One would expect that the vein of housing crises that exist in Europe would not be seen in the same form here in India where more ample land should intuitively make for a greater availability of residences. Yet, just like European nations, the middle class and younger professionals are priced out of home ownership and affordable rents. Today, when there exists a demand of 10 lakh Low and Medium-Income housing, only 25k are supplied. 

The development of cities is such that economic opportunities are concentrated within certain nexuses of the nation and even within them their presence is uneven. 

Resultantly, we see the supply of homes priced at Rs. 1 crore and below fall by 69% in Hyderabad, 60% in Mumbai and 45% in NCR. 

This makes it a long drawn-out process for most households to be able to maintain a respectable residence and leaves them dependent on exploitative rented accomodations.

This blog aims to analyse the causes of the same and establish solutions for them. 

The Housing Puzzle

A. CITIES

The demand-supply disparity cited in the first paragraph is borne out of multiple issues. First and foremost is simply not having enough cities in our nation that are developed enough to be palatable to modern-day multinational corporations leading to the aforementioned concentration in the few that are. The same is for the following reasons. 

1. Government Ownership of land
   Land is a fundamental accoutrement for any development or construction of cities. In India, land acquisition is a complicated and difficult task, even for the Government. The Indian Government owns around 15,000 sq. km of land. This seemingly substantial number, is only 0.5% of India’s total land area; juxtapose it to other democratic (and even more explicitly capitalist countries) like USA, where the Federal Government owns about 29% of land, despite being a larger country.
   
   How does this impede city growth? When the Government doesn’t own its land, it has to buy parcels from multiple private owners, often at unaffordable rates. Resultantly, projects are indefinitely delayed. Litigation and protests that are often part of any Land Acquisitions are further exacerbated due to the large number of transactions, prolonging development.
   
   As a result we have the present status quo where all IT jobs are concentrated in only 7 cities, within which as well there is an easily perceivable hierarchy of standard of life owing to difference in infrastructure and intracity connectivity.
   
   There are 2 possible solutions to allay this situation

• First, is the precedent of Amravati. The all-encompassing passion project of Chandrababu Naidu was supposed to be a capital par excellence. The project faced the all too familiar problem of land acquisition but dealt innovatively with it.
  
  For the first time, something called land pooling was done at such a large scale, which essentially meant that a piece of land would be given to the Government for development and then a similar piece of land, presumably of now higher value, would be returned to them. It is essentially holding equity in a project and is immensely beneficial to both state and the people if done right. Even if the Amravati project was halted due to political and litigation issues, it still managed to accumulate over 33,000 acres, more than enough for any project. The same can be employed for multiple such development projects

• Second, government could consider Urban Adjudication Benches at sites of large-scale development and city building. Modelled on tribunals like NGT or the NITI Aayog proposed Infrastructure Dispute Adjudication Authority that would be dedicated towards hearing the civil, land & other regulatory disputes specific to infrastructure and city building projects. They would serve as a streamlined and expediated grievance redressal forum that would reduce litigation delays, boost investor security and enhance public trust in projects undertaken by the government.
  
  2. Lack of development of the smaller cities
  
  Smaller cities suffer from poor infrastructure and inadequate transport, making it hard to build the kind of ecosystem where skilled talent and investors can thrive. As a result, companies like Zepto move operations to Bengaluru, while tech giants like Google and
  
  Amazon expand their AI and cloud operations in Hyderabad and Bengaluru instead of diversifying to new urban centres. Even Tesla considered only Bengaluru as a prospective base, reflecting how concentrated and narrow our urban opportunity map remains.
  
  A Pareto-like imbalance defines multiple states, where one or two urban centres carry most of the economic weight. Maharashtra’s dependence on Mumbai for its GDP is a definitive example; where, in Mumbai’s absence, the financial languishment of both the cities and their people would be very apparent in the remaining economic numbers.
  
  State Governments are aware of the need to expand and develop other cities and also of the precise problems plaguing them. A NITI Ayog report analysed 12 Indian cities and zeroes in on 17 problems; such as, the cities not having a common economic vision, ease of doing business, locational disadvantages. Without these lacunae being fixed, no skilled worker would be inclined to live there and resultantly, companies wouldn’t be willing to set up operations there either.
  
  Tamil Nadu offers a strong model for replication, with the least variation in GDP across districts, just 72%, compared to Maharashtra’s 144% and Karnataka’s 190%. This is largely due to strategic investment in multiple cities. Towns like Villupuram, Thanjavur, and Tuticorin have had well-equipped IT parks built, with reliable internet, electricity, and infrastructure, reducing the need for companies to concentrate in Chennai. Such distribution eases the burden on major cities and promotes more balanced growth.

B. BUILDER’S DILEMMA

There are two major obstacles for any builder in a city from constructing more financially palatable homes. 

1. Floor-Space Index
   This is the regulatory parameter that denotes the number of floors that one can build in a given area. It is calculated by dividing the total built up area of all floors by the total plot area.  While cities like New York and Tokyo operate with FSIs as high as 15 and 20, most Indian cities cap it around 2.
   
   This cap is not due to engineering concerns but an artificial way for the authorities to manage density and curbing haphazard urbanisation. Unfortunately, this also greatly constraints the sheer volume of houses a builder can provide. Raising the FSI might seem like a quick fix, but without parallel investments in infrastructure and services, it risks overwhelming already strained cities. Any increase must be accompanied by capacity upgrades not just an unsupported vertical growth.
   
   
2. 45 Lakh Cap
   Under the Income Tax Act, 1961, there are substantial benefits and tax deductions that are applicable for houses built under 45 Lakh. First time buyers could claim deductions of up to Rs. 1.5 Lakh in addition to Rs. 2 Lakh available under Section 24 b. Builders until 2022 could get as much as a 100% tax deduction from profits made on such ‘affordable housing’. 
   

   The 45 Lakh cap, now almost a decade old, no longer accounts for the inflation in the costs of building a residential complex that exist today especially when compounded with the already harsh FSI regulations. Land in limited areas within cities that are well connected and have decent infrastructure are even more expensive and this makes it financially impossible for builders to mark houses at such rates. 

    

   An increase in that cap to about INR 70 lakhs and perhaps a restoration of at least a small benefit for builders, as it existed previously in Section 80 EEA, in making such houses would go a long way in catalysing house affordability. 

Conclusion

India’s housing crisis is not one of scarcity alone, it is borne of policy inertia, skewed urban growth and misplaced priorities. The problem isn’t that we can’t house our people, but that we haven’t planned to. The question is whether we are willing to make the structural choices that allow it: empowering urban local bodies, investing beyond the top-tier cities, easing land acquisition through the above recommended mechanisms and making a diverse urban portfolio for employers and employees alike. Unless urban centres grow with intention, affordability will remain an exception. And if this deeper commitment to fairness and dignity is not assured and reflected in policies, then our GDP may certainly grow, but it will leave far too many behind. 

Written by,
Vatsal Chhawchharia

References

1. https://www.youtube.com/watch?v=EWjLYtOK8P4&pp=ygUbbW9oYWsgbWFuZ2FsIGhvdXNpbmcgY3Jpc2lz

2. https://www.hindustantimes.com/real-estate
   
   
3. https://www.hindustantimes.com/real-estate/homebuyers-will-benefit-if-cap-onaffordable-housing-is-increased-from-rs-45-lakh-to-rs-80-lakh-credai101732538949152.html

4. https://www.aljazeera.com/gallery/2023/8/30/photos-the-housing-crisis-for-the-poorin-indias-capital
   
   
5. https://www.businessworld.in/article/india-staring-at-affordable-mid-income-housingcrisis-report-546347
   
   
6. https://www.financialexpress.com/money/housing-crisis-supply-of-homes-priced-rs-1-crore-and-below-dips-36-in-top-9-cities-in-2-years-says-report-3729110/

7. https://www.business-standard.com/finance/personal-finance/housing-crisis-nearly-2-000-projects-stalled-in-india-mumbai-tops-list-124081600768_1.html

8. https://www.aurumproptech.in/pulse/media/indias-affordable-housing-crisis
   
   
9. https://mospi.gov.in/sites/default/files/Statistical_year_book_india_chapters/HOUSING.pdf

10. https://thesecretariat.in/article/lack-of-trained-urban-planners-impedes-sustainedgrowth-of-cities