India's affordable housing crisis: A dream within reach, but challenges persist.
The housing market is at a turning point in India. Lower interest rates, rising incomes, and government initiatives are making homeownership more accessible to a broader population. However, the journey to truly affordable housing is fraught with obstacles, and the upcoming Budget 2026 could be pivotal in addressing these issues.
The struggle is real for both developers and homebuyers. Stalled construction projects, escalating input costs, and restrictive policy definitions are hindering the supply of affordable homes. Housing finance companies and real estate developers are urging the government to take decisive action to maintain the positive momentum, particularly in the affordable housing segment.
Mortgage lenders are calling for a revival of incentives. They advocate for a four-year tax holiday and higher floor space index (FSI) for projects catering to low-income households. The previous Pradhan Mantri Awas Yojana (PMAY 1.0) provided developers with a 100% income tax exemption on profits from approved affordable housing projects, which was crucial for project feasibility. But this incentive was not continued in PMAY 2.0, causing developers to struggle with profitability.
Rising costs are pushing builders away from affordable housing. Increasing land prices, construction materials, and labor costs, coupled with tighter financing, have reduced margins. Delayed approvals and the withdrawal of government incentives have further discouraged developers, leading them to focus on mid- to high-income housing, where pricing and cash flows are more stable.
And this is where it gets controversial: The Confederation of Real Estate Developers' Associations of India (CREDAI) has called for a reevaluation of the affordable housing definition and an extension of tax incentives. They argue that the current ₹45 lakh price cap, set in 2017, is outdated. But is this a fair assessment? Should the government adjust the price cap, and if so, by how much?
The situation is complex, as city-level trends vary. According to Knight Frank India's Affordability Index, Ahmedabad leads with an EMI-to-income ratio of 18%, followed by Pune and Kolkata at 22%. Mumbai has made significant strides, with the ratio dropping below 50% for the first time, indicating a more favorable environment for homebuyers.
But there's a catch: While affordability has improved in major cities, residential sales in the top seven cities dropped by 14% in 2025 due to rising property prices, economic uncertainties, and geopolitical tensions. Yet, the overall sales value increased by 6%, suggesting a robust demand for premium housing.
The sector's future depends on several factors. Anuj Puri, chairman of Anarock group, emphasizes the importance of RBI rate cuts and developers' price control. Government interventions, such as the Special Window for Affordable and Mid-Income Housing (SWAMIH) fund, have helped complete stuck projects and deliver units to homebuyers.
So, what's the verdict? India's affordable housing story is one of progress and challenges. While interest rate relief and income growth have made homeownership more achievable, structural issues persist. To ensure affordability for the next generation, the government must address stalled supply, rising costs, and narrow definitions of affordability. Reviving tax incentives and reevaluating price caps could be crucial steps in this direction.
What do you think? Is the government doing enough to support affordable housing? Should they adjust price caps and tax incentives? Share your thoughts in the comments below, and let's spark a discussion on this critical issue.
