Why affordable housing remains a bright spot in India’s housing sector

The improving macroeconomic landscape is propelling the housing finance industry towards a growth of 16-17% over FY25 and FY26.

By Girish Kousgi 

In a country as vast and diverse as India, affordable housing has consistently proven to be a resilient and transformative force in the housing finance sector. For years, it has quietly bridged the gap between aspiration and reality, helping millions achieve their dream of homeownership. Today, more than ever, affordable housing stands as a cornerstone of the economy—resilient, dynamic, and filled with untapped potential.

The improving macroeconomic landscape is propelling the housing finance industry towards a growth of 16-17% over FY25 and FY26, with a major chunk of growth coming from the affordable housing segment, which is estimated to grow at 22-23% CAGR over next two years. My optimism for this segment, hence, is rooted in a combination of government focus, evolving market dynamics, and technological advancements that promise a sustainable future for affordable housing.

India is undergoing a demographic and economic shift that makes the case for affordable housing stronger than ever. Urbanisation is reshaping the country’s housing landscape, with 40% of the population projected to reside in urban areas by 2030. Much of this growth is occurring in Tier 2 and Tier 3 cities, where economic activity is surging, jobs are being created, and incomes are rising. These smaller cities are fast becoming hotspots for affordable housing, catering to first-time buyers and young professionals seeking homes that align with their aspirations and financial realities.

This trend is not limited to geography—it is deeply tied to changing consumer behaviour. Millennials, who dominate the workforce, are opting for affordable homes earlier in life, prioritising cost-effective solutions over luxury. Women, too, are emerging as key participants in this space, signalling growing financial independence and inclusivity in the market. This combination of younger buyers and increased female participation underscores the evolving face of the Indian homeowner.

Government Support

At the heart of this transformation lies the Indian government’s unwavering commitment to affordable housing. Initiatives like the Pradhan Mantri Awas Yojana (PMAY) have democratised homeownership, enabling millions to access credit through subsidies and incentives. The recent extension of PMAY 2.0 reflects the government’s broader vision of “Housing for All.” The Union Budget 2024–25 has allocated funds for the construction of three crore additional houses, including investments in PMAY Urban 2.0, which will address the housing needs of one crore urban poor and middle-class families with a ₹10 lakh crore investment. In addition, the central government plans to provide ₹2.2 lakh crore in assistance over the next five years to boost affordable housing initiatives.

The government’s focus extends beyond homeownership to include urban infrastructure development. Projects such as metro expansions and smart city initiatives are making peripheral and underdeveloped areas more accessible. These regions, with affordable land prices and improving connectivity, are fertile grounds for affordable housing projects.

Affordable housing has also seen growing participation from developers, thanks to policy incentives like Section 80IBA, which offers tax exemptions for affordable housing projects, and interest subvention schemes, which improve project viability. Policy reforms like RERA (Real Estate Regulatory Act) have introduced greater transparency and accountability, boosting consumer confidence and encouraging developers to focus on demand-driven affordable housing projects rather than speculative luxury developments.

Despite the economic headwinds of recent years, affordable housing has proven to be remarkably resilient. Unlike luxury and premium markets, which are more sensitive to economic fluctuations, demand for affordable homes remains steady due to its fundamental nature: fulfilling the need for shelter. This stability is further reinforced by India’s drive toward economic formalization. Initiatives like GST and Digital India have brought more of the workforce into the formal economy, making them eligible for housing loans. This formalisation not only broadens the borrower base but also reduces credit risks for lenders, enhancing the viability of affordable housing finance.

Technology as an Enabler

Technology has been a game-changer in scaling affordable housing finance. Advances in AI-driven credit scoring models, e-KYC processes, and data analytics have significantly reduced turnaround times for loan approvals and disbursements. These innovations enhance customer experience, lower operational costs for lenders, and enable housing finance institutions to tailor products for diverse borrower profiles, including those with informal income streams. Digital platforms are streamlining the lending process, making affordable housing loans more accessible and transparent.

Future Path

While developers and buyers face challenges such as high land costs, infrastructure bottlenecks, and lengthy approval processes, they are not insurmountable. A recent report by Knight Frank highlighted that the cumulative affordable housing demand in India is projected to reach 31.2 million units by 2030, with the market size estimated at ₹67 lakh crore. Increased collaboration among developers, lenders, and policymakers could further accelerate this growth. A single-window clearance system for project approvals could resolve procedural delays, making the sector more efficient and scalable.

Looking ahead, my confidence in affordable housing stems from its alignment with India’s long-term aspirations—combining resilience, inclusivity, and innovation, thereby offering a sustainable roadmap for growth. With continued government support, evolving consumer demand, and technological integration, affordable housing is poised to remain a beacon of opportunity in India’s housing sector. As stakeholders, our role is to harness this potential, addressing challenges while embracing innovation to make “Housing for All” a reality. For me, affordable housing will continue to be the most promising pillar of the Indian housing finance industry, driving equity, opportunity, and progress.

(Girish Kousgi, MD & CEO, PNB Housing Finance.)

Views are personal, and do not represent the stand of this publication.