As markets look ahead to the Union Budget being presented each February, affordable housing once again finds itself at the centre of public and policy discourse. Expectations typically revolve around higher allocations, extended subsidies, and renewed commitments to “Housing for All.” Yet, year after year, the lived experience of affordability for Indian households changes far more slowly than budget announcements suggest.
Budgets are adept at signalling intent through fiscal outlays, tax incentives, and scheme extensions, but they rarely engage with the deeper question of whether Indian households can sustainably afford the homes being enabled. While policy discussions focus on price caps, interest subsidies, and supply creation, affordability for most families is decided not on Budget Day, but every month – when EMIs compete with rent, savings, and everyday expenses.
This disconnect between fiscal framing and household reality has defined India’s affordable housing journey over the past decade.
What Earlier Budgets Have Focused On?
Over earlier Union Budgets, affordable housing has enjoyed consistent policy attention. Allocations to the Pradhan Mantri Awas Yojana (PMAY), tax incentives for first-time buyers, interest deductions on home loans, and supply-side incentives for developers have formed the backbone of budgetary support.
PMAY-U has been one of India’s most ambitious housing interventions. Since its inception, over 1.2 crore urban houses have been sanctioned, with more than 96 lakh homes completed and delivered. Central assistance exceeding ₹2 lakh crore and the Credit Linked Subsidy Scheme (CLSS) brought millions of households into the formal housing ecosystem, materially reducing EMIs for eligible EWS, LIG, and MIG beneficiaries. (Pradhan Mantri Awas Yojana [PMAY-U], n.d.)
Earlier budgets rightly prioritised scale – expanding supply, formalising demand, and improving access to credit. This approach succeeded in catalysing construction activity and deepening housing penetration, especially in Tier 2 and Tier 3 cities.
However, the policy emphasis remained largely ownership-centric and price-driven, with relatively uniform income thresholds and affordability definitions applied across regions with vastly different income profiles and living costs.
What the Market Expects from This Year’s Budget
As the Union Budget approaches, expectations around affordable housing largely focus on incremental measures such as higher PMAY allocations, greater emphasis on rental housing, faster subsidy disbursement, and continued credit facilitation for lenders and first-time buyers. These expectations align with recent budget trends, where affordable housing has remained a recurring priority due to ongoing urbanisation, its linkages with employment generation, and its role in sustaining housing credit growth.
Budget announcements influence the housing sector both directly and indirectly. Beyond fiscal allocations, they shape liquidity conditions, government borrowing programmes, and funding confidence for banks and housing finance companies. However, these measures operate within an existing policy framework where affordability is primarily defined through price caps and income slabs, with limited consideration of household purchasing power, income stability, or regional cost-of-living differences.
As a result, even if anticipated measures materialise, their impact on actual affordability may remain constrained. Supply availability and credit flow may improve, but the fundamental constraint continues to be household income rather than access to housing. Without revisiting how affordability is defined – shifting from price-based thresholds toward income-aligned metrics such as EMI-to-income ratios, budgetary interventions are unlikely to materially alter affordability outcomes for end users.
Why PMAY 1.0 and 2.0 Fell Short of Solving Affordability
PMAY-U Phase 1 delivered scale and access, while Phase 2 improved targeting, monitoring, and lender confidence. However, both phases shared common structural limitations. First, the schemes relied heavily on credit-linked subsidies, implicitly assuming stable, formal incomes. In reality, a significant share of urban households operate within informal or semi-formal employment structures, making sustained EMI commitments risky despite upfront subsidies.
Second, affordability continued to be defined primarily through price thresholds rather than income capacity. Homes priced up to ₹65 lakh in metros and ₹40 lakh in non-metros remain classified as “affordable,” even as household incomes lag far behind these price points. (The Economic Times, 2026). Third, the ownership-first approach overlooked rental housing and incremental housing solutions that better align with the livelihood patterns of migrant workers and lower-income urban households.
Finally, location mismatches – housing built on city peripheries far from employment hubs further eroded practical affordability, increasing transport costs and reducing uptake.
PMAY 2.0 has attempted course correction. Yet without addressing income vulnerability, these refinements can only partially bridge the gap.
The Structural Affordability Gap
India’s affordability challenge is no longer anecdotal – it is quantifiable.
Globally, a price-to-income ratio of four to five times is considered affordable. In India, the urban average is closer to eight to nine times income, with metros such as Mumbai, Delhi NCR, and Bengaluru often exceeding twelve times. At the same time, India’s per capita income stands at approximately ₹2 lakh per annum, and even dual income middle-class households often earn between ₹6–10 lakh annually. (Fortune India, 2025)
At these income levels, prevailing “affordable” price caps translate into EMI-to-income ratios well above prudent thresholds. The result is a quiet but persistent mismatch: homes may be policy-affordable, but financially burdensome in practice.
The core disconnect is clear – affordability is being defined by the cost of the house, not by the capacity of the household.
Why Affordability Is More Than a House?
Interest rates, subsidies, and tax incentives matter – but they do not define affordability. Housing loans span 15 to 25 years, making income stability far more critical than marginal shifts in borrowing costs. Even during periods of rising interest rates, housing demand in India has remained resilient, not because homes are affordable, but because households adapt – by downsizing, relocating, or stretching finances.
True affordability must account for purchasing power, income volatility, and the broader cost of urban living.
Without this lens, policy risks enabling ownership that households struggle to sustain.
Housing is not merely a physical asset. It represents stability, dignity, and access to opportunity. When affordability frameworks ignore income realities, homes become financial obligations rather than social anchors. Until housing policy places household purchasing power at its centre, affordable housing will continue to deliver units without fully solving the housing problem.