Rethinking affordable housing: Reforms needed in land, finance and rentals

India's urban housing crunch needs more than subsidies-it needs a policy reset that makes affordable homes viable for builders, investors and cities alike

India’s challenge in urban housing does not stem just from inadequate access to credit or home-ownership schemes. Cities are failing to create conditions where it is economically viable to build affordable homes, pushing households into informal settlements, long commutes, and higher debt. A new NITI Aayog report on affordable housing attributes this collapse in supply to high land costs, restrictive planning norms, weak rental markets, regulatory delays, and the withdrawal of fiscal incentives. Resultantly, affordable housing has become a high-risk, low-return proposition for both developers and financiers. Over the past decade, the segment has attracted less than 8 per cent of flows into residential private equity while foreign funds accounted for just 10.2 per cent of inflows into the segment. 

The recent data from Knight Frank and the National Real Estate Development Council (Naredco) underline the severity of the problem. Across India’s top eight cities, the supply-to-demand ratio for homes priced below ₹50 lakh went down to 0.36 in the first half of 2025 from 1.05 in 2019. Meanwhile, the share of affordable housing in new supply has hit 17 per cent, plunging from over 50 per cent in 2018, signalling a structural retreat by real-estate developers from the segment. The shortage in urban affordable housing is estimated at 9.4 million units, with cumulative demand from economically weaker sections (EWS), lower-income groups (LIGs), and middle-income households projected to reach 30 million units by 2030. 

The NITI Aayog’s proposals amount to a long overdue reset in the affordable housing policy. At the centre is the suggested revival of Section 80-IBA of the Income-tax Act, which, between 2016 and 2022, allowed developers a full tax exemption on profits from approved affordable-housing projects. Bringing it back would improve project economics and restore a degree of policy certainty, which private developers have sorely missed. The report also recommends exempting from tax rental income and capital gains for affordable housing real-estate investment trusts (Reits), a step aimed at drawing institutional capital into a segment starved of long-term funding. It also suggests allowing the National Housing Bank (NHB) to issue tax-free bonds with funds channelled into concessionary lending for housing for EWS and LIGs, alongside a new long-term fund backed by the NHB and Housing  and Urban Development Corporation. It also backs mandatory inclusionary zoning, requiring 10-15 per cent EWS/LIG housing in large residential and commercial projects. Additional measures include waivers on stamp duty and registration charges, exemptions on change-of-land-use charges, and incentives tied to using at least half the permissible floor area ratio for affordable units. Crucially, the report calls for treating rental housing as residential rather than commercial, with lower electricity and water tariffs. 

Yet policy design is only half the battle. The success of these reforms will depend on implementation by states and cities. From 3D printed homes in Kenya to community engagement and collaborative financing models in Nepal, global best practices highlight that varied strategies can be scaled up to make housing affordable. Utilising public land for public housing projects, rationalising norms on the floor space index (FSI), investing in transport and infrastructure in peripheral areas, and building credible, technology-enabled housing data systems should complement the proposed incentives.