Published On:
December 7, 2025
Updated On:
December 7, 2025
The affordability gap in India is widening, marked by a national Price-to-Income (P/I) Ratio of 7.5 and an average Equated Monthly Installment (EMI) burden of 61% on income.
The Indian real estate landscape is defined by a stark and unsustainable duality. On one side, the luxury housing segment—properties valued above ₹1.5 Crore—is experiencing a boom, driven by investor wealth. On the other, the dream of simple, affordable homeownership for the working and middle class is rapidly fading due to what analysts call the "great affordability gap." This gap represents the enormous disconnect between the rising cost of residential property and the stagnant growth of average household incomes.
To accurately gauge this crisis, economists utilize the Price-to-Income (P/I) Ratio. This metric compares the median house price to the median annual household income. An acceptable standard for a house to be considered genuinely affordable is a P/I Ratio of 5 or less.
Recent data paints a worrying picture of market stress. The national average P/I ratio has climbed significantly to approximately 7.5 in 2024. This marks a sharp jump from the 6.6 recorded just four years prior in 2020, indicating a rapid erosion of affordability. In economic hubs, the situation is even more critical; for example, in major metropolitan areas like Mumbai, the P/I ratio is reported to hover above 14. This translates to needing well over a decade and a half of one's entire salary just to purchase a home in that city.
The true cost of this gap is felt in the household budget. The financial burden is best illustrated by the percentage of income dedicated to mortgage payments, or the Equated Monthly Installment (EMI) burden. In a distressing trend, the average monthly EMI payment as a percentage of income has ballooned from 46% in 2020 to an unsustainable 61% in 2024. Committing almost two-thirds of monthly earnings to loan servicing drastically shrinks the pool of eligible buyers and puts immense strain on family finances.
This steep rise is rooted in fundamental market dynamics. Property prices have seen an annual increase of around 9.3% in recent years. In contrast, average household incomes have only managed a modest rise of 5.4% per year. This sustained disparity means that property values are simply outpacing the capacity of most buyers to save and borrow.
A core systemic issue driving the gap is the incentive structure for developers. Building luxury homes (those above the ₹1.5 Crore mark) yields significantly higher profit margins than constructing mass, budget-friendly housing. As a direct result, there has been a dramatic inventory mismatch in the market. The supply of affordable homes, typically defined as units priced under ₹40 Lakh, has collapsed from being nearly 40% of all new project launches just a few years ago to barely 17-20% today. This lopsided supply, coupled with astronomical land acquisition costs and rising input prices for raw materials like steel and cement, ensures that the final consumer price remains prohibitively high.
The consequence of this market failure is a massive urban housing shortage, with estimates suggesting a deficit exceeding 10 million units. The central government is deploying several interventions to mitigate the crisis. The flagship program is the Pradhan Mantri Awas Yojana (PMAY), which provides crucial subsidies and financial assistance aimed at the economically weaker sections of society. Additionally, the launch of Affordable Rental Housing Complexes (ARHCs) is an intelligent move, converting vacant public housing into subsidized rental units specifically for the floating migrant worker population.
Furthermore, the government is leveraging regulatory bodies like the Real Estate Regulatory Authority (RERA) to streamline the permitting process and introduce single-window clearances. This bureaucratic simplification is intended to reduce construction delays, which are a hidden risk that invariably inflates final project costs. However, controlling the skyrocketing price of land and navigating the financial environment dictated by Reserve Bank of India (RBI) interest rate hikes—which directly impact the monthly EMI—remain challenging external factors that will determine the long-term success of bridging this profound affordability gap.
