The Cabinet Committee on Economic Affairs on Thursday approved a scheme, to be implemented through the public-private partnership model, to encourage states to increase the supply of land and construct one million affordable houses.

The scheme is expected to activate the measures announced for the housing construction sector under the economic stimulus packages.

It will increase the stock of houses ranging from 300 sq ft to 1,200 sq ft plinth area built at affordable rates on land provided by state governments.

The government has set aside Rs 5,000 crore (Rs 50 billion) for the next four years for this purpose.

Private sector developers and builders as well as state-run housing boards are expected to be partners to the government for these projects, with funding from institutional sources.

Real estate developers looking at low-cost housing during the downturn would now have an opportunity to take up projects where the demand for housing is still high. The urban housing shortage is estimated at 24.7 million, largely for the weaker and low-income households.

The pace of applications for home loans at reduced interest rate of 8 per cent to 8.5 per cent (for loans up to Rs 500,000) and at 9.25 per cent (for loans up to Rs 20 lakhs or Rs 2 million) can now be expected to increase, an official statement announcing the decision said.

A minimum of 25 per cent houses of 300 sq ft area will be compulsory for the economically weaker sections and the urban poor, in each project to be allotted by the government.

Meanwhile, the government today approved a Rs 3,070-crore (Rs 30.7 billion) package to implement recommendations of the second Vaidyanathan Committee on reviving the long-term cooperative credit structure.

The initial package, recommended by the panel, had been recast by the government in view of the announcement of the debt waiver scheme in last year's Budget.

"While this (recommendation of the committee) was under examination, the agricultural debt waiver was announced. Factoring in the relief granted under the debt waiver scheme, the package recommended by the Vaidyanathan Committee has been recast," home minister P Chidambaram said in New Delhi, briefing the media about decisions taken by the Cabinet.