India Affordable Housing Market: Social Perspectives and Community Voices on the Housing Crisis

Introduction

India's affordable housing market is experiencing significant growth, driven by rapid urbanization and increasing demand from economically weaker sections (EWS) and low-income groups (LIG). In 2024, the market was valued at USD 3.17 billion and is projected to reach USD 9.46 billion by 2030, reflecting a robust compound annual growth rate (CAGR) of 19.80% during this period. By 2030, the cumulative demand for affordable housing is expected to reach 31.2 million units, with the market size estimated at INR 67 trillion. The majority of this demand-over 95%-will be concentrated in urban centers, particularly among EWS households.

Despite this growth, there is already an existing shortage of 10.1 million affordable housing units, highlighting a persistent gap between supply and demand. The financing opportunity in this segment is substantial, with the potential for banks and housing finance companies to support up to INR 44-45 trillion in new loans by 2030.

Importance of Addressing the Housing Shortage

Addressing India's affordable housing shortage is critical for several reasons:

Social Equity and Inclusion: Affordable housing is essential for providing safe and dignified living conditions for millions of low-income families, reducing urban slums, and promoting social stability.
Economic Growth: The sector stimulates employment and investment across construction, manufacturing, and allied industries, contributing significantly to GDP growth.
Urban Development: As urbanization accelerates, meeting the housing needs of migrants and urban poor is vital for sustainable city growth and reducing informal settlements.
Financial Sector Opportunity: The high loan dependency in this segment creates a substantial opportunity for banks and housing finance companies, supporting financial inclusion and deepening credit markets.
Bridging the Demand-Supply Gap: With a projected demand of over 31 million units by 2030 and a current shortage of over 10 million units, targeted interventions are necessary to ensure that housing remains accessible and affordable for all segments of society.

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Current Demand and Market Potential

Statistical Insights into Housing Demand

The demand for affordable housing in India remains robust, especially in urban centers. As of early 2025, the unsold inventory of affordable homes (priced below ₹40 lakh) in the top seven cities dropped by 19%, from approximately 1.40 lakh units to 1.13 lakh units. This decline signals sustained end-user demand, even as new launches in this segment have slowed down.
Despite the drop in unsold inventory, sales of affordable homes fell by 9% year-on-year, with around 21,000 units sold across major cities. This decline is attributed to rising property prices, higher home loan interest rates, and limited new supply, making it harder for price-sensitive buyers to enter the market.
City-wise, Bengaluru led the recovery in the affordable segment with a 51% drop in unsold stock, followed by Chennai at 44%. Hyderabad, however, saw a 9% increase in unsold affordable homes.
The share of affordable housing sales has dropped significantly over the years, from 38% in 2019 to 18% in 2024, while its supply share also fell from 40% to 16% in the same period, reflecting both a supply crunch and shifting market dynamics.

Economic Implications and Opportunities

Affordable housing is a major driver of economic growth in India. The sector generates substantial employment through construction and allied industries, and increased homeownership boosts overall economic activity by raising disposable incomes and stimulating demand for goods and services.
The Indian real estate sector is expected to reach a $1 trillion market size by 2030, with affordable housing playing a pivotal role in this expansion. Its contribution is vital for achieving GDP growth targets and supporting sustainable urbanization.
Policy initiatives, such as tax relief, home loan subsidies, and the extension of schemes like Pradhan Mantri Awas Yojana (PMAY), are designed to make homeownership more accessible and stimulate further demand, especially among low- and middle-income groups.
The market potential remains high, with a significant financing opportunity for banks and housing finance companies as demand for affordable housing loans continues to rise.
However, challenges such as rising input costs, high interest rates, and outdated price ceilings for affordable housing under government schemes need to be addressed to unlock the sector’s full potential and ensure inclusive urban growth.

Financing the Future

Challenges in Funding Affordable Housing

Rising Construction and Land Costs: The increasing prices of construction materials and the scarcity of affordable land in urban areas significantly raise project costs, making it less attractive for developers to invest in affordable housing projects.
Low Profitability for Developers: Affordable housing projects often yield lower margins compared to mid- and high-end housing, discouraging private sector participation and shifting developer focus to more lucrative segments.
Complex Regulatory Environment: Lengthy and complex approval processes, zoning laws, and compliance requirements can delay project timelines and add to costs, further deterring investment in this sector.
Limited Access to Finance for Buyers: Many potential buyers, especially those in the informal sector, lack formal credit histories or sufficient income documentation, making it difficult to secure home loans from traditional banks.
Shrinking Government Subsidies: The reduction or stagnation of key subsidy schemes, such as the Credit Linked Subsidy Scheme (CLSS), has made homeownership less accessible for low- and middle-income groups.
Supply-Demand Mismatch: Despite high demand, the supply of affordable homes has declined, with the share of affordable housing sales and supply dropping sharply in recent years.

Potential Solutions and Innovations in Housing Finance

Revival and Expansion of Subsidy Schemes: Policymakers are considering the reintroduction and expansion of schemes like CLSS under Pradhan Mantri Awas Yojana (PMAY), increasing tax rebates on home loans, and revising eligibility criteria to enhance affordability for first-time buyers.
Utilization of Public Land: Releasing centrally controlled land, such as that managed by Indian Railways or other government agencies, for affordable housing projects can reduce input costs and increase supply in high-demand urban areas.
Innovative Financing Models: Non-Banking Financial Companies (NBFCs) are increasingly filling funding gaps left by traditional banks, offering flexible loan terms tailored to informal sector borrowers. New models like community land trusts and shared-equity programs, though more common abroad, are being explored for long-term affordability.
Green and Sustainable Financing: The introduction of green bonds and targeted credit lines for eco-friendly affordable housing projects is attracting ESG-focused investors and promoting sustainable development.
Fintech Solutions: Digital platforms and fintech innovations are reducing transaction costs and expediting loan processing, making it easier for low-income buyers to access credit.
State-Specific and Public-Private Initiatives: Several states have launched their own affordable housing finance schemes, and public-private partnerships are being encouraged to leverage private capital and expertise for greater impact.
Raising Price Ceilings and GST Reforms: Proposals to raise the affordable housing price limit and exempt the land component from GST could make more homes eligible for lower tax rates, improving affordability and stimulating supply.

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Policy Landscape

Existing Policies and Their Effectiveness

India’s affordable housing sector has been shaped by several key government policies and budgetary measures:

Pradhan Mantri Awas Yojana (PMAY): The flagship scheme continues to receive increased budgetary allocation, with PMAY-Urban’s outlay rising to ₹19,794 crore for 2025-26. The scheme offers subsidies on home loans for first-time buyers, simplified eligibility criteria, and support for developers, aiming to make homeownership accessible to low- and middle-income groups. However, the existing price and loan limits under PMAY have not kept pace with rising property prices, especially in metro cities, making the scheme less effective for many urban buyers.
SWAMIH Fund: The Special Window for Affordable and Mid-Income Housing (SWAMIH) Fund, now in its second phase with a ₹15,000 crore outlay, targets the completion of stalled housing projects. The fund has already helped finish 50,000 units and aims for 100,000 more, addressing supply bottlenecks and reviving developer confidence.
Tax Reforms: Recent budgets have introduced lower personal income tax rates and higher exemption thresholds, increasing disposable income and loan eligibility for homebuyers. Exemptions on notional rental income for two self-occupied properties and streamlined loan approval processes have also made homeownership more attractive and accessible.
Interest Subsidies and Loan Access: Interest subsidies for homes priced under ₹40 lakh and simplified documentation have improved access to affordable home loans, particularly for low-income earners.

Despite these measures, the affordable housing segment faces challenges:

The share of affordable housing in total sales and supply has declined sharply, from over 38% in 2019 to just 18% in 2024.
Outdated price limits and eligibility criteria have limited the reach of subsidies and incentives, especially as property prices have surged in urban centers.
Land scarcity and regulatory hurdles continue to impede new affordable housing supply.

Recommendations for Policy Reforms

To address these gaps and enhance the effectiveness of affordable housing policies, experts and industry bodies recommend:

Update Price and Eligibility Criteria: Raise the affordable housing price limit under schemes like PMAY from ₹35 lakh to at least ₹50 lakh, and revise income and loan eligibility thresholds to reflect current market realities in metro and Tier 1 cities.
Reintroduce and Expand Subsidies: Revive the Credit Linked Subsidy Scheme (CLSS) for middle-income groups and consider 100% tax holidays for affordable housing projects to incentivize developers.
Delink Unit Price from Carpet Area: Redefine affordable housing by focusing on unit price rather than strict carpet area limits, making schemes more flexible and inclusive.
Release Public Land for Housing: Make centrally controlled land (e.g., from Indian Railways or Port Trusts) available for affordable housing projects to address urban land shortages.
Introduce Credit Guarantee Schemes: Implement credit guarantee programs to encourage lending to low-income buyers who lack formal credit histories.
GST and Stamp Duty Reforms: Modify GST provisions and streamline stamp duty policies to reduce the overall cost burden on affordable homebuyers.
Focus on Climate Resilience: Ensure that new affordable housing schemes incorporate climate resilience and thermal comfort standards to address long-term sustainability.

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