Housing Finance Trapped in a Dilemma of Perceptions: Affordability Criteria for the Urban Poor in India Questioned

This paper demonstrates how formal housing ® nance is the product of the perceptions that prevail among the middle and upper classes, who as policy-makers, econom ists and managers, determ ine how housing ® nance institutions ® x the terms and conditions of housing loans for the urban poor. They use affordability criteria that ® t the purchase or construction of a house in one go. However, affordability criteria for the urban poor have to be linked with practices of incremental building and consequently incremental ® nancing. Failing to do so leads to serious m ismatches between the demand and supply of formal housing ® nance for the urban poor. To be able to serve the poor adequately, the middle and upper classes should stop aiming at the ® nancing of housing constructed in one go. Instead, they should open their m inds to the building and ® nancing practices of the urban poor.