Assessing of Factors Influencing Dynamic Variations in Residential Rental Housing: The Case of Delhi

Abstract

Rental housing plays a vital role in providing a broad choice of shelter for different income groups according to their preference and their affordability range. In megacities like Delhi where rental houses are in high demand, the residential rental prices vary from place to place in various types of settlements. Although the housing units are all located in the same area, they differ in terms of their surroundings, commercial centers, communities’ typologies, and other amenities.

Thus, locational choice has great significance in the housing market. Hence, it is necessary to understand the influences of these choices in rental variations on the rental housing market. Moreover, variations in rental housing prices are the result of individual tenants’ preferences which tend to be local in character, like physical, social, and economic parameters.

This research study is an attempt to improve the understanding of the rental housing market and examine how location preferences determine the occupancy rate, rental prices, and vacant stock in the rental housing market. Further, the study is undertaken at ward level in NCT Delhi through data from primary and secondary sources and parameters will be identified which are responsible for the spatial variations in rental housing occupancy. In the past decade, the severity of the housing crisis has increased due to a recent phenomenon of a high rise in rental prices in the housing market, even though the difficulties of rental variations for different income groups based on preferences and affordability of shelter still exist.

It establishes the manifestation of rising inequality between those who want to prefer housing based on affordability and those with locational preferences and other facilities. (residential rental housing Delhi)

Introduction

According to the 2011 Indian census, the percentage of people living in cities grew from 27.8% in 2001 to 31.8% in 2011, and by 2030, it is predicted to reach 590 million. India has a large population with a wide range of housing demands, yet one of the biggest issues faced by urban areas is housing affordability. According to estimates from the Government of India (2012), there was a shortage of urban housing in India for 18.78 million people, of which 17.96 million (or 95.63%) were low-income households. (KPMG, 2012). Despite the government’s significant efforts under the Pradhan Mantri Awas Yojna (PMAY), India’s shortage of affordable housing remains severe.

The government strategies have centered on ownership-based model approaches which were not successful. To overcome the issues of affordability and land ownership for lower income groups, rental housing plays an important role in providing affordable housing for those who prefer to live in rental accommodation. Different sections of society migrate into urban areas and live in cities temporarily for different reasons like education, employment etc. and hence, rental housing provides a broader choice of housing for all income group people at all phases of life. Currently, over 27% of the Indian population lives in rented accommodation.

Despite its needs, rental housing currently faces many challenges in the housing market. A sizeable portion of renters spend half or more of their income on rent; a smaller but no less significant number reside in physically dilapidated housing; a high concentration of low-income renters is concentrated in densely populated areas of extreme poverty; and there is a significant decline in the availability of affordable rental housing.

Therefore, there is a need to look into renters’ perspectives of the affordability of their houses. People who migrate to urban areas decide where they would prefer to live. If we can determine where they would prefer to live, new and upcoming housing projects can be developed based on their preferences, preventing variations in the housing market, and ensuring that development implies people’s choices. (Ministry of Housing and Urban Poverty Alleviation, GOI, 2015)

In the current housing scenarios, it is unfortunate that rental housing has not been given much attention in housing policies in most countries including India. There are rental housing policies been introduced in India but are still lukewarm.

The rental policies like the National Urban Rental Housing Policy (NURHP 2015) and rent control laws are not implemented successfully. Only the active rental housing projects are Affordable rental housing complexes (ARHC) under PMAY in Chandigarh. Hence, it is necessary to understand the barriers faced in the implementation of these rental housing policies critically and identify the research gap about public rental housing in the Indian context.

Hence, there is a need to reframe the rental housing policies and explore policy interventions that could support rental housing development in Indian cities. (Harish, 2021) For these interventions, there is a need to have a comprehensive understanding of urban rental housing in India. Several issues pertaining to rental housing have not been studied in adequate or with appropriate research such as choice and affordability, housing stock and availability for rent, transparency regarding rental information, quality of rental housing, Lower income group’s needs and demands, security issues related to rental properties, Limited availability of formal housing more dependency on informal housing.

Also Read: Analyzing the Present Rental Housing Situation for the Migrant Workforce in Delhi _ A Case Study

Literature review

An Overview of Rental Housing Market

The rental housing market exhibits significant regional variability influenced by economic, political, and regulatory factors. Small landlords dominate this sector, offering diverse options that cater to varying income groups and needs, ranging from individual rooms to separate flats. However, these landlords often operate informally, opting for short-term leases to circumvent stringent rent control laws, which can limit their returns and eviction flexibility.

This informality is compounded by higher utility costs, further squeezing profit margins for private operators compared to government-run facilities that receive subsidies. In many nations, the demand for rental housing is amplified by urbanization and shifting migration patterns, prompting a need for supportive policies that encourage both ownership and rental options. While small legislative changes may not significantly alter market dynamics due to landlords utilizing unused space for rental income, there’s recognition of the critical role formal rental housing plays in addressing housing shortages. Developed countries have historically prioritized formal rental housing, in contrast to developing regions like India, where private developers initially led formal rental housing initiatives.

To bridge the housing gap effectively, there’s a call for policies that stimulate large-scale affordable housing developments, fostering an environment conducive to private sector involvement. This approach seeks to balance the interests of landlords, tenants, and investors while optimizing asset values and ensuring housing availability across diverse demographic needs. Flexibility in understanding both formal and informal rental scenarios remain crucial for authorities tasked with advancing and regulating the rental housing sector.

The determining parameters of rental value

When demand exceeds supply in a residential rental market, the vacancy rate declines and rent increases. Even though there are a number of variables that affect a home’s rental value like location, building type and quality, property category, carpet area, amenities/facilities, and richness of specification are factors that affect rental value and affect rental rates. (Narendra Kumar, 2021)

Location: There are variations in rental values from location to location. The areas having good infrastructure, better accessibility are having more rental values.

Building construction type and quality: Besides, the best locations of properties, the condition and construction determine the rental value by property dealers or home renters. Properties which are having poor infrastructural facilities, poor construction, and poor accessibility will be not of higher market value and sometimes be left vacant leading to a rise in housing vacant stock.

The type or category of the Property: It depends on the quality of housing typologies like kutcha, pucca, flats, apartments, bungalows, and penthouses, and rental values differ highly between each category of houses. Similarly, the rent of row houses and apartments will differ with the factor of location also.

Carpet area / Floor area: It plays a significant role in determining the rental value of residential accommodation.

Amenities / Facilities: This is the major factor of rental variation in the rental market. Tenants prefer those accommodations that are affordable in their income range with better facilities provided within the rental value. It depends on the choice of tenants, and affordability as the market is very competitive regarding provisioning better infrastructure services at higher rental value. The basic facilities like water supply, and electricity all the basic needs of all income groups.

Factors influencing Residential Properties Rental Value 

In the case of megacities like Delhi, in the absence of standardization, each property is valued separately and is thought to be unique. Identifying the factors that most effectively define the differences in rental prices can be challenging because every unit of real estate is unique. Determining the rental value of residential properties is a challenging and intricate procedure for both practitioners and academicians because it necessitates analyzing the rental property, neighborhood factors, and market dynamics. Physical attributes include size, age, condition, and kind of residence are among these criteria. Objective scales or methods can be used to quantify certain attributes.

A real estate asset’s location, gross and lettable floor spaces, number of stories, number of bedrooms, kind of tenure or ownership rights, plot size, degree of aesthetic quality, and proximity to facilities are only a few of the characteristics that can affect its rent and price. (Nishani Wickramarachchi, 2016) However, from the renters’ point of view, the location is usually significant. A residential property is a complex asset that stands out due to its geographical fixity, durability, and structural rigidity.

Based on a site study for rental values, a set of variables has been utilized to explain market rentals for residential income property. (Ajilowo, J. &. (2010) These factors encompass both the physical characteristics and the attributes of property management. Additionally, studies show that factors influencing market rent include the length of residency discounts and rental concessions, as well as variations between observed and natural vacancy rates.

Table 7: Rental housing parameters

(Source: primary survey)

Evaluation of Policy, Schemes and Rent Control Legislations

The rental housing sector in India remains crucial, particularly amidst rapid population growth. However, governmental support for improving existing rental avenues and expanding affordable housing options has been historically inadequate. This neglect is underscored by the absence of loan programs aimed at incentivizing rental housing development, despite a significant portion of households relying on rented accommodations. The challenges in the rental housing market are multifaceted. Low rental yields and tenant-friendly legislations, such as restrictive rent control acts, dissuade landlords from renting out properties. These acts often freeze rents at historical values, making it economically unviable for landlords to maintain or upgrade their properties.

Additionally, the complexity of eviction rules further disincentivizes landlords, contributing to the deterioration of rental housing quality, particularly in urban areas where demand is high. Government initiatives like the Jawaharlal Nehru National Urban Renewal Mission (JNNURM) and the Rajiv Awas Yojana (RAY) have acknowledged rental housing as essential, including it in their schemes. However, their impact has been limited, with only a small number of rental dwelling units sanctioned under RAY across several cities and states. These initiatives have highlighted the need for state level reforms, such as amending rent control acts to balance the interests of landlords and tenants.

Under India’s federal structure, housing falls under state jurisdiction, complicating the uniform application of rent control laws nationwide. Two primary legal agreements govern the rental market: lease agreements, covered by restrictive rent control laws, and lease and license agreements, which provide tenants with limited occupancy rights for short periods. The prevalence of 11-month lease agreements reflects a preemptive measure by landlords to avoid stringent rent control regulations. Efforts to reform rental housing laws have been sporadic and uneven across states. While Maharashtra and Rajasthan have made notable amendments to their rent control acts and introduced incentives for rental housing, most states have failed to inspire confidence in the rental market.

This lack of uniformity has hindered nationwide investment in rental housing as a viable alternative to ownership. Recent policy developments, such as the Model Residential Tenancy Act 2011 and proposed National Urban Rental Housing Policy (NURHP) 2015, aim to address these shortcomings. The Model Tenancy Act seeks to provide a standardized legal framework for tenancy agreements, promoting transparency and reducing disputes.

Similarly, the NURHP intends to create a conducive environment for the growth of rental housing through policy interventions and stakeholder consultations. Looking ahead, there is a critical need for comprehensive reforms that prioritize rental housing as a viable housing solution. This includes bifurcating rent control laws to distinguish between commercial and residential properties, as recommended by the Technical Group on Urban Housing Policy (TFRH). Such reforms are essential to attracting private sector investment and enhancing the quality and availability of rental housing across India.

Emerging issues in Rental Housing

The major issues faced in rental housing provision is the approach of government to urban poor housing with focus on ownership housing and land titles instead the most important thing to focus is the need of lower income group for different type of housing according to their preferences, affordability, and locational choices. Government targets that are not clearly defined have resulted in the undervaluation of rental properties, typically in situations where tenants are more vulnerable than informal urban poor homeowners. This disregard is seen in most housing legislation in poor countries, which frequently leaves requirements for rental housing unclear. (Debarpita Roy, M. M., 2022)

The strict implementation of rent restrictions and legislation pertaining to rent control has led to supply constraints in the rental markets in all cities, despite the fact that the goal of these laws was to shield the less fortunate from powerful landlords. Since the homeowner represents themselves as the property’s legitimate owner and is consequently qualified for government aid, tenants are frequently not included as authorized users in the beneficiary listing.

This is due to a lack of agreements between landlord and tenant on the rental of an apartment or a portion of one to avoid the rent control act’s application. Local experience indicates that these government actions frequently result in the eviction of renters. As a result, policymakers must pay particular attention to rental housing, especially in the informal sector. (Harish, 2015)

Conclusion

In a housing market without rent controls, determining rental values is a multifaceted process that involves various factors. The study outlines the growth pathways for Indian cities in order to provide a focused and long-term plan to expand the rental housing industry while maintaining the investors’ capital expenditure goal. Investors are important players in the developing housing and real estate markets. The differences in supply and demand for preferences—that is, flair in terms of physical characteristics, social and economic status—are the reason behind variations in residential rental prices.

The factors influencing the spatial differences in rental housing demand are largely similar to those addressed in the NCT Delhi case study. The drivers of housing supply and demand in the rental housing market are evolving. Therefore, in order to evaluate the regional variations in rental housing, it is determined that the model like PPP baased approach being provided is applicable to different locations with a defined spatial boundary and characteristics of rental housing.

The variations in the mean values can be used to examine fluctuations in the demand side preference of physical, social, and economic elements, among others.

To determine the parameters’ influence and interdependency, the study could be further expanded to examine the correlation of the parameters. A detailed evaluation of the supply-side factors can be undertaken in addition to the correlation analysis. The research into the rental housing market scenario and how the market achieves equilibrium can be carried out. The results of the rental housing study will be helpful in developing strategies at the local level as well as advising national and state-level initiatives aimed at increasing the market’s occupancy rate and lowering the amount of unoccupied inventory, which will help solve the housing shortages issues.

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