India’s affordable housing shortage to hit 3.12 crore units by 2030: What’s behind the crisis?

India's affordable housing shortage is projected to reach a staggering 3.12 crore units by 2030, driven by rapid urbanisation, economic growth, and rising migration to cities, according to a report by CII-Knight Frank.

Between 2013 and 2023, the country’s urban population grew by 14%, nearly double the global rate of 8.4%, according to World Bank data. Currently, 36% of India’s population resides in urban areas, a figure expected to reach 40% by 2030.

The CII-Knight Frank report suggests the current shortfall of 1.01 crore units in affordable housing is set to worsen as an estimated 2.22 crore new housing units will be needed in urban centres by 2030.

"The cumulative Affordable housing shortage in India is projected to reach 31.2 million by 2030, with the market size estimated at Rs 67 trillion," Ghulam Zia, Senior Executive Director, Research, Advisory, Infrastructure & Valuation at Knight Frank India, said at an event in New Delhi.

Reason behind affordable housing crisis

A key barrier to addressing the housing shortage lies in the mismatch between government definitions of affordable housing and market realities, according to the report.

The ministry of housing and urban poverty alleviation (MoHUA) defines affordable housing as residential units reasonably priced for EWS, low-income groups (LIG), and middle-income groups (MIG). The Reserve Bank of India (RBI), for example, considers homes priced under ₹45 lakh in metros and ₹35 lakh in non-metros as affordable, a benchmark last revised in 2019.

However, rising real estate prices have rendered these thresholds inadequate.

In metro cities like Mumbai and Delhi NCR, where the demand is highest, even the smallest units fall outside the affordability threshold for EWS households.

In Mumbai, the average launch price of a housing unit under 30 square meters rose from ₹47 lakh in 2019 to ₹75 lakh in 2024, an increase of nearly 60%. Similarly, Bengaluru saw prices rise from ₹27 lakh to ₹40 lakh during the same period.

The report recommends revising RBI’s affordable housing limits to reflect city-specific price dynamics. This includes raising the cap for priority sector lending or introducing a flexible approach based on carpet area instead of price caps.

On the supply side, developers have reduced participation in affordable housing projects due to rising costs and lower profit margins. Between 2019 and 2024, the cost of small housing units surged by an 8% compound annual growth rate (CAGR), outpacing the 4.4% CAGR for larger units.

The affordable housing segment also could provide a lot of opportunities for financial institutions.

"Based on the assumption of a 77 per cent loan dependency and Loan-to-Value ratios applied at various loan thresholds, the potential financing opportunity for banks and Housing Finance Companies in the affordable housing segment is estimated to be Rs 45 trillion," the report said.

This represents a substantial increase, being three times more than the existing loan volume in this segment, it added.

Real estate bodies like CREDAI have been calling for revising the price cap for affordable housing. They suggest increasing the limit from ₹45 lakh to ₹75–80 lakh in metros.

“The government should charge 1% GST on under-construction housing properties, costing up to ₹75-80 lakh each, to boost demand for affordable and mid-income housing,” Boman Irani, president, CREDAI told reporters last week.