Rising urban housing costs: India is witnessing rapid urbanisation, with millions migrating to cities every year in search of opportunities. However, rising housing costs pose challenges to the economic stability and social equity of the changing demographics. Recent data from the Household Consumption Expenditure Survey show that the share of rent in consumption expenditure has risen to 6.58% — the highest in two decades. In urban areas, housing inflation, measured through the consumer price index, has been steadily climbing. This trend demands urgent policy interventions to mitigate its impact on economic growth and social welfare.
The escalating cost of housing has become a significant concern for policymakers. In urban areas, the share of rent in household expenditure has risen from 4.46% in 1999-2000 to 6.58% in 2023-24, reflecting a consistent upward trend over the past two decades. While rural rents remain comparatively lower, they have also increased marginally, rising from 0.39% in 1999-2000 to 0.56% in 2023-24. These figures highlight the growing burden of housing costs across the country, albeit with a sharper impact in urban centres.
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Rising urban housing costs
Urban households are particularly vulnerable to this trend, as housing constitutes a larger share of their expenditure compared with rural areas. The HCES 2023-24 data reveals that non-food expenditure, including housing, now accounts for 60% of urban households’ monthly spending. Rising rents reduce disposable income, forcing families to cut back on essential and discretionary spending. Moreover, the Consumer Price Index Housing Index has steadily increased throughout 2024, climbing from 177.6 in January to 183 by November, revealing the mounting pressure on household budgets.
This phenomenon mirrors trends in developed nations. Housing expenses constitute over 22% of household expenditures in OECD and EU countries, with some nations such as Canada and the UK reporting even higher shares. A 2022 German study shows that younger cohorts spend a larger portion of their income on housing, limiting their capacity to save and invest in future wealth accumulation. India is now confronting a similar trajectory, with rising rents threatening to exacerbate income inequality and constrain economic growth.
Implications of rising urban housing costs
Higher housing costs have far-reaching economic implications. One critical consequence is the dampening of household consumption and savings. As rents consume a larger portion of income, families are left with less disposable income to spend on goods and services, affecting sectors such as retail, tourism, and durable goods. This reduction in consumer spending creates ripple effects across the economy, slowing GDP growth.
Additionally, escalating rents stifle social mobility, particularly for low-income households. Without affordable housing options, migration to urban centres slows down, hindering labour mobility and perpetuating rural-urban disparities. This is particularly problematic in a country like India, where urbanisation is a key driver of economic development.
The rising cost of housing also complicates inflation management and monetary policy. Elevated rents drive headline inflation, limiting the Reserve Bank of India’s ability to lower interest rates and support economic growth. The HCES data suggests that rents, which account for about 7% of urban non-food expenditure, are a significant contributor to inflation, forcing policymakers to tread cautiously in their monetary decisions.
Moreover, the impact on the manufacturing and construction sectors is notable. Rising rents reduce the affordability of housing-linked products such as cement, steel, and construction materials. This, in turn, affects employment generation, particularly for low-skilled workers who rely on construction jobs. As demand for these products wanes, it curtails growth in the manufacturing sector, which is critical for India’s economic diversification and employment generation.
Lessons from global experiences
Several countries offer valuable lessons for addressing housing affordability. Singapore’s strategic urban planning is a prime example. By integrating urban development with housing policies, Singapore has ensured a steady supply of affordable housing. The country’s use of smart building technologies and robust public transportation systems has reduced construction costs and improved accessibility. These measures demonstrate the importance of aligning urban planning with housing needs to achieve sustainable development.
China’s four-decade urbanisation drive also holds important lessons. Between 1980 and the present, China’s urban population grew from 200 million to over 900 million, driven by large-scale housing and infrastructure projects. This expansion fuelled demand for construction materials like cement and steel, creating jobs and stimulating economic growth. India, with its ongoing urban transition, can emulate China’s approach to spur housing-led economic development.
Policy solutions for India’s housing crisis
Addressing India’s housing crisis requires a multi-pronged approach. Scaling up affordable housing initiatives, such as the Pradhan Mantri Awas Yojana (PMAY), is essential. These programs should target middle-class and lower-income groups, with increased budget allocations and streamlined implementation to ensure wider coverage.
Developing a robust rental housing market is equally critical. This can be achieved through tax incentives for landlords, regulatory measures to stabilise rents, and the promotion of rental agreements. Encouraging rental housing will provide flexible and affordable options for urban dwellers, easing the burden of homeownership.
Zoning and land-use reforms are another vital component. Restrictive zoning laws often inflate land prices, limiting the supply of affordable housing. Reforms to unlock land for residential development and encourage mixed-use projects can help address supply constraints and curb housing inflation.
Public-private partnerships can accelerate housing projects by leveraging the expertise and resources of private developers while ensuring regulatory oversight. By combining government support with private sector efficiency, PPPs can deliver cost-effective housing solutions at scale.
Technology-driven solutions also hold promise. Digital tools for urban planning, such as geospatial mapping and modular construction techniques, can improve efficiency and reduce costs. Startups focusing on innovative housing solutions should be encouraged through funding and policy support to drive technological advancements in the sector.
Finally, expanding urban infrastructure is crucial for decongesting city centres and reducing pressure on housing demand. Investments in public transportation and peripheral urban areas can make these regions more viable for residential development, moderating rents and enabling equitable growth.
A Housing-Led Growth Strategy
India’s rising housing costs are not merely a social challenge but an economic imperative. Affordable and accessible housing is a cornerstone for sustained economic growth, social equity, and urbanisation. By addressing this crisis through strategic policy interventions and leveraging global best practices, India can ensure that its cities remain engines of growth and opportunity.
The upcoming Union Budget provides a golden opportunity for the government to outline a bold housing strategy. With the right mix of policies, investments, and innovations, India can turn its housing challenges into a pathway for inclusive growth, economic resilience, and social mobility. The time to act is now.