Solving Sri Lanka’s housing crisis: The urgent need for affordable and social housing initiatives

By Rohan Parikh

Sri Lanka needs a social housing plan. Over the years, I have repeatedly emphasized the detrimental impact of the housing shortage and high costs in Sri Lanka, particularly in the Colombo Metropolitan Area, on the country’s economic growth.

We have witnessed how housing booms have coincided with and fuelled the economic miracles in India and China. In Sri Lanka, however, the housing shortage has hit the lowest strata of the urban population the hardest. The lowest income groups face a real housing crisis and, with it, a social crisis.

The reasons for this crisis are manifold. First and foremost, Colombo is one of the least dense major cities in Asia. Its horizontal sprawl, rather than vertical expansion, has led to extreme pressure on the transport infrastructure, which has been unable to cope.

Consequently, Colombo has some of the toughest commuting times in Asia. This issue affects the poorest sections of society the most, as their jobs- generally in security, cleaning, or food preparation for example, cannot be done from home, and they have the least amount of disposable time to spend on long commutes.

Secondly, Colombo’s construction costs rank among the highest in Asia. The aggressive approach to import duties on essential construction items and the extremely high VAT on apartments have rendered housing exceedingly expensive and unaffordable, especially for the lower-income sections of society, who have no chance of ever getting onto the housing ladder. The fact that banks are reluctant to lend to them only exacerbates this inequality.

Finally, there is no holistic plan in place to address the social housing problem. As even middle-income housing has become unaffordable due to the aforementioned reasons, attention has shifted even further away from social housing. The focus currently is on overall infrastructure development and mega-projects.

The situation is dire, and it calls for urgent action. Sri Lanka needs a comprehensive plan for social housing, and policymakers must recognize the gravity of the housing shortage and take swift, decisive action.

Fortunately, tried-and-tested solutions exist, which have been successfully implemented in cities like Mumbai. One such solution is cross-subsidization schemes, where the construction of middle-income apartments is linked to the provision of a certain percentage of social housing. This ensures that as the middle-income housing stock grows, a good stock of affordable social housing is also created. The cost of this can be either government subsidised or can be left to market forces by following some of the cross-subsidization schemes.

Cross-subsidization is a highly effective way to ensure that housing becomes accessible and affordable for all sections of society. However, there is a danger. This can only work if the current cost inefficiencies caused by duties, taxes and other similar charges are eliminated from the housing sector. Otherwise, any cross-subsidization scheme will make middle and higher-income housing even more unaffordable, thereby killing the proverbial golden goose before it can lay any golden eggs.

To achieve this, policymakers must address the underlying issues of construction costs, which are the main drivers of the housing crisis in Colombo. The government should consider reviewing and reducing import duties on essential construction items and lowering value-added tax (VAT) on apartments to make housing more affordable for low-income households. Banks should also provide easier access to loans for these households to help them purchase or build homes.

In conclusion, there is an urgent need for a comprehensive review of and relief from construction costs. Once this is done, the savings can be channelled towards cross-subsidization schemes. This approach will enable Colombo to achieve its vertical aspirations and create housing stock for all sections of society. Attaining this goal is the only way to supercharge Sri Lanka’s economic growth.

We should not forget that providing access to affordable housing is not only an economic issue, but it is also a social issue.

(The writer is the Chairperson of Iconic Developments (Private) Limited)

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