Land supply and urban planning reforms will be critical to strengthening affordable housing in India’s cities, with states and municipal authorities needing to unlock land and ease development norms to reduce costs, NITI Aayog Member Rajiv Gauba said on Tuesday. Calling land availability the heart of the problem, he added that land accounts for a high share of total housing project costs in some cases, making affordable housing projects less viable.
“Our city master plans have not been effective in making sufficient land available for affordable housing. Rather, these master plans have constrained land supply,” Gauba said at a conference on strengthening affordable housing.
He argued that this has led to land accounting for a very high percentage of the total housing project cost.
These pressures are aggravated by limited access to formal credit for land purchase, forcing developers to depend on high-cost finance, further undermining project viability.
“Developers consistently report that margins in the economically weaker section (EWS) and lower-income group (LIG) segments are too thin to attract private investment. Consequently, private sector activity has shifted towards the higher-income group (HIG) and luxury houses, creating a shortage of low-income homes,” Gauba said.
He stated that state governments should consider waiving land-use change fees for land dedicated to affordable housing and exempting affordable housing units from stamp duty (5-7 per cent of the transaction cost) to improve project viability and affordability.
States like Maharashtra and Haryana, under their affordable housing policies, offer exemptions from change-in-land-use fees for affordable housing, besides concessional rates and higher floor area ratios (FARs) for affordable projects.
FAR is a zoning tool used to control building density, which is calculated as the ratio of a building’s total constructed floor area across all floors to the total area of the plot it sits on.
Gauba added that a joint NITI Aayog and Ministry of Housing and Urban Affairs report on affordable housing proposes a set of measures to address the constraints, with most of the implementation lying with state and municipal authorities.
The recommendations include expanding planned urban areas and reserving at least 10 per cent of residential land as affordable housing zones in master plans.
The report also proposes raising the permissible floor area ratio (FAR) for such projects, promoting transit-oriented development (TOD), land pooling and transferable development rights, easing parking and density norms, and creating land banks.
He added that this year’s Budget has announced a dedicated real estate investment trust (REIT) to unlock land and assets held by central public sector enterprises (CPSEs), where underutilised land can be recycled into productive housing and commercial stock.
“Housing must be seen as an integral component of urban planning and economic development rather than as an isolated welfare measure,” he said.
He added that strengthening the rental housing ecosystem through reforms in the model tenancy law is therefore important for inclusive organisation.
“The Ministry had prepared the model tenancy law some time back, which had been approved by the Cabinet and reported to the states. However, very few states have fully adopted it,” Gauba noted.
Calling for the need to address low access to capital, the former cabinet secretary noted that affordable housing should not be viewed as a subsidised segment but as a large emerging market.
“Complete digitisation of land records by the states and the cities will also help improve collateral quality and reduce risk premium on housing loans,” he added.
