India is a welfare state where the government strives to provide basic needs like food, clothing, and shelter for all. Yet, in the same country, Uday Kotak and his family recently bought 12 sea-facing flats in Mumbai for over ₹200 Cr., setting a national record at ₹2.71 lakh per sq. ft.

The contrast couldn’t be starker. It shows how detached India’s housing market has become from the idea of affordability. Between 2020 and 2024, household income grew at a 5.4% CAGR, whereas property prices saw a 9.3% CAGR, increasing the affordability gap.

An Expanding Market, A Shrinking Base

In 2022, there were 3.1 lakh affordable homes (priced at ₹1 crore or below). By 2024, this number had fallen by 36% to 1.98 lakh units. While luxury housing supply surged by 48% across the top cities:

• Chennai by 127%
• Bengaluru by 187%
• NCR by 192%

Delhi NCR, Mumbai, and Hyderabad were the worst-hit cities in terms of affordable housing availability.

Source – Propequity report

As affordable homes disappear in the cities that need them most, Kolkata stood out with a 7% increase in affordable housing availability.

This shift is not accidental. Developers are focusing on premium projects because they lead to higher profits. With land, construction, and borrowing costs rising, building homes for the middle class has become less viable. As a result, affordable homes are being sidelined.

2 Metrics That Reveal the Crisis

1. The Price-to-Income (P/I) ratio: It tells you how many years of your annual income it would take to buy a home. India’s average P/I is 11, twice the affordability benchmark (5 or less).

Some major cities fare even worse:

• Mumbai Metropolitan Region: 14.3
• Delhi: 10.1
• Kolkata: 5.8
• Chennai: 5.1
• Ahmedabad: 5.1

Buying a house in the US (P/I: 3.6) or Australia (P/I: 7.6) may be more affordable than in India.

2. EMI to Income (EMI/I) ratio: This tells how much of your monthly salary goes into home loan EMIs.

A ratio above 50% is considered unaffordable. As of 2024, India’s average is 61%, up from 46% in 2020. This means that for many households, purchasing a home now means giving up on lifestyle and maybe even necessities.

2 Reasons Fueling the Crisis

1. Influx of black money: It continues to distort India’s housing market, primarily through the misuse of the circle rate mechanism.

• Circle rate: Government-declared minimum price per sq. ft.
• Market price: Actual price set by builders (often much higher).

Builders exploit this gap by registering sales at the circle rate (which is often lower than the market price) while receiving the balance in cash.

Tax impact on a ₹1 crore property:

• GST (under-construction): 12%
• Stamp duty: 7–8%
• Total tax and registration cost: ~ ₹20 lakh

At a circle rate of ₹40 lakh, tax drops to ₹8 lakh. This results in a ₹12 lakh tax saving per unit, while the remainder is settled under the table.

Builders sell in bulk to HNIs and large business owners at the circle rate to recover construction costs and raise prices on the remaining units to maintain margins.

Brokers make the situation worse by creating artificial scarcity to justify price hikes, making homeownership unaffordable for the middle class.

2. Low Floor Space Index (FSI): The FSI measures how much construction can happen on a given plot of land. It is tightly controlled by the government.

India’s low FSI is the reason why Mumbai, India’s financial capital, has just 542 high-rises, while Singapore has over 2,687.

• Delhi: 3.5
• Mumbai: 5
• Tokyo: 20
• Singapore: 25
• New York: 15

High FSI cities enjoy massive skyscrapers, which in turn create more housing supply with relatively controlled prices. But India’s low FSI limits construction in terms of the number of floors, making prices soar.

However, a higher FSI might not be a solution. Yes, it will mean more houses, but it:

• May accelerate migration from rural areas, putting pressure on already overburdened metros.
• Cities like Mumbai are already struggling; local trains are overcrowded, and parking spaces are vanishing.
• Water supply, sewage systems, waste disposal, and roads may not support a higher population.

Even public services like garbage collection, emergency services, and public transport could face operational breakdowns without corresponding upgrades.

Ways to Solve India’s Housing Affordability Crisis

Fixing the affordability crisis in India is not an easy feat. However, with some structural reforms, change is possible. Here are 8 solutions:

1. Reform the circle rate policy: Revising the circle rate monthly instead of annually based on the maximum price cap, and introducing a peg system can help reduce the difference between the market price and the circle rate by 5-10%.
2. Establish a centralised real estate platform via RERA: The Real Estate Regulatory Authority (RERA) should serve as a unified platform for all residential property bookings and sales. Verified digital accounts should be mandatory for transactions, and sale prices should be published in real time. This would create transparency and reduce cash transactions and price manipulation.
3. Develop new cities: India has just one city for every crore of people, while countries like the US and UK have 4. State governments should propose the development of new cities to help relieve some of our overburdened cities.
4. Decentralised education and workforce: A major share (33% of the top 100) of India’s universities and tech workforce (54 lakh) is concentrated in just 7 cities. Establishing top education institutions across different states can reduce overcrowding in metros.
5. Increase FSI in tier 3 cities: While increasing FSI in cities like Mumbai and Delhi also needs infrastructure updates to be useful, raising FSI in tier 3 cities can help create new housing hubs, reducing pressure on big cities. Additionally, job creation in these cities will make them more sustainable.
6. Expand government land ownership: In the US, 29% of the country’s land belongs to the government. However, in India, this number is only 0.5%. We need more government-owned land to help build new cities and control urban expansion.
7. Tax vacant homes: Over 1.14 crore homes in India are unoccupied, often held for investment. A vacancy tax can push owners to rent or sell, increasing the number of homes actually available to live in.
8. Regulate NRI investments: NRIs contributed 10% of real estate investments between 2019 and 2020. Since they earn in foreign currency, this drives up prices. Caps or higher taxes on such investments can protect local buyers.

Conclusion

One thing is clear: India doesn’t lack homes; it lacks accessible homes. For the average middle-class Indian, owning a home today either requires major policy reform or a financial head start that most don’t have. 

While we wait for these reforms, personal financial preparedness is still in our control. You can start by choosing the right kind of assets. Finology 30 is a bundle of 30 strong, fundamentally sound companies that are selected after comprehensive research and analysis of their financial performance, governance standards, and future outlook.

You may not be able to fix the housing market, but you can take steps to bring financial independence a little closer so you can prepare for a future where home ownership is not such a distant dream.

Finology is a SEBI-registered investment advisor firm with registration number: INA000012218.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.