New Delhi: Urban development minister M. Venkaiah Naidu on Thursday said the government will open an escrow account to fund affordable housing in the country. The account will collect taxes and other charges that are levied on materials such as cement and steel in the housing industry.

“The taxes levied by the state as well as the centre will be collected in this account and this will generate revenue to construct affordable houses in the country,” Naidu said, adding that he still has to talk to the finance ministry about the proposal. “We will request the government to set this money aside for the housing sector.”

Naidu, who is also the housing and urban poverty alleviation minister, said that the tax revenue generated through increased economic activity on account of the housing scheme will be channelled back into housing through this account. The money will then accrue to the states, he told a conclave on urban governance and housing for all.

Naidu said the options being considered to address the urban housing shortage include interest subvention and public-private partnerships.

India has a shortage of 18.78 million (1.87 crore) houses in urban areas, according to the housing and urban poverty alleviation ministry. A report by a panel headed by Amitabh Kundu, former economics professor at Jawaharlal Nehru University, had pointed out that the percentage of people in need of a house from the economically weaker sections was 56.2%, the highest among all categories. This was followed by people from the lower income group (LIG) category. It is estimated that the housing shortage is likely to go up to 30 million houses in urban areas by 2022.

Parvesh Minocha, group managing director of consulting firm Feedback Infra, said to pick up two large commodities—cement and steel—and to also include the earnings by states sounds like a tall order. “However, a lot of such mega steps have been taken in the past. If it can be pulled off, it will be fantastic.”

As of now, the central excise duty on steel is 12% while the sales tax and value added tax on it varies from state to state.

Talking about the real estate regulatory Bill that was first mooted by the previous United Progressive Alliance (UPA) government, Naidu said he was in talks with states and other stakeholders on it. “Online automated single-window approval (of housing projects) is also a demand by real estate developers.”

Chintan Patel, director (real estate and hospitality practice), EY, said affordable housing is the need of the hour. “There are smaller margins in affordable housing, and a push will be needed from government to incentivize developers through low-cost funding. This is definitely a very positive step.”

Naidu listed the steps he intends to take in the ministry to improve urban governance. They included geographic information systems (GIS)-based urban planning, making towns and cities slum free, promoting cycling through dedicated cycling tracks, capacity building of municipalities, preparing masterplans for all cities, solid waste management and people s participation in managing public spaces.