Affordable Housing Crisis Looms Over Cities

A recent report has highlighted an unsettling trend in India’s urban housing market: affordable housing supply in major cities has plunged, pointing to a sharp undersupply in the very segment that once formed the backbone of urban homeownership.

The numbers tell the story starkly. New launches of affordable homes, units priced below ₹50 lakh, fell by more than 50% in tier-2 cities in early 2025, while in the top seven metros, unsold affordable stock dipped nearly 20% year-on-year. In contrast, luxury inventory grew by 24%. With demand remaining steady, the steep decline in supply underscores a growing imbalance between aspiration and access.

The Structural Squeeze

Industry experts agree that the undersupply is not due to falling demand, but because delivering affordable projects has become increasingly unviable. “Affordable housing is shrinking not because demand has reduced, but because viability has collapsed,” says Ashwinder R Singh, vice chairman, BCD Group, chairman, CII Real Estate Committee & advisor, NAR India. “Rising land values, longer approval cycles, and higher construction inputs make it difficult for developers to stay committed to the segment. Naturally, many are pivoting to mid-income and premium housing where margins are more sustainable,” he further explains.

This shift is already reshaping cityscapes. Developers are chasing profitability, but the very group driving the country’s urbanisation — young migrants and first-time buyers — risks being priced out. Without intervention, Singh warns, cities could evolve into islands of premium housing and vast informal settlements.

Changing Aspirations, Shifting Priorities

For some developers, the decline also reflects an evolution in buyer preferences. Sarveshaa SB, CMD, Bhadra Group, believes the dip signals a transformative phase for Indian real estate as families seek bigger, better homes. A dynamic market, he adds, must balance affordability with mid- and premium offerings to remain inclusive.

Others, however, argue that affordability remains the true foundation. “Every shift in real estate reflects changing consumer aspirations, but affordability is the base on which long-term sectoral health rests,” points out Udit Jain, director, One Group. He also highlights a structural gap: the government defined affordable housing in 2015, but since then, the cost of construction has almost doubled. “The definition must be updated if the segment is to be revived,” adds Jain.

On-the-Ground Impact

Beyond market statistics, the consequences for ordinary families are sobering. Manoj Dhanotiya, CEO & founder, Micro Mitti describes the human cost, “Land and compliance costs rise faster than salaries, approvals take time, and finance prefers higher ticket projects. The result is fewer entry-price homes inside city limits and more aspirational launches at the edge. It is about a nurse, a delivery rider, a young engineer, all pushed farther from work and from the city. Long commutes steal hours from families, and informal settlements fill the gap.” His call is clear: slogans will not solve the issue — cities must open transit-connected land, rationalise charges, and reward developers who keep prices in check.

A Business Reality

Some voices are blunt about the commercial realities. “When a product does not sell well, it is invariably taken off the market,” says Akash Pharande, MD, Pharande Spaces. For him, affordable housing simply lacks profitability for developers, who operate under the same demand-supply rules as any other business.

But not everyone agrees that demand is the problem. Anil Pandey, project director, REPL, argues that affordable housing is not a fading demand, it’s an underserved opportunity. “Government schemes like PMAY have laid the groundwork, but execution gaps remain. Fast-tracked approvals, targeted financing, and fiscal incentives can bring developers back into the segment and ensure urban equity,” elaborates Pandey.

Rising Divide

The consequences of imbalance are already visible. Ajay Kumar Singh, director, Jenika Ventures, notes that affordable housing, which accounted for over half of new supply in 2018, has now dropped to just 17%. “If this trend continues, the very face of affordable housing in urban India may shift irreversibly towards the mid-segment unless robust policy interventions are made,” warns Ajay.

Similarly, Shorab Upadhyay, MD, TRG Group, points out that home loan sizes have ballooned to around ₹74 lakh in prime cities. This reflects a buyer base with higher disposable incomes, often millennials and Gen Z, who are willing to stretch budgets. But he cautions that without policy levers for affordability, India risks losing balance, with too few homes for genuine first-time buyers.

Policy and Market Solutions

Industry majors also view the slowdown as a chance to reimagine affordable housing. Anshuman Magazine, chairman & CEO – India, South-East Asia, Middle East & Africa, CBRE, says, “It’s a chance to rethink how affordable housing is defined and delivered.” He points to smarter use of technology, innovative financing models, and deeper collaboration between government, private players, and financial institutions as key to making the segment a long-term growth engine.

Karan Malik, associate director, Realistic Realtors, agrees, “The undersupply signals the market is ready for fresh thinking. Innovation in design, technology, and financing can create immense value, and stronger public-private partnerships are key.”

Meanwhile, Mukul Bansal, MD, Motiaz, stresses that inclusivity must remain central. “Urban growth should be sustainable through a spectrum of housing that makes affordability a given — not only for the lower-income segment, but also for young professionals and first-time buyers looking to take root in metropolitan areas,” he says.

A Wake-Up Call

Ultimately, the undersupply is more than just a cyclical dip, it is a structural warning. Manjunath V, managing partner, Aakruthi Properties, calls it a wake-up call for the industry. Land and construction costs, regulatory delays, and evolving buyer expectations are squeezing the very segment that sustains urbanisation. Ignoring it, he warns, is not sustainable for long-term stability.

The data shared by Gaurav Mavi, co-founder, BOP.in, underscores the trend: affordable housing supply has dropped 54% in tier-2 cities and nearly 20% in metros, even as luxury stock expands. He believes the way forward lies in boosting affordable housing construction, easing land prices, and strengthening financing models to restore balance.

The Road Ahead

India’s cities stand at a crossroads. Aspirations are rising, but affordability remains the entry point for millions of young migrants and first-time buyers. Without intervention, the housing market risks drifting into a two-tier reality: premium enclaves on one side, sprawling informal settlements on the other.

As industry experts suggest, the solution will not come from one stakeholder alone. Developers, policymakers, and financiers must collaborate on new models, incentives, and definitions that reflect today’s economic realities. Affordable housing is not merely about unit counts, it is about keeping the promise of inclusive cities alive.