Demand-supply mismatch: Affordable housing shortage must be addressed

A Knight Frank study shows that India will face an affordable housing shortage of 31.2 million units by 2030. There is already an existing shortage of 10.1 million units

Housing affordability is getting worse across Indian cities. In recent years, demand in the affordable segment has suffered as the target group concerned was deeply affected by the pandemic. Further, interest-rate hikes on housing loans and a sharp rise in residential prices have made it challenging for low-income buyers to enter the market.  Consequently, the share of affordable housing in overall sales has substantially declined in recent years. Pandemic-induced distress, coupled with rising costs of construction and labour costs, prompted real estate developers to shift their focus away from affordable housing and lean towards the premium and luxury segments. Together, these factors have resulted in a demand-supply mismatch for affordable housing units. A recent study conducted by Knight Frank and the Confederation of Indian Industry highlights the magnitude of the problem.

  The study shows that India will face an affordable housing shortage of 31.2 million units by 2030. There is already an existing shortage of 10.1 million units. It also points towards a moderation of sales in the affordable category. In 2018, 54 per cent of all residential sales in the top eight cities of India were concentrated in the affordable category. In 2024, this share declined to 26 per cent. This continues to happen despite the housing market witnessing a robust upswing amid increasing urbanisation, rising income levels, and growing formalisation of the economy. The inadequate supply of affordable residential units in the country is concerning and calls for immediate attention. To add to the problem, house prices have significantly increased in the past few years, especially in the affordable housing segment. For instance, the study shows that, between 2019 and 2024, the average launch prices in the Mumbai Metropolitan Region increased at a compound annual growth rate (CAGR) of 8 per cent for residential units below 30 square metres (sq m), while average prices of residential units of 60-160 sq m witnessed a CAGR of only 4.4 per cent. Decline in development owing to the projects’ financial infeasibility, lack of affordable land availability, and high loan dependency of both developers and potential buyers are some of the obstacles.

  Unaffordable housing is a drag on the economy. It erodes the urban wage premium for workers and makes it increasingly costly for employers to retain talent. Moreover, a supply shortage creates conditions for wealthy real estate developers and agents to exploit the tight market, squeezing excessive profits from renters and crowding out first-time homebuyers. In this context, governance of housing markets must include more robust planning. Government policies such as the Pradhan Mantri Awas Yojana and the National Urban Rental Housing Policy may not be enough. Developing satellite cities and addressing the physical infrastructure deficit in those areas can help spread economic activities and reduce pressure on mega cities. Creating housing facilities for industrial workers, maximising land use by allowing a higher floor area ratio, and ensuring adequate finance for both home buyers and developers may also alleviate the problem to a large extent. Another potential solution lies in repurposing vacant lands owned by various public-sector undertakings and state authorities.