Solving India's affordable housing challenge

Why Startups ?

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

When it comes to housing in general and affordable housing in particular, 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 sectoral changes that will be required to meet the growing housing deficit.

Challenges in Indian Housing Value Chain

The huge gap in the housing demand and supply in India is well documented. As per Census 2011, The housing industry has a current gap of 18 million houses which are expected to increase to 46 million over the next five years. Several state and central government initiatives the signature mission of Government of India, Pradhan Mantri Awas Yojana (PMAY) are aimed at fulfilling this huge gap. However the gap in housing is not just quantitative but qualitative too.

Understanding/ identifying the need for private sector intervention for addressing this ever widening gap, ShelterTech accelerator is committed to address the aforementioned issues by playing its part in supporting start-ups that are bringing in various innovative solutions that could positively disrupt the Indian housing value chain.

Housing is one of the sectors which hasn't changed much over the decades. However, the complicated and vast value chain provides a huge opportunity for private players to intervene with interesting innovations and disrupt the established value chains or create new avenues. Policies and acts like Real Estate Regulatory Act (RERA) and PMAY would further add to the support for such players.

Themes 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 is perhaps the costliest aspect of construction and also scarce for homeowners. Primarily a state subject, accessibility to land is governed by the respective state governments. High-value land parcels in prime locations are not easily available for development and are often subjected to land uses which do not utilize the full potential of these parcels. Besides this, one of the top challenges faced by individual and institutional stakeholders interested in developing the available land parcels is the lack of authentic tenure and titling information available on land plots.

The program is looking for start-ups that can help this distress in the sector through innovative solutions. This could be through new ways of recording land transactions, or by solving the issues of transparency in the management.

Access to finances for housing

Recent push by Government of India for Credit Linked Subsidy Scheme (CLSS) in affordable housing, 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 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.

The program is looking for start-ups 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.

Construction technology & new materials

A large amount of new construction technologies and alternative construction materials are available in the market. However these have not been sufficiently absorbed, due to several reasons including viable business models, production challenges and distribution networks and incentives.

High construction cost and poor quality of material often leads to high maintenance cost for a structure and low quality of life. Many a times, lack of money and awareness regarding other possible materials leads to such decisions by the homeowner.

India being a huge geography with areas prone to various hazards, has time and again seen the requirement of faster construction of permanent or temporary shelter. These new technologies can also help by providing disaster resilient solutions or time saving construction techniques which address these scenarios.

The Indian construction industry needs to incorporate these alternative materials and technology. The program is looking to promote these materials and techniques that can further lead to reduce the time and cost of construction for both permanent and temporary shelters.

Labour productivity and quality

Labour contributes to over 30% of the cost of construction. One of the biggest challenges plaguing developers and owners alike is a very low labour productivity.Construction being a labour intensive function, 97% of the labour used is untrained (according to National Sample Survey Office findings) Little progress is evident in standardization of on-site procedures. Construction techniques are mostly taught informally to potential labor force, thereby increasing the inefficiencies. Further, due to the absence of a standard way to measure and improve quality and performance, the measure to enhance productivity are seldom identified Labour absenteeism coupled with rising labour costs increase the project timeline and reduce quality.

Although, all of these underlying issues can't be addressed by startups, their involvement could address some of them with innovative approaches and solutions. The program looks forward to receiving these startups as applicants and support them through the accelerator.

Material supply and procurement

Construction materials contribute to 70% of the cost 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. The program is looking for start-ups that have solutions for helping developers manage inventory and ideate new models of procurement and solutions that enable efficient tracking of the supplier fleet and material pilferage.

Professional services (Design, engineering and structural solutions)

Planning and designing of a house is one of the most neglected service while planning and budgeting for the overall construction of a house. This is the case especially for the low income housing which is being developed and promoted by the government of India. More often than not, the homeowners do not have the knowledge and access to these kind of services and they don't have any aspirations from these services due to lack of the knowledge.

There are various technological options that can help the homeowner take informed decisions regarding the kind of spaces they aspire for themselves. These solutions could be AR VR 3D visualization of the houses etc. The program is looking for start-ups that are either providing these solutions or easing the access to these solutions for general public.

Project management or Project/Task Management and Collaboration

About 65% of the total housing created nationally is owner driven construction. This construction is done through a small investment and is taken care of by small or medium level contractors. These contractors generally use outdated methods of project management where the chief engineer receives the full picture of the development once every week. Inefficient project management often leads to delayed schedules resulting in increased costs, material mismanagement, loss of productive labor hours and overall project delays.

Although ERP software are present in the market, they are expensive and not user friendly for owner driven construction. The program is looking for start-ups with solutions that are user friendly, simple to adopt, cost effective, which can help developers and contractors to track all aspects including scheduling, material procurement, inventory management and other management aspects.

Sales and marketing support for housing

The rate at which housing stock is sold, both completed as well as 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 Internal Rate of Return (IRR), consequently, reducing their ability to scale.

The program is looking for solutions that support developers with sales and marketing options and increase access to market segments, while making housing inventory discoverable.

Home improvement, maintenance and livability

Owner driven construction occupies 65% of the share of the housing construction. Usually the construction is done incrementally on account of the availability of funds, especially for the low income households. There are various aspects that hinder the livability of a house or a housing community. These can be Poor ventilation in the house. Lack of community spaces, poor condition of the structure etc.

As of now, there is very little focus on enhancing the livability of housing communities. We believe start-ups can play an important role through finding solutions for livability of space and community, through various tangible and intangible solutions.

Resident energy solutions

The availability and consumption of energy are two aspects which concern every household at a day to day level. While the aspect of availability is being address by Government in most of the urban as well as rural settlements, its usage couldn't be monitored. The cost of energy is again an issue that one ponders over.

Energy consumption by households leads to recurring cost for residents. This cost is variable depending on the number of appliances & duration of use. While there are devices that consume smaller amount of energy, their cost is not affordable for majority of households. Further, this excessive usage of energy doesn't just cost the homeowner but also affects the environment.

The program is looking for start-ups with solutions that positively disrupt the availability and consumption of household energy and its environmental impacts.

Water and sanitation for housing

Water and Sanitation are two of the indispensable resources for a healthy living. Numerous households, both in rural as well as urban India lack these facilities.Drinking water is scarce, and the households tend to rely on ancient household purification methods which sometimes are unable to remove harmful impurities from the water.

Access to toilets is another issues that needs to be addressed. Although, lack of toilets at household levels are being addressed by Government of India through Swachh Bharat Mission (SBM) yet there are a lot of other issues, including higher cost of construction which can't be addressed by the government alone.

Hence, the program is looking for start-ups that are fulfilling the requirement of potable/drinking water and access to proper sanitation and other solutions to the underlying problems related to WASH (WAter Sanitation and Hygiene)

Rental and Special Housing Solutions

Large urban migration and insufficient supply of high quality affordable units has led to a large population living in substandard 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.

The program is looking for startups with viable and scalable alternatives to traditional construction such as container homes, etc. or new business models like renting.

1 - Interpreted from JLL report on affordable housing

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