unviable business models, production challenges and distribution networks and incentives.

Startups that have solutions to increase the viability and adoption of the new construction technologies and materials will be of high interest.

Labor productivity & quality

Labor contributes to over 30% of the cost2 of construction. One of the biggest challenges plaguing developers and builders alike is low labor productivity, primarily due to the absence of adequate trainings of construction workers. Lack of standardized construction education for workers, coupled with construction knowledge trickling down in an informal manner multiplies the inefficiencies. Moreover, built in inefficiencies and the lack of appropriate performance measure, impacting the ability of workers to provide consistent service.

With more than 90% of labor force untrained, the service provider section is often managed informally.

The availability of construction equipment and tools, skill development or labor certifications, would help in significantly enhancing the productivity of labor. Automated tools and equipment that can replace the need of intensive manual labor would also be of high interest.

Material supply and procurement

Construction materials contribute to another 70% of the cost3 of housing construction. Inefficient procurement and complexities in supply chain management practices are the major causes of construction delays. Availability of material on-site, fluctuating material prices, know-how about material options are just some of the aspects that developers struggle with. Other factors include delays in shipping, handling, storage and pilferage also contribute to the high cost of materials management, thereby, driving up the overall cost of construction.

Hyperlocal and mobile first discovery platforms for materials (like marketplaces) may empower developers improve the quality and timing of the procurement process. Startups that have solutions for helping developers manage inventory and ideate new models of procurement would be useful. Finally, solutions that enable efficient tracking of the supplier fleet and material pilferage are also critical.

Access to financing & subsidies

Recent push by Government of India for CLSS has created a lot of demand for financing, but on-ground results appear to be mixed. This outcome is partially due to the lack of data about the lenders and also the fact that many of these lenders are in the informal sector. Thus, the adoption of well intended schemes and diffusion of the incentives to clients still leave a lot to be desired. Additionally, private lending in the affordable segment has been a challenge mainly due to lack of financial credibility of borrowers and malicious interest rates.

Solutions that enable lenders to identify, screen and select applicants will increase efficiency in disbursing loans and subsidies. Similarly, solutions that increase the availability of data about the informal or non-salaried segment of low-income markets are critical in enhancing the diffusion of capital.

Sales & marketing

The rate at which stock of houses are sold, both completed and under construction, impacts the capability of developer in enhancing supply. According to a recent study by JLL, at the end of 2017, as many as 4,40,000 residential units remain unsold across main cities in India. Developers that wish to scale up their projects depend on quick sales cycles to manage their working capital. The lack of sales reduces their ability to finance their project and demonstrate a higher IRR, consequently, reducing their ability to scale.

Solutions that support developers with sales and marketing options and increase access to market segments, while making affordable housing inventory discoverable are of high importance.

Project management

Project management is an overlooked and under-utilized component in affordable housing construction. Construction management is heavily reliant on the experience and heuristics. Inefficient project management often leads to delayed schedules resulting in increased costs, material mismanagement, loss of productive labor hours and overall project delays.

Solutions that are user friendly, simple to adopt, to help developers and contractors to track all aspects including scheduling, material procurement, inventory management and other management aspects would be welcomed.

Professional services (engineering, design, compliance and reporting)

More often than not, the design for affordable housing are not suitable for the land at hand and are focused on reducing the cost of construction, instead of enhancing the living conditions of the homeowners. For low-cost construction, the design may not factor in the structural safety and largely depends on the needs of the owners and the skill of the contractor. Some of the large challenges faced as a result of poor design and engineering result in poor living conditions, higher costs of construction and excess material consumption.

In addition, mandatory compliances, such as adherence to by-laws and regulatory measures like RERA pose a challenge for small scale developers and owners alike and is often the cause of non-compliance, time delays and an overall negative impact of the realization of the intended benefits.

Scalable solutions that can help to significantly enhance the quality, usability, efficiency and accessibility of high quality architectural design and structure, while balancing overall costs, would be of high interest. Such solutions should enable developers and self-constructors to get access to the high quality design and structural services at low costs. Similarly, scalable solutions that provide necessary support to developers and self-constructors on various regulations, compliances and reporting are also of interest.

Home improvement, maintenance and livability

Most construction in the affordable space (both developer led and beneficiary led) is aimed at reducing costs, and, therefore, increasing the viability for the low-income segments. As a result, the materials used tend to be cheaper with rampant use of inefficient construction practices, higher dependency of available labor with little or no attention to design and standardized training. Furthermore, most fixtures used are not customized for such small spaces. Other bigger challenges plaguing these houses include lack of adequate ventilation, heat, poor sanitation and hygiene, inefficient space utilization and usability all of which reduces the quality of living and increases living costs.

Solutions aimed at enhancing the livability including building materials, space design, DIY or modular amenities & fixtures, water and sanitation would be favorable. At the same time, solutions that focus on enhancing the living experience within communities will be of high interest.

Alternative housing solutions

Large urban migration and insufficient supply of high quality affordable units has led to a large population living in sub-standard conditions. Rental and co-living areas are a viable business alternatives to building whole affordable housing units. Large stock of unsold inventories, with the potential of being used for alternative housing, such as managed rentals, already exist on the outskirts of several cities. Alternative shelters like containers homes can also be explored and have gained a foothold in the commercial market, but haven't yet been fully explored in India.

Viable and scalable use cases - that are direct alternative to traditional construction - such as 3D printing, container homes, etc, or new business models like renting would be very interesting to see.


1 - Interpreted from JLL report on affordable housing

2 - https://www.a4architect.com/2013/04/percentage-of-cost-breakdown-between-labour-materials-and-contractor-profit-in-construction/

3 - https://www.a4architect.com/2013/04/percentage-of-cost-breakdown-between-labour-materials-and-contractor-profit-in-construction/