Affordable Housing in Mumbai and Its Complex Challenges

Housing affordability, which means being able to buy or rent a home without straining finances, is crucial for urban growth. However, this is a major challenge in Greater Mumbai. With an average price (as of Q2 2024 ), of ₹32,150 per square foot, Greater Mumbai’s housing costs are far higher compared to cities like Pune (₹15,187) and Bengaluru (₹14,265), making owning a home unaffordable for many.

The concept of housing affordability was initially introduced to serve the financially weaker sections of society, ensuring access to safe and dignified housing for those at the lower end of the economic spectrum. The Government of India, in its 2008 Deepak Parekh Committee Report, defined housing affordability as follows:

• For Economically Weaker Sections (EWS), housing costs should not exceed 20% of gross household income, and the total cost should be up to 3 times the annual income.
• For Low-Income Groups (LIG), costs should not exceed 30% of income, with the total cost capped at 4 times the annual income.
• For Middle-Income Groups (MIG), affordability is defined as 40% of income, with housing costs up to 5 times the annual income.

In Mumbai, the term “affordable housing” is defined differently by various institutions, each with specific criteria:

• Section 80-IBA of the Income Tax Act:
  • Carpet Area: For projects approved on or after September 1, 2019, the residential unit’s carpet area must not exceed 60 square metres (646 sq feet) in metropolitan cities, including Mumbai.
  • Unit Value: The value of the residential unit should not exceed ₹45 lakh.
• Reserve Bank of India (RBI):
  • Loan Eligibility: Housing loans up to ₹50 lakh for properties valued up to ₹65 lakh in metropolitan centres, including Mumbai, are considered under affordable housing. 
• Goods and Services Tax (GST) Act:
  • Carpet Area: In metropolitan cities like Mumbai, the residential unit’s carpet area should not exceed 60 square metres (646 sq feet).
  • Price Threshold: The total value of the unit should not exceed ₹45 lakh to qualify for the lower GST rate of 1%.

Despite these benchmarks, the reality for India’s affluent middle class, particularly in metropolitan cities, is different. While the Pradhan Mantri Awas Yojana (PMAY) aims to address urban housing shortages among Economically Weaker Sections (EWS), Low-Income Groups (LIG), and Middle-Income Groups (MIG), including slum population, by ensuring a pucca house for all eligible urban households, the middle class often finds itself unsupported in navigating the housing market

In Greater Mumbai, the average price-to-income ratio for a 2BHK home is 8.9 times the annual income for affluent middle-class professionals aged 35 and below, significantly exceeding what is considered affordable. 

Government Initiatives to Improve Affordable Housing in Mumbai

The Indian government has implemented several schemes and projects to enhance housing affordability for Mumbai, particularly targeting the economically weaker sections. However, the affluent middle class often finds these measures insufficient to meet their needs.

1. Pradhan Mantri Awas Yojana (PMAY)

Launched in 2015, PMAY aims to provide affordable housing to urban and rural poor by 2022. The scheme offers interest subsidies on home loans for eligible beneficiaries. While it has benefited many in the lower-income brackets, the middle class often falls outside the eligibility criteria, limiting its impact on this segment.

2. Maharashtra Housing and Area Development Authority (MHADA) Housing

MHADA conducts lotteries to allocate affordable housing units in Maharashtra. These units are priced below market rates, making them attractive. However, the supply is limited, and the demand far exceeds availability, resulting in low chances of allocation for middle-class applicants.

3. Infrastructure Development Projects

Initiatives like the Mumbai Metro expansion aim to improve connectivity and reduce commuting times. While these projects enhance the quality of life, they often lead to increased property prices in connected areas, inadvertently making housing less affordable for the affluent middle class.

4. Affordable Rental Housing Complexes (ARHCs)

As a sub-scheme under PMAY-Urban, ARHCs aim to provide affordable rental housing for urban migrants and financially weaker societies. However, the focus remains on lower-income groups, with limited provisions for affluent middle-class families seeking affordable rental options.

5. Credit-Linked Subsidy Scheme (CLSS)

Part of PMAY, CLSS provides interest subsidies on home loans for the Economically Weaker Section (EWS), Low-Income Group (LIG), and Middle-Income Group (MIG). While it extends to the middle class, the subsidy caps and property price limits often do not align with the high property prices in metropolitan cities like Mumbai, reducing its effectiveness for this segment.

Assessment of Impact and Shortcomings

While these initiatives have made strides in addressing housing affordability, they often fall short for the affluent middle class due to:

• Eligibility Constraints: Many schemes have income caps that exclude affluent middle-class families.
• Supply-Demand Mismatch: Limited availability of affordable units leads to high competition and low success rates in schemes like MHADA lotteries.
• Price Limitations: Subsidies and benefits are often capped at property prices that are unrealistically low for metropolitan markets, rendering them ineffective for middle-class buyers.
• Indirect Price Inflation: Infrastructure projects, while beneficial, can lead to increased property prices in adjacent areas, further straining affordability for the middle class.

Challenges Faced by the Affluent Middle Class in Mumbai’s Real Estate Market

1. Rising Costs and Stagnant Incomes

Middle-class families face significant financial strain as suburban property rates hover between ₹25,000 and ₹27,000 per square foot. A modest 2BHK unit priced at ₹1.75 crore vastly exceeds the affordability benchmark of five times annual income, leaving households to either overstretch finances or settle for smaller homes.

2. Limited Impact of Government Schemes

Existing schemes like Pradhan Mantri Awas Yojana (PMAY) and MHADA primarily target lower-income groups, leaving middle-class families unsupported. With flats priced under ₹1 crore in limited supply, accessibility remains a challenge for this segment.

3. Rising Costs Near Infrastructure Developments

Metro expansions and coastal road projects have spurred real estate inflation in adjacent areas. While Western Suburbs have given a return of about 10% over the last 4 quarters (Q3, 2023 to Q2, 2024)  it has become difficult for new investors to buy at such high prices. Further straining affordability for middle-class buyers.

4. Financing Challenges

Rising interest rates and stringent lending norms exacerbate financial difficulties for buyers. A typical EMI for a ₹1.5 crore loan at 9% interest—amounting to ₹1.35 lakh per month—leaves little room for other essential expenses.

5. Shrinking Living Spaces

With the average RERA carpet area of a 2BHK unit in Greater Mumbai shrinking from 900 sq feet in 2014-15 to 700–750 sq ft in recent years., families face compromised living conditions while dealing with rising costs.

6. Focus on Luxury Housing

Developers prioritising high-margin luxury projects have created a significant shortfall in affordable housing. This trend marginalises middle-class buyers, pushing them further to the city’s periphery.

What is the solution to unaffordable housing in Mumbai?

Affordable housing in Mumbai is not just a policy challenge but a critical need for the city’s middle-class families, who face rising costs, limited options, and shrinking living spaces. Addressing the challenge of unaffordable housing in Mumbai requires a nuanced approach that combines targeted policy reforms, innovative development strategies, and collaborative action among stakeholders.