A question that is bound to pop up in the minds of the professionals related to the housing industry that what they have to do with the happenings that have been outlined in the last paragraph. There is only one answer to such an important question. The fact is that they have perhaps a very important (if not the most) job upon which to burn their fingers through which they can contribute their bit in reversing environmental degradation and ensure sustainable shelter for all.
Of all the greenhouse gas emissions by different sectors in the industrialized countries at least 15-20% is accounted for by the housing industry directly and an underestimated share indirectly in terms of energy consumed by the users of these housing units. Unfortunately, till date very few path-breaking initiatives have been undertaken in this sector. However, the urgency of the situation demands more serious and immediate attention.
The issue assumes special significance for an emerging economy like India, which is on the upside of the growth momentum. With structural shifts in the economy, growing rapidly, increasing disposable incomes with changing lifestyles has lead to a huge increase in demand of housing units. Currently, the housing shortage in the country, based on conservative estimates is around 30-35 million units with a majority of them being concentrated in the urban areas, and that too mostly in the middle and low income segments. The current level of housing shortage if adequately addressed will lead to huge draw down of exhaustible resources like fuels, limestone, various minerals which will also lead to environmental pollution. It will also lead to tremendous increase in demand for energy in terms of electricity for the dwelling units. As much of India’s material prosperity is dependent on monsoon-dependent agricultural sector, undesirable disturbance of the climatic cycle can play spoilsport with India’s economic, early signals of which has already been emitted in terms of changing rainfall and temperature patterns. If the environmental degradation continues unabated, it will lead to wiping away of a large number of cities including India’s financial hub of Mumbai. But one cannot override one’s rights to enjoy shelter facilities. The question then is how to balance all these priorities?
The situation can be best described by taking up the case of Mumbai. It is the largest urban agglomeration in South Asia and one of the largest in the world. It is unique in itself because it is the only urban center in the world that encloses a national park with diverse flora and fauna within its boundaries and has mangrove forests dotting its coastline. With a population of more than 15 million stuffed into a thin strip of land by the sea makes it one of the most densely populated regions of the world. This translates into a huge demand for housing units. Apart form this, the financial sector is expanding fast which is further adding to the city space. The Indian government has ambitious plans of transforming Mumbai into a world-class global financial center (GFC). This will attract talent of various levels to Mumbai in the years to come and will further add to the housing problem.
Considering the present problem, legal and regulatory issues apart, lack of innovative financial interventions have precipitated developments that are environmentally least desirable from Mumbai’s and hence India’s point of view. Lack of space has driven up the prices both for owned as well as rental housing units, well beyond the reach of a large section of the population. That has forced the population to turn to those areas that are environmentally fragile and vital for the sustenance of the city and its economy. The great deluge that the city suffered almost three years back is a grim reminder that what prices we will have to pay if we blatantly ignore and brush the environmental issues under the carpet of which housing forms an integral part.
Perhaps, the most sensitive of all the housing related issues are housing the vulnerable sections of the society. This because of the fact that these sections of the society are denied decent accommodation and are forced to dwell in hazardous zones which concerns the question of sustainability and the sheer magnitude of the problem has implications for the socio-economic-political stability that also concerns the question of equality. And as these dwelling units also double up as units of employment it is all the more important to take up the cause on an urgent basis and solve the same taking care of all the priorities.
There is no doubt that though the problems that we are facing currently are similar to the ones that the other nations are facing, it an issue that concerns us more and it is only us that will have to find solutions to the same. This will entail exploring the hitherto unexplored and unventured area of finance, which is environmental finance. The field of environmental finance, part of both environmental economics and the conservation movement, exploits various financial instruments (most notably land trusts) to protect biodiversity. The concept has picked up in the post Kyoto scenario.
How to go about it?
Before the field of environmental finance can be successfully utilized to cater to the needs of sustainable shelter, it is essential to examine the technical aspects of the housing industry the finer details of which can be exploited to improvise the desired financial products. Here a brief exercise of the same will be done.
The first and perhaps the most important part of any housing project is the land involved. In a place like Mumbai, land forms more than 70% of the total cost of any housing project. From the environmental point of view, this forms the foundation of ensuring environmental soundness of the project. This is an area which involves more of an ethical on the part of the housing finance companies supported by well entrenched legal and regulatory apparatus not to finance any new or redevelopment housing projects in environmentally fragile lands. Incentives to the project developers in terms of heavy penalties or blacklisting by the financial players will go a long way in discouraging exploitation of such lands. The second important part that concerns the housing industry is the building materials. One of the most important raw materials in the housing industry is fossil fuel that is used in the operating of various construction equipments, and also in the transportation and manufacturing of building materials. As the rate of creation of housing units is only going to increase in the coming years, the use of fossil fuels will increase by leaps and bounds. Apart from exhaustion of resources and draw down on our forex it will also add to the pollution and greenhouse gas emissions. To tackle this problem a host of innovative financial products can be launched. Environmental funds modeled on the lines of mutual funds can be created to finance jatropha plantations by project developers that cater to the energy demands of the housing industry. It will also help to sequestrate a large amount of carbon to the ground that can be traded in the stock market in the form of carbon credits for which a ready market is already available from the industrial entities of the developed countries who are under various commitments to reduce their GHG emissions but are unable to do so because of cost disadvantage. At present, when the government is opening up pension funds for market based management, it is a god send opportunity for the housing finance industry to tap such huge resources for ventures like these that are less susceptible to market volatility and will fetch stable and good returns.
As far as other building materials are concerned, surprisingly there has been no big change in the type of materials used in the construction of buildings. Most of these materials are not GHG compliant in the sense that these materials fail to prevent the leakage of heat both from insides and outside the building that leads to rise in the usage of electricity indirectly leading to more GHG emissions. Also lack of smart planning to optimize the use of energy is also there. Moreover, the manufacture of these materials also involves a lot of pollution driven processes. In the recent past, as a result of environmental consciousness, innovations have been taking place in building materials. However, adoption of those technologies has not been forthcoming in India, main reason being that they are not financially remunerative. Here the housing finance players can play a very important part. It can set up funds for funding those projects that use environmentally friendly building materials by providing incentives to the project developers in the form of rate discounts and fees exemption on different counts of smart planning and use of building materials. The financial players can help to make the usage of environmentally building materials a norm by charging a premium from those who don’t comply. Moreover, the GHG emissions that are abated can be packaged in the form of tradable securities that can be traded in the market that will help the financiers to recover a large amount of subsidy that they give out in the form of incentives through a contract with the respective builders.
Next we turn to the most complex issue of housing the not so affluent sections of the society. This assumes special importance at the backdrop of the state government’s announcement to develop Dharavi, the largest slum concentration in Asia into a multi-utility hub in the center of Mumbai and is in the process of short-listing the project developers for the same. The main question that is now doing the rounds of the policy circles is to how to finance the redevelopment project that will provide well laid out housing units for all the project affected people because of the fact that many of them are not financially well off to finance their dwelling units. Given the present fiscal scenario, it is not prudent on the part of the government to bear the entire burden of financing the housing units. And it is also too wishful to that any individual or any private entity will do a marvelous charitable gesture. This is where the financial tools of CERs and credit leveraging like securitization can be successfully utilized to raise resources for the redevelopment projects, the technicalities of which can be briefly discussed here.
As part of the commitment made under the Kyoto protocol, the industrialized nations are bound to reduce their emissions to pre 1990 levels by 2012. Now both USA and Australia joining the commitment platform, the demand for all those GHG credits will only increase. But as the supply of such credits is minuscule compared to the demand, there is a tremendous scope to exploit this opportunity in the form of Clean Development Mechanism (CDM) projects. According to the guidelines of CDM projects, a project developer plans a project that involves reduction of GHG emissions or sequestration of carbon over and above than what is achieved under business as usual (BAU) scenarios. The plan for the proposed CDM project is then submitted to the national CDM board to review the technical and commercial soundness of the plan. Once it is cleared by the national board it is sent to the CDM board of the concerned industrialized country for their ratification. They make the necessary technical inspection calculating the redeemable CERs that can be obtained from the project, the legal and the accounting credibility of the project and once the projects fulfills all the criteria it is financed entirely subject to periodic reviews for compliance.
The prospective project developers in the Dharavi redevelopment project can take advantage of this above-mentioned elegant mechanism by setting up manufacturing units for GHG compliant building materials that involves almost zero pollution that can then be leveraged to attract finance for the units. This will be able to part finance the redevelopment project. Another part of the redevelopment project can be financed by selling carbon credits that can be in the form of energy saved in terms of reduced GHG emissions that will be deliverable once the housing units are occupied and also in terms of carbon sequestration that will be achieved by beautification projects that will come in the vacant lands. As this multi-utility hub will come up, the energy usage will increase by manifolds. A large part of the energy that needs to be supplied can be generated by tapping renewable and environmentally sound sources like solar, wind and biomass (from solid waste generated at the multi-utility hub). Such projects can be financed by means of capital leveraging instruments like securitization whereby the assets created are taken off the balance sheets of the financiers and broken down into small packets and sold to the investors through a SPV. The payments to the investors can be made from the amount received as utility payments and payments for carbon credits. The capital thus raised can then be used to realize the cost of the project and finance future projects.
Conclusion:
No comments:
Post a Comment