Beyond welfare: Affordable urban housing offers multiple economic benefits

In most developing economies, the city is where productivity concentrates, wages rise, and growth compounds. India is rapidly urbanising and its urban centres are striving to absorb that growth at scale. However, there is one domain where urban policy has not kept pace relative to the scale of the opportunity. It is housing. Not because the problem is unacknowledged but because it has been often misunderstood and sometimes even misclassified. Affordable urban housing has been treated as welfare policy or a redistribution question, sitting somewhere between subsidy and charity. That framing fundamentally misreads what housing does in an economy. Like roads or power grids, housing is infrastructure that underpins everything a productive city does. India’s deficit of it is not merely a social problem. It is a macroeconomic opportunity of considerable scale, and one that remains, for now, largely unrealised. 

Applying the United Nations’ framework for household deprivation, a report by a NITI Aayog committee in December last year estimated a housing deficit of 50 million-70 million units across metro, urban, and semiurban areas. A Confederation of Indian Industry-Knight Frank projection adds urgency: Even on conservative assumptions, the urban deficit will reach 31.2 million units by 2030. The government’s “Housing for All” programme aims to add 10 million urban units by 2029, covering a share of the need, with much of the gap still requiring structural reform. 

The economic case is well established and not unique to India. Housing is among the most deeply networked sectors in any economy, with linkages spanning cement, steel, logistics, paint, and financial services. A landmark study by the International Labour Organization — the study was done between 1995 and 2009 and across 45 countries — found that output multipliers in construction were consistently higher than the economywide average across all income groups. In middle-income economies, an investment of $1 million generated roughly 3.6 times that amount in broader output. India’s own data confirms the sector’s dynamism: Construction in 2024-25 posted a real growth rate of 8.6 per cent in gross value added, the highest among major sectors, according to the Ministry of Statistics and Programme Implementation. The question is not whether construction generates growth but whether India is directing that investment towards the part of the housing market where the need and multiplier are the greatest. 

Additionally, the construction sector consistently demonstrates high employment elasticity, standing out for its responsiveness to investment. Yet most jobs generated are characterised by low wages and informality. As of 2022, 70 per cent of unskilled construction workers did not receive the prescribed daily minimum wages. The sector employs over 50 million workers, but without security, without wages that feed meaningfully into consumption, and therefore without unlocking the full induced multiplier that makes housing investment truly transformative. In lower-middle-income countries, the induced effect is suppressed when wages are too low. Fix the wages, formalise the workforce, and the housing multiplier grows larger. 

India has not been indifferent to the crisis. The Pradhan Mantri Awas Yojana (Urban), which received a 36 per cent increase in budgetary allocation to ₹30,171 crore in 2024-25, represents the most ambitious housing programme the country has attempted. But it is built around home ownership, which requires land, creditworthiness, and stable income, precisely what the urban poor lack. The “beneficiary-led construction” component supports those who already hold land. Credit-linked subsidy favours households with formal incomes. The result is that the programme reaches a large number of people just above the truly excluded, while the landless migrant, the informal worker, the daily-wage earner sleeping on a pavement remain outside its reach. 

India’s cities need to consider a large-scale, publicly anchored rental housing system. For households earning below ₹15,000 a month in cities like Mumbai, Delhi, or Bengaluru, ownership is simply not a viable near-term aspiration. Land prices, interest rates, and loan tenures make it arithmetically impossible. Rental housing, built on publicly owned land leased to private developers for 50-60 year terms, with regulated rents and long-tenor debt backed by rental income, can reach those households. India’s urban population, at 500 million in 2021, is projected to reach 850 million by 2050, according to the NITI Aayog. That is 350 million more people, roughly the current population of the United States, arriving in cities. Without a structural housing solution, those people will not disappear. They will build more slums, strain more infrastructure, and crowd into more inadequate rooms. China offers the most instructive mirror. Through land reforms, state-enabled developer markets, and aggressive mortgage expansion, it dramatically expanded its housing stock during its most rapid economic growth. 

A country urbanising at India’s pace, with a construction sector that generates outsized economic returns and a housing deficit concentrated almost entirely among its working population, has the ingredients of a significant growth story. The institutional pieces are falling into place: Conversation on land reform is live, and rental housing frameworks are being debated. What the moment calls for is a shift in how the question is framed; from how much we can spend on housing the poor to how much growth we are leaving unrealised by not doing so. That reframing, more than any single scheme or budget line, is where the opportunity begins.

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The author is chair, Institute for Competitiveness. X:@kautiliya. With inputs from Meenakshi Ajith