Affordability of housing in India's first-tier cities has improved significantly: a long-term transformation driven by income.

When the Housing Market Became More Affordable in the Storm

Over the past fifteen years, India's residential market has experienced a series of violent shocks: demonetization drained 86% of circulating currency overnight, the RERA regulatory framework reshaped industry rules, the NBFC crisis froze developers' financing channels, and the subsequent pandemic disrupted the rhythm of supply and demand. Yet it is precisely amid these upheavals that a thought-provoking long-term trend has gradually come into focus—housing affordability in India's major cities has not deteriorated as prices rose, but has instead improved significantly.

According to the latest report from Colliers, measured by the average price-to-income ratio, affordability across India's eight major tier-1 cities has fallen from 88.5 in 2010 to 45.3 in 2025—a decline of nearly half. In other words, the number of years of income required to buy an average home has been almost halved over fifteen years. This is not because house prices have fallen, but because income growth has been far more rapid than price growth.

Income Growth: The Overlooked Core Engine

Since 2010, the compound annual growth rate of average resident income in India has been about 10%, while average house prices have risen by only 5% to 7% per year over the same period. This gap has been dramatically amplified by the power of compounding. Income growth of more than fourfold has not only absorbed the pressure on house prices from rising construction costs and land scarcity, but has also given homebuyers greater payment capacity.

This income-driven improvement in affordability stands in sharp contrast to many emerging markets. For example, in some tier-1 cities in China, house price growth has long outpaced resident income by a wide margin, causing price-to-income ratios to keep climbing. India's situation is more like a "healthy race"—income growth continues to lead, gradually transforming housing from a luxury for the few into an asset accessible to middle-income groups.

Policy and Credit: The Invisible Drivers

The improvement in affordability is not purely a spontaneous economic outcome. Over the past fifteen years, the Indian government and central bank have carried out a series of institutional interventions, forming a complex policy matrix.

PMAY (Pradhan Mantri Awas Yojana) has provided subsidies on the demand side, RERA has standardized delivery timelines on the supply side, the introduction of GST unified the tax system, and the SWAMIH fund has injected liquidity into stalled projects. These policies were not one-off events but were gradually woven into a safety net that lowered the risk premium for homebuyers.

Monetary policy has also played a key role. During the pandemic, interest rates fell to historic lows. Although there followed a rate-hiking cycle, the benchmark repo rate has now fallen back to 5.5%. Against a backdrop of declining inflation, Colliers expects further room for rate cuts in the short term. Every reduction in interest rates directly translates into lower monthly payments, thereby amplifying the increase in purchasing power brought about by income growth.Credit data confirms this. The housing loan balance of Indian commercial banks has soared from 3 trillion rupees in 2010 to over 30 trillion rupees in 2025, growing more than tenfold. More importantly, the share of housing loans in total bank credit has risen from about 10% a decade ago to 17% today. This is not only a sign of strong demand, but also means that the banking system regards residential real estate as a resilient asset class—the building of this confidence is itself a structural shift.

Urban Divergence: No Unified Affordability Narrative

The improvement in macro data does not mean that all cities are on the same starting line. Colliers points out that differences between cities and micro-markets are extremely pronounced. Ahmedabad and Hyderabad are currently the relatively most affordable markets, while Mumbai and Delhi National Capital Region (NCR) still face greater price pressure, although their affordability has also improved markedly over the past decade and more.

This divergence stems from differences in local supply-demand structures, project pricing, and the financial profiles of target buyers. In tech-driven Hyderabad and Bengaluru, the concentration of high-income employment keeps price-to-income ratios relatively moderate; in Mumbai, dominated by commerce and finance, land supply is highly rigid, and although income growth is strong, it still cannot fully offset the high base of property prices.

Notably, improved affordability does not automatically translate into sales growth. Demand, supply, and price are tightly intertwined and perform differently across micro-markets. Developers are well aware that the Indian market is highly price-sensitive, so they often design differentiated product lines for different target customer groups—from affordable housing to high-end apartments—with increasingly refined pricing strategies.

Infrastructure and the Reshaping of Urban Space

Alongside the improvement in affordability, a deeper transformation is taking place in India's urban spatial structure. Over the past decade, large-scale infrastructure expansion—metro network extensions, Regional Rapid Transit Systems (RRTS), outer ring roads, and logistics corridors—has been redefining the "boundaries of habitation."

As the office market gradually moves away from sole reliance on central business districts (CBDs) and more companies adopt hybrid working models, housing demand is shifting toward surrounding areas with good transport links and mature amenities. The scope for price arbitrage is no longer as pronounced in cities such as Ahmedabad, Bengaluru, and Hyderabad, where growth patterns are more balanced. But in some other cities, property prices in peripheral areas remain significantly lower than in city centers, and this gap will further drive the dispersal of population and industry.

This evolution of urban form has global parallels. From London to Shanghai, large transport infrastructure often triggers structural changes in surrounding housing markets within a few years of completion. What India is experiencing is a localized version of this logic: infrastructure not only improves commuting efficiency, but also expands the geographic reach of affordable housing.

India's Experience in the Global Context## India's Experience in the Global Context

In the broader context of global emerging markets, India's trajectory of housing affordability improvement appears particularly distinctive. In many developing countries, rapid urbanization is often accompanied by the expansion of slums and a "housing squeeze" on the middle class. India, through a combination of policy intervention, financial deepening, and infrastructure investment, has to some extent avoided this trap.

Of course, this process is far from complete. India's per capita GDP remains at a lower-middle level, and there are still significant shortcomings in housing quality, clarity of property rights, and maturity of the rental market. Even though the average price-to-income ratio has fallen to 45.3, this figure remains far higher than in developed markets—for example, in the United States it is typically between 3 and 5, and even in the San Francisco Bay Area it is only around 8 to 10. India's affordability improvement is a relative advance, not an absolute solution.

The Road Ahead: Rate Cuts, Employment, and Micro-Level Bottlenecks

Looking ahead, in the short term, India's residential market may continue to benefit from the reversal of the rate-hiking cycle in a low-inflation environment. Colliers predicts that as benchmark interest rates are further cut, average affordability levels will continue to improve. But in the long run, the real challenge lies in the sustainability of income growth. If India cannot create enough formal employment opportunities, and income growth slows, the price-to-income ratio could rise again.

Moreover, micro-level bottlenecks remain. Even within the same city, different income groups face vastly different affordability realities. The report cautions that there may be a huge gap between macroeconomic indicators and micro-level market sentiment. For policymakers, the real test is not to further raise the average figure, but how to spread the dividends of improvement to a broader population—especially those households that remain excluded from the formal credit system.

The fifteen years of India's housing market constitute a history of mutual shaping between policy and market. Income growth provided the underlying momentum, policy reforms reduced transaction frictions, credit expansion amplified purchasing power, and infrastructure opened up the spatial dimension. Today, this South Asian giant's urban housing experiment is entering a new phase—no longer simply about "making housing affordable for more people," but about how to build a more resilient and inclusive residential system in the second half of urbanization.