How Budget 2026 Can Revive Affordable Housing

India stands at a critical juncture in its housing journey. While headlines celebrate record luxury home sales and rising property prices, a far more troubling reality is unfolding beneath the surface. The country is drifting toward a two-tier housing market - one where ownership is attainable only for the affluent, while millions of Indians are priced out altogether.

This is no time for incremental fixes. Budget 2026 must take decisive action to correct structural imbalances in the housing market. Without strong intervention, the divide between luxury homeowners and those struggling for basic shelter will only widen.

The Market Paradox: An Illusion of Growth

At first glance, India’s residential real estate market appears healthy. In 2025, the total value of homes sold reached nearly INR 6 lakh crore - a 6% rise over 2024, according to ANAROCK Research. Institutional investments in 2024 touched USD 8.9 billion, a sharp 51% year-on-year increase. However, these headline numbers mask a deeper malaise. Despite higher sales value, the number of homes sold declined by 14% in 2025. The market has clearly tilted toward the wealthy. Luxury housing sales surged by 170% in 2024, is driven by HNIs, NRIs, and affluent professionals seeking status assets and inflation hedges. Affordable housing - the backbone of inclusive urban growth has been left behind.

Structural, Not Cyclical

Affordable housing’s share of the market has shrunk dramatically, from 38% in 2019 to just 18% in 2025. This is not a temporary downturn but a structural breakdown requiring urgent correction. In 2018, over half of new homes in India’s top seven cities were priced below INR 50 lakh. By 2025, that figure has plunged to just 17%. In metros, only 17% of new launches now fall within this bracket. The result is a severe urban housing shortage - estimated at 9.4 million units today and projected to reach 30 million by 2030 without policy action.

For households, the impact is severe. The EMI-to-income ratio for average buyers has climbed from 43% in 2020 to nearly 60% today, well beyond sustainable levels. For middle-income families, this ratio has risen from 28% to 40%, driven by higher prices and interest rates.

ANAROCK’s latest Consumer Sentiment Survey reveals that in Bengaluru, 42% of aspiring buyers seeking homes under INR 1 crore are now priced out - despite a 13% annual rise in demand for budget housing. Buyers are not opting out by choice; they are being pushed out by harsh economics.

Why Developers Are Retreating from Affordable Housing

This is not due to weak demand but flawed project economics. Affordable housing offers developers margins of just 10–12%, compared to 25–30% or more fore luxury projcts. With land prices soaring and construction costs for steel, cement, and skilled labour remaining elevated, the equation is simple.

Lengthy approval processes add further risk and delays. In such an environment, projects with thin margins are no longer viable. Consequently, many developers have shifted focus - rebranding mid-income projects as premium offerings and sharply reducing affordable housing launches. Compounding the problem is an outdated policy framework. The price cap defining ‘affordable housing’ remains frozen at INR 45 lakh - a threshold set in 2017 and completely disconnected from today’s urban realities. In Mumbai’s peripheral areas, a modest 600 sq ft apartment now costs INR 60–75 lakh. Pune, Bengaluru, and Delhi-NCR show similar mismatches.

Developers attempting to build within the INR 45-lakh cap are excluded from key incentives. The Section 80-IBA tax holiday, which earlier catalyzed affordable housing supply, expired in 2021 and has not been reinstated. Without it, projects simply do not launch, supply remains constrained, and prices keep rising.

Infrastructure - The Supply Catalyst

While housing policy has stagnated, infrastructure investment has gathered momentum. India’s experience clearly shows that major infrastructure projects - metros, expressways, ring roads, airports, and logistics corridors - consistently precede real estate revivals. Infrastructure does more than ease commutes. It opens new development corridors, supports workplace ecosystems, raises land values, and creates sustainable housing demand. Improved connectivity attracts developers, accelerates project launches, and expands supply. This pattern has played out repeatedly across Bengaluru, Hyderabad, NCR, and Pune, where new metro lines or highways have triggered waves of residential development.

What Budget 2026 Must Deliver

Budget 2026 must fast-track last-mile urban infrastructure. While initiatives like the National Infrastructure Pipeline and PM Gati Shakti are positive, execution needs to accelerate. Priority funding should go to metro expansions, suburban rail, ring roads, and integrated logistics corridors. Such investments can significantly expand housing supply, improve affordability, and enable more balanced urban growth.

Revive Section 80-IBA: The Fastest Supply Lever

The most immediate policy tool available is the revival of the 100% tax holiday for affordable housing under Section 80-IBA. Between 2016 and 2021, this incentive played a catalytic role by narrowing the margin gap between affordable and mid-income projects. Its impact was clear: more developers participated, affordable supply expanded, and a large share of new launches served the mass market.

The cost of reinstating Section 80-IBA must be weighed against the cost of inaction. Each year without adequate supply leaves roughly 1.5 million households unable to transition into formal ownership, with serious social consequences including informal settlements and rising inequality. A time-bound tax holiday for projects approved within a 24–36-month window would be fiscally prudent and highly effective.

Redefine Affordability to Match Urban Reality

The INR 45-lakh price cap is economically obsolete. It must be revised upward and differentiated by city. For Mumbai and the MMR, the cap should rise to INR 85 lakh. For other major metros - Delhi-NCR, Bengaluru, Hyderabad, and Pune—it should be at least INR 75 lakh. These figures reflect real construction and land costs, not aspirational benchmarks.

Size norms and intent can remain intact. The goal is not to create loopholes but to ensure first-time, middle-class buyers benefit from tax incentives and subsidized finance. A 60 - 70 sq m apartment in a peripheral zone is fundamentally different from a premium offering, even at a higher nominal price. Raising the cap while retaining carpet area norms of 60–90 sq m could lift affordable housing’s share of new launches from 18% to over 40%, unlocking significant stalled supply.

Strengthen the Credit-Linked Subsidy Scheme

The Credit-Linked Subsidy Scheme (CLSS), revived under PMAY-U 2.0, remains underutilized. Budget 2025 reinstated partial benefits, offering interest subsidies up to INR 1.8 lakh for EWS, LIG, and select MIG buyers. Budget 2026 must go further. The original CLSS model was effective because subsidies were credited upfront, reducing EMIs immediately. It cut interest rates by up to 6.5% for EWS and LIG borrowers and 3–4% for MIG buyers—often the deciding factor in affordability. Budget 2026 should modestly increase subsidy rates to reflect higher lending costs, raise loan limits (INR 8–10 lakh for EWS/LIG; INR 15–18 lakh for MIG)

Streamline application and disbursement to reduce friction

If expanded to an annual outlay of INR 10,000–15,000 crore, CLSS could directly support 1.5–2 million first-time buyers over five years—targeted, high-impact assistance where it matters most.

Budget 2026: A Defining Moment

India’s housing market stands at a crossroads. One path leads to deeper bifurcation - luxury homes for the wealthy, informal housing for the poor, and a shrinking middle class locked out of ownership. The other leads to balanced growth, where infrastructure expands opportunity, supply meets demand, and homeownership remains attainable. Much hinges on Union Budget 2026. The policy levers are clear, proven, and workable. While the fiscal cost will be meaningful, the cost of delay is far greater. Every year of inaction leaves millions of Indian families without a realistic path to owning a home - and inequality continues to deepen.

About the Author

Anuj Puri has over 30 years of experience in multi-disciplinary advisory and transactions ranging from real estate to social development projects. He has expertise in planning, undertaking demand assessment studies and transaction services including marketing strategies based on technical real estate market analysis, feasibility studies, program requirement derivation and fund and investor sourcing.
He is co-founder and chairman of ANAROCK, India's leading independent real estate services company with a visible presence across India and the Middle East.