Real estate | The affordable home shortfall

Padmashree Vinod, 48, a schoolteacher who moved from Thrissur to Mumbai in 1998, spent nearly two decades in a modest chawl at Kajupada near Andheri before shifting to a rented flat in Kurla. She had hoped to buy a home of her own within a couple of years and began looking for a one-bedroom flat. The cheapest option within Mumbai, however, cost Rs 1.2 crore. She expanded her search to Navi Mumbai, where Maharashtra government town planner Cidco was developing low-cost housing in Taloja, Dronagiri, Kharghar and Kalamboli. Even those were beyond her reach. “After reviewing the location, the size and the price, we found that the end-cost was as high as what some private developers were offering,” she says. “The word ‘affordable’ is just a faade.”

Millions across urban India, like Padmasree, dream of owning a home but are priced out. They are left with few choices: remain in rented chawls or ageing buildings with poor infrastructure and few amenities, or move to the city outskirts and endure long commutes. According to real estate consultancy Knight Frank, urban India faces a shortage of nearly 10 million affordable homes—priced up to Rs 45 lakh, with a carpet area of up to 60 sq. m in metros and 90 sq. m in non-metros, as defined by the government. And the gap is only widening.

Despite the pressing need, affordable housing remains a story of poor planning and policy apathy. Even flagship government schemes such as the Pradhan Mantri Awas Yojana-Urban (PMAY-U), aimed at expanding access to affordable homes, have fallen well short of meeting rising demand. World Bank estimates show that India’s urban population grew by about 23 per cent between 2014 and 2024, compared with the global average of 8.4 per cent. Today, 37 per cent of Indians live in urban areas, a share projected to rise to 40 per cent by 2030, driven by migration and the expansion of cities. Yet, housing for low- and middle-income groups and economically weaker sections has failed to keep pace.

The UN-Habitat’s World Cities Report 2026 highlights a sharp decline in affordable housing across major cities. In India’s eight largest cities—Mumbai, Delhi-NCR, Bengaluru, Kolkata, Chennai, Hyderabad, Pune and Ahmedabad—affordable housing accounted for nearly 52 per cent of new supply in 2018 but dropped to just 15 per cent by 2026, according to Knight Frank. Meanwhile, the share of homes priced at Rs 1 crore and above rose from 14 per cent to over 62 per cent.

In absolute terms, only 28,102 of the 187,350 homes launched in the first half of 2026 across these eight cities were in the affordable segment. Most new launches—116,157 units—were priced above Rs 1 crore, while another 43,090 fell in the Rs 50 lakh to Rs 1 crore bracket. With urban India facing a shortage of 9.6 million affordable homes, the country is on track to add barely 56,000 such units this year, leaving the deficit virtually unchanged at about 9.54 million homes. Knight Frank also notes that the supply-to-demand ratio plunged from 1.05 in 2019 to just 0.36 in 2025.

PRIVATE SECTOR EXIT

This is not to say there were no sincere efforts. They were simply too small to meet the scale of the challenge or lacked long-term planning and sustained execution. Over the years, the government has launched several schemes to boost the supply of affordable housing. For instance, PMAY-U 1.0, introduced in 2015, has delivered 9.9 million homes for the urban poor and middle class across India. The scheme offered upfront interest subsidies on home loans, making EMIs more affordable for economically weaker sections, low-income groups and middle-income groups. While it had its own challenges, such as implementation delays and hurdles in slum rehabilitation, the programme, whose first phase ended in March 2022, is generally deemed successful. The Centre has since launched PMAY-U 2.0 for 2024-29, which provides interest subsidies on home loans through an instalment-based mechanism to make long-term repayments more manageable.

However, these measures have not been enough. “The PMAY scheme is not adequate to address the needs of this segment,” says Niranjan Hiranandani, chairman of the Hiranandani Group. A large part of the affordable housing gap could have been bridged through greater private sector participation. But they have gradually lost interest, due to a host of factors that include scarce and expensive urban land, soaring construction costs, thin margins and regulatory hurdles that inflate costs and delay projects. “Affordable housing is not for private developers. Our governments are not invested in helping that segment,” says Jerry Rao, former tech entrepreneur and founder of Value and Budget Housing Corporation (VBHC), an affordable housing venture. “We require the same number of approvals as a premium house, and the cost and time delays are the same. There is no support at all for affordable housing on the supply side. The Real Estate Regulatory Authority (RERA) has not helped. It has just added one more layer of approval.”

No wonder, several developers that once focused on affordable housing have either exited the segment or shifted to premium projects. “All of VBHC’s new six or seven projects are Rs 1 crore projects,” says Rao. Tata Housing, which has completed 27 affordable housing projects across 17 cities, says its future developments will be in the mid, premium and luxury segments. “Most private developers have been driven away from affordable housing since the mid-to-upper end of the segment, where you have better margins, has thrived in the last four to five years,” says Gulam Zia, senior executive director at Knight Frank India.

SOARING COST OF LAND

The irony is that while the real estate sector continues to grow at more than 10 per cent annually, affordable housing has all but vanished from developers’ priority lists.

One of the biggest reasons for the decline in affordable housing is the sharp rise in urban land prices and the 25-30 per cent jump in post-pandemic construction costs, which have squeezed developers’ margins. According to estimates, land values in central Mumbai—across micro-markets such as Powai, Chembur, Ghatkopar and Vikhroli—have risen by 40-55 per cent over the past five years. “Land prices have gone up much faster than what they should have. That is a challenge,” says Hiranandani. Adding to the burden, nearly half the cost of a home goes towards government levies. “For instance, if I am selling a property at Rs 60,000 per sq. ft, as much as Rs 30,000 goes to the government as stamp duty, development charges, cess, GST and so on. That creates a segment of housing that will not be affordable to those who deserve it,” he adds.

A 2025 Knight Frank report says acquiring land for affordable housing in metros such as Mumbai, Bengaluru, Delhi and Chennai is economically unviable because of soaring prices. Developers have therefore moved to city outskirts, where land is cheaper but often poorly connected to urban infrastructure. In the Mumbai Metropolitan Region, for instance, many such projects are located in Palghar, Karjat and Vasai-Virar—up to three hours from the central business districts. The long, expensive commute erodes the appeal of these homes.

Delays in the development cycle further drive up costs. “The problem is, from land acquisition to starting the development alone takes two to three years,” says Sanjay Dutt, MD & CEO, Tata Housing. “To build takes another two to three years, for the project to be inhabitable takes another one or two years, and in between, you have the economic cycle, COVID, disruptions like war and so on, which further delays the project.” By the time homes reach buyers—if they do—they are often years late. “In the end, the developers are not in the business of making affordable homes, they are in the business of making profitable homes. Even if they build affordable homes, by the time they finish, the projects become luxury. So, it is a continuous loop, nobody is really addressing it, yet everybody seems to be talking about it.” According to Dutt, even a Rs 1 crore home in Mumbai is still “cheap” because of the costs involved. “The government takes away 50 per cent, anyway. You are left with the balance 50, of which you make 15 per cent return,” he adds.

Experts say the problem also lies in the design of affordable housing schemes. “It (the design) is haphazard, and is privately controlled. It follows a bid process, where the plot goes to the highest bidder by default and design,” says Dutt. The high price developers pay for land, he argues, can only be justified by building premium commercial or residential projects.

Another factor is the shifting economics for developers. Private builders earn profit margins of 25-30 per cent on premium and luxury projects, compared with just 10-12 per cent on affordable housing. Unlike premium projects, affordable housing offers little scope for revenue-generating amenities or “frills” such as swimming pools and gyms. “From the developers’ point of view, margins are extremely low in affordable housing, and even a slight fall in sales velocity will mean margins getting further hurt,” says Rao. “At the same time, overhead costs remain the same. So, there is very little incentive to be in this business.”

The economics have been further strained by an outdated definition of affordability. The government’s price cap for an “affordable” home has remained unchanged at Rs 45 lakh since 2017. Meanwhile, soaring land prices and rising construction, labour and compliance costs mean even basic homes on city outskirts often breach that limit. Developers argue the cap has failed to keep pace with market realities.

REGULATORY MAZE

Yet another stumbling block is regulation. Developers must secure a range of approvals—land use conversion, environmental clearances, zoning permissions, structural certifications and utility connections—before construction can even begin. These approvals are often managed by multiple departments across different levels of government, making the process slow, opaque and inconsistent. Single-window clearance systems introduced in several states aim to simplify the process. However, these systems are often poorly integrated, partly digitised and still reliant on manual interventions that slow down progress. “There are schemes in various states where you are supposed to create certain affordable housing if you want to do a larger development, but they are not regulated properly, which means that supply of these homes do not come out on time,” says Dutt. None of that is designed in terms of quality of the product, last-mile connectivity, consideration of social infrastructure such as schools and hospitals. “They are done in locations with poor access...liveability index is poor. So, it does not serve the purpose even if they do get built,” he adds.

Inadequate institutional investments in affordable housing is yet another drawback. The segment has seen minimal engagement from major institutional investors, large-scale developers and public sector institutions. Instead, the bulk of construction activity in this space is driven by small and local developers who typically face constraints in terms of funding, project execution and adherence to regulatory standards, says the Knight Frank study. Extended timelines for project approvals and development clearances add significant financial burdens to builders, discouraging investments in low-margin projects.

THE POLICY PRESCRIPTION

The cost of capital in India is very high, followed by high taxes. “We have spoken about ease of doing business, but the cost of doing business is very high,” says Dutt. Many say that the real estate sector has several vested interests, because of the nature of the business. “State and central governments monetise their power in a way that it can only be accessible by rich and influential people. We are shutting every door and yet asking: why can’t we do affordable development?” he says.

Dutt believes the government holds the key to unlocking the sector’s potential. There has to be a serious effort to monetise vast tracts of land owned by the Centre and state governments. “There are 18,000 acres of port trust land in Mumbai. There were 350 acres of Dharavi land. There is plenty of land belonging to the Railways and defence. None of these bodies have been instructed to do anything about affordable homes,” he says.

Moreover, the governments, in their city development plans, need to classify certain locations that must be reserved for affordable housing or mass housing, says Knight Frank’s Zia. “For example, there are land reservations for schools and hospitals, and civic amenities. If affordable housing is so crucial to maintain social equality, why is the government not classifying certain land only for it?” he asks. In land-scarce cities such as Mumbai, however, this may be difficult. That makes it all the more important to unlock underutilised land held by central agencies such as the railways and the defence establishment.

Another solution is to improve connectivity between cities and the hinterland. In Mumbai, for instance, if people can commute from Vasai, Virar, Panvel or Karjat within an hour, supported by affordable transport and better social infrastructure, part of the housing crisis could be addressed. Today, many spend over two hours commuting in overcrowded conditions at considerable expense. Experts also stress the need for an efficient sea transport network.

PMAY-U has worked better in blue-collar economies, where the key input—land—is relatively inexpensive. The white-collar services sector, concentrated mostly in metros and tier-2 cities, has been a major growth driver, but the scheme has not worked as well there, says Dutt. Wherever there is manufacturing or services, there should be a 30-40-year master plan with affordable transportation, hinterland connectivity and adequate social infrastructure. Hiranandani is of the view that the government also has to offer direct price support. “There should be some sort of subsidy which should be given, like the stamp duty and development charges concessions that the Maharashtra government had allowed during the pandemic,” he says.

But that is only part of the solution; affordable housing cannot succeed in isolation. It should be part of broader urban development. Cities need to offer an affordable quality of life, too. “It should be a place where a delivery boy or a cab driver—both vital to a modern city life—can also have a hygienic breakfast,” says Dutt, citing Singapore, where the quality of food sold on the street matches that in hotels.

Affordable housing is not a showpiece for developers but an essential need for millions of urban Indians. While the private sector’s retreat from the segment is worrying, the bigger concern is the absence of long-term, integrated planning, which has limited even government-led initiatives largely to smaller towns. Unless affordable housing becomes central to urban planning, India’s inequalities will persist, and the promise of a Viksit Bharat will remain out of reach.