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

This paper demonstrates how formal housing finance is the product of the perceptions that prevail among the middle and upper classes, who as policy-makers, economists and managers, determine how housing finance institutions fix the terms and conditions of housing loans for the urban poor. They use affordability criteria that fit 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 financing. Failing to do so leads to serious mismatches between the demand and supply of formal housing finance for the urban poor. To be able to serve the poor adequately, the middle and upper classes should stop aiming at the financing of housing constructed in one go. Instead, they should open their minds to the building and financing practices of the urban poor.