Real Estate and Infrastructure

Insight into the present and future of
Indian affordable housing

EY
EY India

Multidisciplinary professional services organization

4 minute read 19 Jun 2025
Related topics
Real estate, hospitality and construction
Financial services

Affordable Housing Finance Companies can tap into the high potential in the sector as India’s urban centers grow. Focusing on five workstreams such as sales productivity and funnel efficiency can deliver tangible outcomes

In brief

  • Growth of Tier-II and Tier-III cities is expected to drive significant rural and semi-rural migration
  • EY forecasts a 25% CAGR in affordable housing between 2022 and 2027, with one-fifth of the national affordable housing shortage by FY 2025 being in Uttar Pradesh
  • 10 states, including Maharashtra, Karnataka, Andhra Pradesh, Tamil Nadu, and Gujarat, together account for over 75% of India’s affordable housing demand
  • Due to improved connectivity and lower development costs, towns near cities like Bengaluru are affordable housing hotspots

India’s rapid economic ascent and accelerating urbanization trends are reshaping the affordable housing landscape, presenting unprecedented opportunities for developers, investors, and policymakers. In EY’s thought leadership report, “New horizons for affordable housing in India,” we share our perspective on the current opportunities, challenges, and trends driving this dynamic ecosystem.

A demographic and economic imperative

Over the past decade, India’s urban population has grown by 14% (2013–2023), compared to the global average of 8.4%. As one of the world’s fastest-growing economies — expanding at approximately 7% annually — the country is poised for even faster urbanization in the years ahead. Today, roughly 36% of India’s 1.4 billion people reside in urban centers; by 2030, this figure is expected to reach 40%, according to the Economic Survey 2023–24. Much of this growth will occur in Tier II and Tier III cities as migrants from rural and semi‐rural regions seek better economic opportunities, creating a pressing demand for affordable, well-located housing.

Over the past decade, India’s urban population has grown by
(2013–2023), compared to the global average of 8.4%.
expanding at approximately
annually— the country is poised for even faster urbanization in the years ahead

Financing the affordable housing dream

India’s affordable housing finance market has expanded rapidly. The aggregate outstanding loan size in this segment stands at INR10.6 trillion — nearly 34% of the total housing finance market. This scale underscores growing investor confidence and signals ample room for further growth, particularly as policymakers continue to incentivize low‐cost housing through interest rate subsidies and dedicated credit lines.

Emerging affordable housing markets in India

While metropolitan cities have dominated housing demand, satellite towns and peripheral areas are emerging as focal points for affordable housing developments. Near Bengaluru, for instance, locations such as Kanakapura, Tumkur, and Hoskote are rapidly gaining traction. Better connectivity — via new highways and metro links — combined with lower construction costs and a rising prevalence of nuclear families are driving demand in these corridors. For many buyers and investors, these satellite cities offer the best of both worlds: proximity to urban employment centers, more competitive pricing and room for future capital appreciation.

State-level demand concentration

Over 75% of India’s affordable housing demand is concentrated in just 10 states: Uttar Pradesh, Maharashtra, West Bengal, Andhra Pradesh, Tamil Nadu, Bihar, Rajasthan, Madhya Pradesh, Karnataka, and Gujarat. Within these regions, policymakers and developers must collaborate closely to address unique local challenges—whether land availability, regulatory bottlenecks, or financing gaps.

Uttar Pradesh alone is expected to account for approximately 20% of the total affordable housing shortage by FY 2025, making it the state with the highest deficit.
 

States like Maharashtra and Karnataka benefit from more mature lending frameworks, but still face affordability constraints in major cities.

In emerging markets such as Bihar and Madhya Pradesh, the challenge lies in creating robust supply chains and local financing solutions to spur new construction activity.


Sector growth outlook and supply shortages

According to EY analysis, the affordable housing sector is projected to grow at a CAGR of 25% between 2022 and 2027. This pace of expansion will be driven by:

Policy support: Continued government incentives (e.g., credit-linked subsidy schemes, tax holidays, and fast-track approvals) to encourage developers.

 

Institutional capital inflow: Increased participation from institutional investors, including private equity funds, REITs, and pension funds, attracted by stable rental yields and long-term capital appreciation.

Homebuyer aspirations: A burgeoning middle class seeking ownership for the first time, fueled by rising incomes, greater financial literacy, and improved access to home loans.
 

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Yet, despite this optimistic outlook, significant supply shortfalls remain—particularly in regions with burgeoning populations and limited turnkey projects. Uttar Pradesh’s projected 20% share of the national shortage by FY 2025 highlights the urgency for developers and financiers to scale up production, adopt cost-efficient construction technologies, and explore innovative delivery models (such as pre-engineered components and public–private partnerships).

 

How to win in the affordable housing market

EY recommends potential interventions into five workstreams that affordable housing finance companies can use to gain tangible outcomes.

How to win in the Affordable Housing market

Collectively, these strategic priorities — when aligned with ongoing policy incentives — will unlock sustainable growth opportunities and drive inclusive homeownership across low-income segments in India.

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Summary

The convergence of rapidly urbanizing hotspots, supportive regulations, and untapped rural demand—underpinned by a strengthened lending framework—set the stage for robust expansion in India’s low-income housing segment. To cost-effectively reach underserved markets, affordable housing developers and financiers must focus on dedicated distribution networks, strategic partnerships, and diversified acquisition channels. At the same time, enhanced risk-management practices — leveraging alternative data and rigorous field investigations — enable portfolio resilience. AI-driven credit scoring, unified digital platforms, and streamlined onboarding processes can lead to accelerated loan disbursements and improved customer experience. To sustain borrower relationships and maintain competitiveness, proactive delinquency management and personalized service offerings are crucial.

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About this article

EY
EY India
Multidisciplinary professional services organization
Related topics
Real estate, hospitality and construction
Financial services

EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients.