India's Affordable Housing Crisis: Will the Middle-Class Ever Own a Home?

To buy, or not to buy? That is the question". 

If Shakespeare were alive today, he'd probably be a millennial artist struggling to make ends meet in the unbearable heat of Mumbai. He'd be standing in line for overpriced food, scrolling through property listings, and cursing the cruel Gods dramatically as he realised that the only way to afford a home is to be born into wealth, win a lottery or a reality show. Or at least that seems to be the case in India.

India has long prided itself on being a welfare state—a country where everyone should have access to the essentials: roti, kapda, and makaan. 

But while food and clothing remain within reach (relatively speaking—let's not discuss onion prices), housing has become quite elusive, available only to those with a lot of money or an unnatural tolerance for debt. 

So maybe the question should be, "Can we buy it at all?".

Think about it: if 10 years ago, someone had told us that by 2025, a single square foot of property in Mumbai would cost ₹2.71 lakh, would you have believed them?  

But here we are in 2025, and billionaires like Uday Kotak and family just spent over ₹200 crore on 12 sea-facing flats, setting a national price record at ₹2.71 lakh per sq. ft. While the average Indian is left to wonder if they need to sell their souls to be able to afford a 1BHK flat.

So, how did we get here? Why is India's housing market spiralling into an abyss of unaffordability? And most importantly—how do we fix this mess?

Act 1: The Rise of the Housing Hunger Games

Once upon a time, in the not-so-distant past (aka the pre-COVID-19 era), it was tough to buy a home, but not bordering on impossible. It was a time when people could still tell someone it was their dream to buy a home without having it sound like a joke.

Then, COVID-19 came, left, and took housing affordability with it. Even since then, real estate prices have been on a 3-year-long bull run, showing no signs of slowing down. 

Buying a house has always been an ambitious dream for the middle class, but now, the housing market has become too expensive, leaving us to find the cheapest 1BHK studio apartments in the outskirts. And I do not say that without proof. 

Did you know that between 2020 and 2024, property prices in India grew at an annual rate of 9.3%? Household income, on the other hand, only rose by 5.4%. 

This means that even though your salary is rising, it isn't enough to keep pace with the cost of living. Naturally, the gap between income and home prices keeps growing. 

In the last 2 years, the number of affordable homes (₹1 crore and below) has declined by 36%, from 3.1 lakh in 2022 to 1.98 lakh in 2024. Clearly, nobody wants to build affordable homes that people can actually buy.

If you are dreaming of a home in NCR, Mumbai, or Hyderabad, then it's time to wake up. These cities have been hit hardest by the housing crisis, and the only thing middle-class buyers can afford there is disappointment or a lifetime (20 or more years) of debt.

Meanwhile, luxury housing (₹1 crore and over) is booming, with supply skyrocketing across major cities:

• Bangalore: 187% 
• NCR: 192%
• Chennai: 127%

It seems like the builders and the developers have given up on building affordable homes completely. Why? Well 👇

It's simple, really. Luxury homes bring in higher profits. Why sell 10 affordable flats when you can sell just one penthouse for the same profit? Add to that rising construction costs, soaring land prices, and financing challenges, and mid-income projects (the ones middle class people can afford) start looking far less attractive to developers.

But just how unaffordable have homes become? We can get the answer to this question with the help of 2 metrics.

1. The Indian Price-to-Income (P/I) Ratio

The P/I ratio tells us how many times of your annual income you'd need to buy a house. A ratio of 5 or below is considered reasonable. So, if a city's P/I is 5, it means that you would need 5 times your average annual income to buy a house in that city. 

But in India, the P/I ratio is 11, which means homes are more than twice as expensive as they should be. If you wanted to buy a home, you'd have to save every rupee you earn for 11 years straight—without spending a single penny on anything. 
Here's how some major cities compare:

• Mumbai metropolitan region: 14.3
• Delhi: 10.1
• Kolkata: 5.8
• Chennai: 5.1
• Ahmedabad: 5.1

Meanwhile, housing in other countries is far more affordable:

• USA: 3.6
• Australia: 7.6

And if that wasn’t alarming enough, wait till you see the next metric—it paints an even starker picture.

2. The EMI-to-Income Ratio

This tells us how much of your monthly salary goes into home loan EMIs. 

An EMI burden of 50% or more is considered a financial red flag globally. It basically means that either your salary can't keep up with the market standard or property prices in your area are unusually high.

Want to guess how much the India EMI-to-income ratio is? A whopping 61% (in 2024), a drastic rise from 46% in 2020. 

So, chances are that if you buy a house today, you're not just committing to a home loan—you're signing up for a lifetime of cutting corners, skipping vacations, delaying car upgrades, and pretending to enjoy free YouTube yoga instead of actual gym memberships.

But this unaffordability does not mean that there are no houses to buy. And that is the real plot twist. Yes, there is a mismatch between the demand and supply in the housing market, but despite unaffordable prices, India has 1 million unsold units. And nearly two-thirds of these belong to the affordable and middle-income categories.

You must be wondering, "If homes exist, why aren't they being bought?" and that brings us to our next act. 

Act 2: The Villains Making Housing Unaffordable  

Every crisis has its bad guys, but the villains behind this unfortunate situation are not shadowy figures in dark alleys but perfectly legal forces that make sure homeownership remains a distant dream for the common man. 

Let's unmask them:

Villain #1: Black Money and The Circle Rate Loophole

Real estate may be the ultimate money laundering scheme, thanks to the circle rate loophole (or, shall I say, scam?)

Here's how it works:

• Every area has a circle rate, which is the official minimum price set by the government at which a property can be registered.
• Then, there is the market price, which is the actual price you pay as a buyer. 
• And the difference between these two is what allows the rich to turn their black money into white. 

Let me explain with the help of an example:

Normally,  if you buy a property with a market price of ₹1 crore, you would have to pay 20% (₹20 lakh) in taxes and registration fees, including 12% GST (for under-construction apartments) and 7-8% as Stamp Duty.

Builders engage in bulk deals with HNIs and large business owners and agree to register the transaction at the circle rate, which is only ₹40 lakh. This allows the buyer to officially purchase the property below market price—at least on paper. 

So, let's suppose that in a 10-unit apartment project, builders sell 5 units in bulk to business buyers at the circle rate. This allows buyers to evade taxes by paying only ₹8 lakh in taxes per unit instead of ₹20 lakh, saving them ₹12 lakh per unit in taxes. 

But in reality, the builder still takes the full ₹1 crore (or more than the circle rate)—just that the difference is paid under the table in cash. This allows buyers to evade taxes and convert black money into legal assets.

This helps the builder recover construction costs which means that they are in no hurry to unload the remaining units. So, they raise the price of the remaining 5 units to ₹1.2 crore or more for individual buyers to recover their margins, and brokers create artificial scarcity by telling everyone, "Only one unit left, sir!"

But why does this keep happening? Because both builders and business buyers benefit. The builder loses nothing by selling at the circle rate—he still gets his full amount. Meanwhile, HNIs and business buyers find a convenient way to launder their black money. 

The only real victim? The middle class. They either have to pay inflated prices or give up on the dream of owning a home altogether. The system is rigged in favour of the rich, while the average buyer is left struggling to afford even a basic home.
And that's not all; there's another villain, one who keeps us from building enough homes in the first place.

Villain #2: India's Low Floor Space Index (FSI)
Ever wondered why cities like New York, Tokyo, and Singapore have countless skyscrapers while India has only a countable number of them?

Why does Mumbai, India's financial capital, have just 542 high-rises, while Singapore has over 2,687?

The answer lies in India's Floor Space Index (FSI). 

FSI is a measure of how much construction can happen on a given plot of land.
A low FSI means developers can't build more floors easily, restricting the housing supply.

FSI = Total Floor Area of all Floors / Plot Area

For example, let's assume that the FSI for a 1,000 sq.ft. plot is 6. This means that the builder is allowed to construct 6,000 sq.ft. on this plot. Now, this can be any number of floors, limited to  6,000 sq.ft.

In cities like New York and Hong Kong, high FSIs allow for massive skyscrapers, leading to more housing supply and relatively controlled prices. But in India? Our FSI is tightly controlled, making sure that builders can only construct a limited number of floors. This means that housing remains limited, and prices keep soaring.

You may wonder, "Why not just increase FSI?"

• Increasing FSI overnight would lead to even more migration into already overcrowded cities.
• Infrastructure would collapse—imagine more skyscrapers but the same bad roads, non-existent parking spaces, and water shortages.
• Mumbai's local trains are already stuffed like tiffin boxes. Adding more high-rises without better public transport would be a disaster.

Simply raising the FSI won't fix things unless our cities are actually ready to handle vertical expansion.

The villains behind India's housing affordability crisis aren't just one problem; they're a mix of bad policies, black money and, of course, greed. At this point, owning a home in India feels less like an aspiration and more like a mirage.

Unless something changes, the average middle-class buyer's dream of owning a home will remain just that—a dream.

So, how do we fix this? Can housing actually become affordable again?

Act 3: The Pursuit of Affordable Housing

 
And so, dear reader, we find ourselves at the final act of this grand tragedy—the desperate search for solutions. 
The housing crisis has turned into a full-blown Shakespearean drama, with the middle class playing the role of the helpless hero, striving to survive in an economy that refuses to be fair.

But do we accept our fate? No!

Here's how we can reclaim the dream of homeownership:

1. Fix the circle rate loophole: 

• Instead of changing them once a year (or whenever the government feels like it), circle rates should be revised every month to match real market prices.
• Instead of letting builders decide market prices and keeping circle rates artificially low, the government should set a Maximum Retail Price (MRP), not a minimum price.
• Introduce a rule that ensures the gap between the circle rate (government price) and market price (actual selling price) stays within a fixed range, like 5-10%. 

2. Make RERA the centralised buying & selling platform:

Currently, there are a lot of middlemen and cash transactions involved while buying real-estate. By making RERA (Real Estate Regulatory Authority) a standard platform, all deals will become digital and will, therefore, have a paper trail. 

However, every booking should be updated on the RERA website in real time for this to work. And buyers should be able to see the price at which the property was last sold, just like we can see stock market transactions.

3. Develop more cities:
The USA and the UK have 4 cities each for every 1 crore population, but India only has 1. 

If we had more smart cities with good infrastructure and job opportunities, people would consider relocating to places like Indore or Nagpur instead of cities like Mumbai and Pune. As these cities grow, increasing the FSI would help provide better housing, making homeownership more accessible. This would help distribute the population more evenly and ease the housing pressure on overcrowded cities like Mumbai.

4. Decentralise universities:
Do you know why everyone wants to go to Mumbai, Delhi, Pune or Bangalore? Well, it's because that's where all the jobs and good universities are.

• 33 of India's top 100 universities are concentrated in just a few cities.
• 54 lakh tech workers are squeezed into Bangalore, Hyderabad, and Pune.

So if we spread out universities and jobs PAN India, then our metro cities will have less pressure to accommodate so many people.

5. Tax empty flats:
Did you know that 1.14 crore homes in India are not lived in? Apparently, people just buy houses to hoard them or in the hopes of selling them at a profit. 

As a solution, the government could introduce a vacancy tax and tax the owner if their home is empty for a certain amount of time. This would encourage owners to rent out their "extra" houses.

6. Regulate NRI investments:
Between 2019 and 2020 alone, NRIs contributed 10% of all real estate money in India. Why? Because a ₹2 crore home in Mumbai feels "cheap" when you earn in dollars or pounds. 

NRIs buy homes in India for investment purposes; this pushes the price up and makes affordability worse. So, to solve this problem, the government could introduce ownership caps or high taxes for non-resident buyers to protect the domestic housing market.

7. Increase FSI in tier-3 cities:
Now, I know that we have already discussed why simply raising the FSI is not a solution. However, it would work in tier-3 cities. 

If we were to increase the FSI in developing cities, it would attract businesses, create jobs, and ease the housing burden on metro cities. 

If something doesn't change, then the only way to own a home would be to inherit one, at least for the not-rich ones of us (of course, there are other ways, but those may not be very ethical).

The Bottom Line

We have all heard about "The American Dream", but what about the Indian Dream? All our lives, we've been told to study hard, to get a good job, to save every penny we can so that one day we might have our own home. 

For generations, owning a home was the ultimate milestone, proof that tum apne pairon par khade ho gaye ho. Our grandparents did it, our parents did it, and we were supposed to do it, too. But, the dream seems to be slipping through our fingers. 

Turns out, real estate is not only unaffordable but also a money-laundering playground. Who knew? Black money flows in, prices shoot up, and the middle-class dream gets priced out. You probably never even saw it coming. But now that you do, spread the word—because the Indian housing dream isn't just expensive, it's rigged.

In this economy, as a middle-class Indian, you might never buy that dream home, at least not on your salary alone. If things stay the same, buying a home will remain out of reach for most—unless you inherit one. 

Look, I get it—buying a home isn't just a financial decision; it's an emotion. The feeling of owning something that's yours—it's special. But renting isn't a crime either, and it has its perks—no EMIs, no maintenance stress, and no being tied down for 20 years.

For years, we've been fed the same old story: renting is just a phase, a stepping stone to "real" success—owning a home. And, of course, you should buy a home if you have the money and the choice is between renting and buying. But if that's not the case, don't drown yourself in debt just to tick a box on society's checklist. 

So maybe it's time to redefine The Indian Dream. Because a house is only a home if you can actually afford to live in it—without losing your sanity.