Delhi Development Authority (DDA) Housing Scheme 2008

The Delhi Development Authority (DDA), one of the biggest city housing developers in India, recently invited applications for about 5000 flats. ...

The year 2008 must be a bewildering experience for economists as well as social scientists. Sometimes, collective human behaviour defies
explanation based on past trends, so it becomes difficult to understand the present and look into the future. How do you read the manner in which real economies
around the world are behaving in an almost identical fashion? The month of October seems to have caused industrial output growth in most emerging economies to turn negative, as if orchestrated by a common psychology and sentiment of fear. This would certainly be recorded as a rare occurrence in the history of economic globalisation. The last quarter of 2008, generally, appears to be producing a strange effect as if economies around the world are falling off a cliff.

Of course, there are many (this writer included) who believe that the largely homogenous experience across all economies is largely a result of sentiment and psychology. You could call it the fear factor. Some critical differentiation in their behaviour, based on real domestic factors, will start occurring in a few months. The International Monetary Fund has tried to make sense of what is going on by analysing some 122 recessions in the last 50 years. It has looked at all recessions between 1960 and 2007 and found that these last, on an average, 12 months. The shortest of these recessions was six months long and the longest over three years. Typically, the peak to trough GDP loss in these recessions has been 2%. However, these recessions were not accompanied by a combination of credit freeze, housing and equity busts.

The IMF believes that recessions accompanied by credit freeze and housing/equity busts could see GDP losses which are two to three times greater. Which means many slowing economies across the world which have experienced a cocktail of a banking
crises, equity and housing bust will suffer much more and could lose 4 - 6 % output. In some sense, this is already happening in the United States, the epicentre of all the economic maladies. The US economy is poised to lose 4% to 5% GDP in 2008, relative to 2007.

But does India fall in this category? Most unlikely. Simply because India has not had banking crises and a widespread housing bust. Of course, equities in India have fallen about 50% from its peak, like elsewhere in the world. Once the global fear factor wanes, the growth recession in India could get limited to about 2%, before the economy bounces back to its trend GDP growth rate of 8%. Recessions caused by a housing bust take much longer to remedy. In this context, India has been lucky because housing finance penetration is still relatively very low in our economy. This means there is a huge scope for using housing itself as a key growth driver.

This point is best illustrated with one example. The Delhi Development Authority (DDA), one of the biggest city housing developers in India, recently invited applications for about 5,000 flats. It got over 5,00,000 applications. There were 125 applications per flat on offer. What does this tell you? There is a huge pent up demand for affordable housing in India. Some analysts put the demand-supply gap in affordable housing at about 30 million.