The impact of growing disparity: Housing for rich selling faster

Different statistics have provided enough proof of disparity in India growing from the 1990s and growing faster with time. A new indicator of this can be found in the sale of housing units.

Traditionally in India flats or houses within the range of low and middle segments of middle class–at present those costing below 40 lakhs—sold faster than the high-end units. Due to this, the price of the flats owned by the low and middle segments of the middle class rose faster, and gave the owners scope to accumulate some money by selling their residential units and moving to a cheaper one at the periphery of the cities, particularly after retirement.

But this year, till now a post-pandemic normal one, is showing a different trend. This year the demand for low cost flats showing a downward trend, while the demand for high end flats costing more than 1.5 crore is showing a sharp rise.

It has been reported that according to Anarock, a  property consultant, while the demand for low cost flats consisted 38 percent of overall demand of housing in 2019, this year (Jan to June) it has come down to 31 percent. However, during this period in seven big cities the demand for high end flats have jumped from 7 percent of 2019 to 14 percent of overall demand.

This is quite significant. Urbanization is an indicator of a nation’s progress and India was doing well on this count.

While in 1960, 17.92 per cent of the whole population lived in urban areas, indicating India was backward agricultural economy, 30 years later it rose by 7.63 percent, reaching at 25.55 percent in 1990. Then liberalization under the aegis of P V Narasimha Rao changed the economic landscape of India, and in next 30 years number of people living in urban areas rose by nearly 10 per cent to reach at 35.39 per cent in 2020.

This is impressing, keeping in mind that population has boomed from 87.33 to estimated 138 crore during 1990-2020.The increase is of about 51 crore, while the corresponding increase in the previous 30 years was by 43 crore.

Along with that a huge number of people have come to semi-urban areas at the periphery of the towns where cost of living and housing is less than the town proper. Improvement in provision for and speed of the public transport system provided them better scope for commuting to nearest towns or even a little distant cities for work.

While the poor were being promised housing facility by the government by 2022 through Pradhan Mantri Awas Yojana (Urban scheme) scheme, those subsidized small houses or flats cost less than 7-8 lakh and are subsidized by the government. However the scheme is running way behind its schedule and so far only 50 per cent of the houses have completed construction. One of the reasons for delay is the impact of the pandemic that disallowed the beneficiaries to pay their matching amount.

Undoubtedly, economic distress is at the root of lowering demand for low cost private houses costing below 40 lakh rupees. On the contrary, the upper middle class and the rich have not only been not affected, but have gained during the pandemic. That is why the sale of high cost hoses are rising.

Inequalities are largely a consequence of government policies. In India, this is perhaps more than true, with both the union and the state governments sharing responsibilities of it.

We all know how both the Centre and the states levied taxes on petrol and diesel to manage their exchequer, making India having one of the highest taxation rates on fuel in the world. It in turn fueled inflation which has gone beyond control now. It is well known that inflation affects the poor and the middle class much, much more than the upper class.

Again, indirect taxes affect all the people, and naturally the poor more than the rich (if sales tax/GST increases by 5 rupees on a product it affects the poor, but not a bit the better off). An increase in excise duty similarly harms the poor and the middle class much more. The petrol/diesel price hike affected the poor and the middle class, but not the rich, just because of the sheer volume of their income.

It is thus not only the union government which has increased the indirect taxes, but the states as well/ The share of indirect taxes in the state’s fiscal resources has increased under NDA II (from 2014 to 2019) to reach 50 per cent of the total taxes in 2019. The corresponding percentages were 39 under UPA I and 44 under UPA II.

This growing income and wealth disparities are now showing in the falling demand of low cost housing and rise in demand of high cost flats or houses. The governments of the country, of the union and the states, need to worry about it, for the surge in overall demand situation will be created the poor and the middle class, if only the gain such buying power.