Published On:
February 13, 2026
Updated On:
February 13, 2026
NITI Aayog has identified soaring land costs—which currently consume up to 70% of project budgets—as the primary bottleneck to affordable housing in India. To combat this crisis, the policy think tank has proposed sweeping structural reforms including increased Floor Area Ratios, mandatory land allocations, and a revitalized rental ecosystem to unlock supply and make homeownership accessible.
The dream of owning a home is a fundamental aspiration for millions of Indians, yet for a vast majority of the urban population, it remains frustratingly out of reach. While rapid urbanization is driving economic growth, it is simultaneously creating an unprecedented housing shortage. At the heart of this crisis is not a lack of construction capability or raw materials, but rather a fundamental flaw in how urban land is managed, priced, and regulated.
Recent discussions led by the national policy think tank, NITI Aayog, have thrown a sharp spotlight on this exact issue. Addressing an international conference organized by the National Housing Bank, top officials from the institution laid bare the systemic hurdles stifling the real estate sector. The diagnosis is clear: land scarcity and exorbitant land prices are the biggest roadblocks to scaling up housing in India. Solving this requires moving beyond piecemeal subsidies and executing bold, structural land policy reforms.
To understand why affordable housing projects often fail to take off, one must look at the project balance sheet. According to NITI Aayog’s analysis, land acquisition alone currently accounts for a staggering 50 to 70 percent of total project costs in urban real estate development. When compared to other major infrastructure sectors like highways or energy, where land is a fraction of the capital expenditure, housing stands out as an anomaly.
This disproportionate land cost fundamentally breaks the financial model for affordable housing. Developers are forced into a corner where the only way to maintain profitability is to cater to the luxury or premium segments. Margins in the economically weaker section and low-income group categories are incredibly thin, making them highly unattractive to private capital.
Aggravating this structural flaw is the severe credit squeeze faced by builders. Due to a highly risk-averse banking environment and limited access to formal credit channels, real estate developers are frequently forced to depend on high-cost alternative financing. Borrowing at steep interest rates significantly undermines project viability before the first brick is even laid. The end result is a market that produces homes the average citizen cannot afford, built on land that is artificially too expensive.
Recognizing that the market cannot correct itself under the current regulatory framework, NITI Aayog has worked closely with the Ministry of Housing and Urban Affairs, the Department of Financial Services, and other key stakeholders to draft a comprehensive reform blueprint. Drawing on global best practices and cross-sectoral insights, the proposed measures aim to systematically drive down land costs and unlock fresh housing supply.
City master plans have historically failed to protect space for lower-income groups. To rectify this, the policy recommendation suggests a mandatory zoning requirement where at least 10 percent of all residential land in urban master plans is strictly earmarked for affordable housing. By legally ring-fencing this land, municipalities can prevent affordable plots from being absorbed by high-end commercial or luxury residential developers, ensuring a steady pipeline of accessible real estate.
Perhaps the most impactful proposal is the call to significantly raise the permissible Floor Area Ratio (FAR). FAR dictates the total floor area that can be built upon a specific plot of land. Currently, many Indian cities cap this ratio between 2 and 3, forcing horizontal urban sprawl and limiting the number of homes a developer can build on an expensive piece of land.
The recommendation advocates raising the FAR to between 5 and 6 for affordable housing projects. This policy shift would allow developers to build vertically, effectively spreading the high cost of the underlying land across a much larger number of apartments. By doing so, the per-unit cost drops dramatically, directly benefiting the end buyer.
Building affordable housing on the remote fringes of a city often defeats the purpose, as it burdens low-income residents with high commuting costs and disconnects them from economic hubs. The think tank strongly promotes Transit-Oriented Development (TOD), a planning concept that clusters high-density, mixed-use housing around public transport nodes like metro stations and railway corridors.
By synchronizing land use with transport infrastructure, cities can create affordable living spaces that offer seamless mobility, reducing the overall cost of living for residents while optimizing the use of premium urban land.
Hostile land acquisition has long been a source of litigation, delay, and soaring costs. As an alternative, the adoption of land pooling models is being heavily encouraged. Under this system, landowners voluntarily pool their fragmented parcels together. A government authority develops the aggregated land, installing roads, sewage, and public amenities, and then returns a smaller, but highly appreciated, developed plot back to the original owners. This cooperative model bypasses the heavy upfront capital required for land acquisition and accelerates the development of large-scale housing townships.
While the country struggles with a massive housing shortage, it simultaneously grapples with a shocking paradox: nearly one crore houses are currently lying vacant across India. This massive misallocation of resources highlights severe inefficiencies in how real estate is utilized and rented.
Many of these properties are held as speculative assets by investors who choose to keep them locked rather than dealing with the complexities of the Indian rental market. Archaic tenancy laws, which heavily favor tenants and make eviction incredibly difficult, act as a massive deterrent for landlords.
To bring this idle inventory back into the market, NITI Aayog emphasizes the urgent need to strengthen the rental housing ecosystem. This involves a multi-pronged approach: completely overhauling outdated tenancy laws to protect both landlords and renters equally, rationalizing municipal property charges to incentivize renting, and promoting diverse rental housing models tailored to student and migrant populations. Furthermore, creating dedicated anchor funds and financing mechanisms could crowd in private investment, transforming the disorganized rental sector into a professionally managed, institutionalized industry.
Regulatory changes take time to implement, and in the interim, the government recognizes the need for immediate financial levers to improve project viability. To bridge the gap between high costs and low margins, policy advisors have outlined a series of aggressive fiscal incentives designed to attract private developers back to the low-income segment.
Chief among these is the proposal for complete profit exemptions for developers undertaking certified affordable housing projects. By removing the tax burden on these specific developments, the effective margin increases, making them competitive with mid-segment housing.
Additionally, there are strong recommendations to raise the credit guarantee limits under dedicated funds meant for low-income housing. This would provide banks with the security they need to lend to affordable housing developers at lower interest rates. Other proposed measures include waiving municipal profit fees for land that is exclusively dedicated to affordable units, and significantly reducing or entirely exempting the end-buyer from stamp duty charges—a move that would instantly lower the upfront financial barrier for a first-time homeowner.
These proposed structural reforms are not occurring in a vacuum; they are designed to accelerate an already massive government initiative. The Department of Financial Services recently provided an update on the monumental scale of the Pradhan Mantri Awas Yojana (PMAY), the flagship housing program.
The government has already sanctioned an additional 3 crore houses under PMAY, carefully distributing the focus with 2 crore dwellings slated for rural villages and 1 crore units dedicated to urban centers. With this massive expansion, the administrative target is to oversee the construction of 7 crore houses under the scheme by the year 2029.
The physical progress on the ground is already substantial, with nearly 4 crore houses completed nationwide. Financial backing has been equally robust. Through the Affordable Housing Fund, the National Housing Bank disbursed a massive Rs 60,000 crore in concessional refinance up until December 2025, a financial injection that directly benefited over 5.85 lakh dwelling units across the country.
Furthermore, recent macroeconomic adjustments have been tuned to support this sector. The Reserve Bank of India and the central government have collaborated to expand priority-sector lending norms, broaden eligibility definitions, and increase housing loan limits. These changes are specifically engineered to channel cheaper credit directly to underserved homebuyers. Complementing this, significant reductions in the Goods and Services Tax (GST) rates on critical construction materials like steel and cement are expected to lower the baseline cost of construction, providing much-needed relief to both builders and buyers.
The discourse surrounding affordable housing in India is undergoing a necessary evolution. For decades, the focus has heavily skewed toward subsidizing the buyer or reducing the cost of bricks and mortar. However, the insights from NITI Aayog make it abundantly clear that unless the underlying economics of urban land are fundamentally disrupted, housing will remain a luxury.
By advocating for higher floor area ratios, dedicated land allocations, transit-oriented development, and a revitalized rental market, the policy framework offers a realistic escape route from the current crisis. Coupled with robust fiscal incentives and the sheer scale of the PMAY initiative, these land reforms have the potential to democratize real estate. If state governments and municipal bodies can align to implement these global best practices, the vision of providing a dignified, affordable home for every Indian citizen could finally move from a policy document to physical reality.
