Affordable housing was once the big driver of India's housing market. As more and more people migrated to the cities to work, demand for affordable homes from the middle and lower income households boomed. Government's push with programmes like 'Housing For All' offering incentives for buyers as well as developers gave the sector a further boost.
In recent times though, affordable housing market has taken a huge hit even as premium and luxury homes saw strong traction. Affordable homes made up almost 40 per cent of the total supply in 2018 and 2019. The share has rapidly declined post pandemic and in 2024, it accounted for just 16 per cent according to Anarock Property Consultants. It considers affordable housing as units priced under Rs 40 lakh.
Notably, in Bengaluru, throughout 2024, there was no new supply in the affordable housing space, Anarock's research showed. In Hyderabad and Chennai, affordable homes made up for just 2 per cent of the supply share.
The supply of affordable homes has also seen a sharp decline in the National Capital Region from 62 per cent in 2020 to just 11 per cent in 2024.
Mumbai and Kolkata are perhaps the only two major cities still seeing some activity in this space, although, even there the supply share has declined. In the Mumbai Metropolitan Region, for instance, affordable housing made up for 31 per cent of the total supply in 2024, compared with 43 per cent in 2019. Similarly, in Kolkata too, affordable homes still contributed to a sizeable 31 per cent of the supply, but still much lower than 73 per cent in 2018.
According to a separate report by PropEquity, supply of homes priced Rs 1 crore and below has declined 36 per cent in the top nine cities in India in the past two years.
What is driving this slump? The COVID-19 pandemic profoundly changed the market dynamics, said Anuj Puri, chairman of Anarock.
"The target clientele, consisting of blue-collar workers, lower-paid workforces and those just starting out in their careers, were severely cash-strapped and obviously, buying homes did not feature among their immediate priorities," he pointed out.
Instead, the rental market picked up after the pandemic abated and businesses sent out their 'return to office' call, he added.
On the other hand, middle class and affluent families locked down in the pandemic also wanted larger homes with with more lifestyle amenities, he noted. Work from home also necessitated the need for such homes that could serve as both homes and offices, driving up supply of premium homes.
"The previously popular model of modest beginnings with smaller 'starter' homes and leveraging capital appreciation and career growth to eventually upgrade to bigger ones lost its appeal. Indians who were considering home ownership at all had their eyes on the biggest units they could afford. This trend continues even today, and essentially small-sized affordable housing plays no role in it," explained Puri.
Separately, as costs of land, labour and construction material saw a continued rise, at a time profit margins for affordable homes were low, developer enthusiasm for such homes also dwindled and in turn started focusing on more larger and lifestyle oriented projects.
In this backdrop, all eyes will be on the Union Budget on February 1, where the hope is that Finance Minister Nirmala Sitharaman will announce measures to boost consumption demand among the country's vast middle class.
Puri notes that the Pradhan Mantri Awaas Yojana - PMAY (Urban) - has made steady progress since it was announced in mid-2015. Data by Ministry of Housing and Urban Affairs indicates 118.64 lakh homes have been sanctioned as of January 20, 2025 and nearly 90.22 lakh units have been completed. Nearly Rs 2 lakh crore worth central assistance has already been committed.
Sitharaman may look to give further impetus to this programme in the Budget to lift the affordable housing segment.
Over the last couple of years, house prices have also continued to rise, in turn tapering housing demand in the high-end to an extent. Puri believes there could come an inflection point where the cycle can once again turn positive for the affordable segment.
As people continue to migrate to big cities and number of nuclear families grow, it is estimated that 1.5 crore homes would be required in these cities in the next five years, according to Samir Jasuja, founder and CEO of PropEquity.
“To address this problem, the Government must not just incentivise developers through tax cuts and subsidies in order to make affordable and mid-income housing a viable option but also provide benefits to homebuyers in the form of home loan rebates, stamp duty cuts etc,” he said.
