Half of India could live in cities by 2050. Why affordable homes are at risk

India's urban transformation is gathering pace, but the country's ability to provide affordable housing to millions of people could come under increasing strain in the decades ahead.

According to a joint report by KPMG in India and the National Real Estate Development Council (NAREDCO), nearly 40% of India's population is expected to live in urban areas by 2036, with almost half of all Indians projected to reside in cities by 2050. The shift is expected to fuel demand for housing, infrastructure and urban services on an unprecedented scale.

The report, Advancing India's Housing and Urban Development Agenda, estimates that the country's real estate sector could grow to $5.8 trillion by 2047, making it one of the key pillars of the Viksit Bharat vision.

However, the report warns that without structural reforms, affordable housing could emerge as one of the biggest bottlenecks in India's urban growth story.

Premium projects dominate

One of the major concerns highlighted in the report is the increasing preference among developers for middle-income, luxury and ultra-luxury housing projects.

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Higher profit margins in premium segments have made them more attractive, while rising land prices since the Covid-19 pandemic have significantly reduced the commercial viability of housing for Economically Weaker Sections (EWS) and Low-Income Groups (LIG).

As a result, the gap between demand and supply of affordable homes could widen further as urban populations continue to rise.

Multiple hurdles remain

The report points to several structural issues hampering affordable housing development.

Restrictive Floor Area Ratio (FAR) and Floor Space Index (FSI) norms in many cities limit the efficient use of land. Large land parcels are often locked due to litigation, poor connectivity or underutilisation. Lengthy approval processes involving multiple agencies also increase costs and delay project execution.

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Affordable housing finance companies continue to face high borrowing costs compared with banks, resulting in elevated lending rates for low-income households. Credit penetration also remains limited in Tier-II, Tier-III and peri-urban markets.

What the report recommends

To improve housing supply, the report proposes reserving 5% each of residential land in master plans and town planning schemes for EWS and LIG housing. It also recommends increasing permissible FAR, easing setback and parking norms and expanding planned urban areas.

The report advocates digitally mapping unused public and private land parcels and introducing concessions on development charges for affordable housing projects. It also calls for a single-window approval mechanism integrating multiple agencies to reduce delays.

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Low-cost finance

Among other measures, KPMG and NAREDCO suggest improving access to low-cost finance, promoting long-tenure home loans of more than 25 years and enabling deeper credit penetration in smaller cities.

The report also recommends targeted tax incentives and rationalisation of GST to boost affordable housing development.

As India moves towards becoming an increasingly urban nation, the challenge will be ensuring that the pace of housing creation keeps up with population growth. Without sustained policy support, the country's urban boom could leave millions of households struggling to find homes they can afford.