Beyond Welfare: The Economic Case for Affordable Urban Housing
In most developing economies, the city is where productivity concentrates, wages rise, and growth compounds. India is urbanising rapidly and its urban centres are striving to absorb that growth at scale. However, there is one domain where urban policy has not kept pace, relative to the scale of the opportunity: housing. Not because the problem is unacknowledged, but because it has been often misunderstood and sometimes even misclassified. Affordable urban housing has been treated as welfare policy or a redistribution question sitting somewhere between subsidy and charity. That framing fundamentally misreads what housing does in an economy. Like roads or power grids, housing is infrastructure that underpins everything a productive city does. India’s deficit of it is not merely a social problem. It is a macroeconomic opportunity of considerable scale, and one that remains, for now, largely unrealised.
A December 2025 NITI Aayog committee report, applying the UN’s household deprivation framework, estimated a housing deficit of 5 to 7 crore units across metro, urban, and semi-urban areas. A CII–Knight Frank projection adds urgency: even on conservative assumptions, the urban deficit will reach 3.12 crore units by 2030. The government’s Housing for All programme aims to add 1 crore urban units by 2029, covering a share of the need, with much of the gap still requiring structural reform.
The economic case is well established and not unique to India. Housing is among the most deeply networked sectors in any economy, with linkages spanning cement, steel, logistics, paint, and financial services. A landmark ILO study across 45 countries between 1995 and 2009 found that output multipliers in construction were consistently higher than the economy-wide average across all income groups. In middle-income economies, every million dollars invested generated roughly 3.6 times that amount in broader output. India’s own data confirms the sector’s dynamism: construction posted real GVA growth of 8.6 per cent in FY2024-25, the highest among major sectors per MoSPI. The question is not whether construction generates growth, but whether India is directing that investment toward the part of the housing market where the need and multiplier are greatest.
Additionally, the construction sector consistently demonstrates high employment elasticity, standing out for its responsiveness to investment. Yet most jobs generated are characterised by low wages and informality. As of 2022, 70 per cent of unskilled construction workers did not receive the prescribed daily minimum wages. The sector employs over 50 million workers, but without security, without wages that feed meaningfully into consumption, and therefore without unlocking the full induced multiplier that makes housing investment truly transformative. In lower-middle income countries, the induced effect is suppressed when wages are too low. Fix the wages, formalise the workforce, and the housing multiplier grows larger.
India has not been indifferent to the crisis. The Pradhan Mantri Awas Yojana Urban, which received a 36 per cent budget increase to Rs 30,171 crore in 2024-25, represents the most ambitious housing programme the country has attempted. But it is built around home ownership, which requires land, creditworthiness, and stable income , precisely what the urban poor lack. The Beneficiary Led Construction component supports those who already hold land. The Credit Linked Subsidy favours households with formal incomes. The result is that the programme reaches a large number of people just above the truly excluded, while the landless migrant, the informal worker, the daily-wage earner sleeping on a pavement remain outside its reach.
What India’s cities need to consider is a large-scale, publicly anchored rental housing system. For households earning below ₹15,000 a month in cities like Mumbai, Delhi, or Bengaluru, ownership is simply not a viable near-term aspiration. Land prices, interest rates, and loan tenures make it arithmetically impossible. Rental housing, built on publicly owned land leased to private developers for 50-60 year terms, with regulated rents and long-tenor debt backed by rental income, can reach those households. India’s urban population, at 500 million in 2021, is projected to reach 850 million by 2050, per NITI Aayog. That is 350 million more people arriving in cities, roughly the current population of the United States. Without a structural housing solution, those people will not disappear. They will build more slums, strain more infrastructure, and crowd into more inadequate rooms. China offers the most instructive mirror. Through land reforms, state-enabled developer markets, and aggressive mortgage expansion, it dramatically expanded its housing stock during its most rapid economic growth.
A country urbanising at India’s pace, with a construction sector that generates outsized economic returns and a housing deficit concentrated almost entirely among its working population, has the ingredients of a significant growth story. The institutional pieces are falling into place: land reform conversations are live, and rental housing frameworks are being debated. What the moment calls for is a shift in how the question is framed; from how much can we spend on housing the poor, to how much growth we are leaving unrealised by not doing so. That reframing, more than any single scheme or budget line, is where the opportunity begins
The article was published with Business Standard on May 21, 2026.
