Financial constraints to adequate housing: an empirical analysis of housing consumption disequilibrium and household decisions on meeting housing requirements in India

Households can mitigate the disequilibrium in housing consumption that they face during their lifecycle by moving to another house, rebuilding, extending or altering their current house. The option of moving is rarely exercised in India due to high transaction costs. The default option is doing nothing. The purpose of this paper is to investigate the importance of access to, and availability of, formal housing finance in determining the choice of housing disequilibrium mitigating strategies, using nationwide housing survey data for those who decided to mitigate housing consumption disequilibrium through rebuilding, extending or altering their current house. Multinomial Logit method is used to model household housing consumption adjustment choice. The results indicate that when the share of own funds as a share of total construction cost reduces, and the access to formal finance increases, there is a tendency to shift towards rebuilding rather than expanding or altering. The results are discussed in the context of a recent government policy, Pradhan Mantri Awas Yojana (Prime Minister Housing Scheme), that aims to improve housing conditions.