Affordable housing in India has long been discussed as an aspiration. Over the past two years, it is steadily being reshaped into an executable plan, backed by policy clarity, financial support and structural reform. A combination of new frameworks, revamped missions and credit-linked incentives is changing how urban housing is planned, funded and delivered.
At the centre of this shift is a sharper understanding of affordability itself. It is no longer limited to lower prices. It now includes access to finance, stable construction costs, private sector participation and long-term sustainability.
A policy blueprint for affordable homes
In December 2025, NITI Aayog released a detailed approach paper titled A Comprehensive Framework to Promote Affordable Housing. The report lays out a structured roadmap to address housing shortages in urban India, focusing on supply-side constraints, financing gaps and regulatory hurdles.
Shared with multiple stakeholders, the framework stresses coordination between central and state governments, financial institutions and private developers. Its emphasis is clear: affordable housing must move beyond schemes and become part of a long-term urban development strategy.
PMAY-U evolves into a larger mission
The backbone of India’s urban housing push remains the Pradhan Mantri Awas Yojana Urban. Launched in June 2015, PMAY-U set out to provide all-weather pucca houses with basic civic amenities to eligible urban beneficiaries.
Learning from nearly a decade of implementation, the Ministry of Housing and Urban Affairs has now launched PMAY-U 2.0, effective from September 1, 2024. The new phase aims to support one crore additional beneficiaries over the next five years, signalling a scale-up rather than a reset.
PMAY-U 2.0 continues to operate through four verticals: Beneficiary Led Construction, Affordable Housing in Partnership, Affordable Rental Housing and the Interest Subsidy Scheme. Together, these verticals attempt to address ownership, rental demand and access to credit across income groups.
Interest subsidy brings credit within reach
One of the most impactful components of PMAY-U 2.0 is the Interest Subsidy Scheme. Designed as a central sector initiative, ISS seeks to expand institutional credit flow to the affordable housing segment.
Under the scheme, eligible beneficiaries from Economically Weaker Sections, Lower Income Groups and Middle Income Groups receive interest subsidies on home loans for purchase, repurchase or construction. For households earning up to Rs. 9 lakh annually, loans of up to ₹25 lakh for homes valued at Rs. 35 lakh qualify for a four percent subsidy on the first Rs. 8 lakh of the loan, for a tenure of up to 12 years.
The total interest subsidy can go up to Rs. 1.80 lakh, released in five annual instalments. As of now, over Rs. 312 crore has been disbursed, benefiting more than 70,000 households. For many first-time buyers, this has meant the difference between renting indefinitely and owning a home.
Encouraging private sector participation
Affordable housing cannot be delivered by public agencies alone. Recognising this, PMAY-U 2.0 actively supports states and union territories in framing their own affordable housing policies.
These policies aim to incentivise private developers through regulatory relaxations, fiscal support and institutional measures. The idea is to increase the supply of affordable housing stock while ensuring quality, timely delivery and financial viability for developers.
By reducing procedural bottlenecks and aligning incentives, the government hopes to bring more private capital into a segment traditionally seen as high-risk and low-margin.
Lower GST eases construction costs
In September 2025, the government undertook a significant rationalisation of GST rates on key construction materials and services. Items such as cement, marble and granite blocks, particle boards and sand-lime bricks saw reduced tax rates.
For developers and homebuyers alike, this move has had a direct impact on project costs. Lower input taxes translate into better pricing flexibility, helping keep homes within affordable brackets. The GST rationalisation also aligns with the broader goal of improving urban infrastructure while supporting inclusive growth.
Credit guarantees for low-income buyers
Access to loans remains a major hurdle for low-income households, especially those working in informal sectors. To address this, the government restructured the Credit Risk Guarantee Fund Trust for Low Income Housing.
Launched in January 2025, the revamped scheme provides guarantees on housing loans extended by banks and housing finance companies to eligible EWS and LIG borrowers. This reduces the lending risk for financial institutions and encourages them to extend credit to first-time and informal sector borrowers.
By January 2026, over 6,200 loans worth nearly Rs. 615 crore had been guaranteed. The scheme plays a crucial role in ensuring timely completion of homes under PMAY-U 2.0.
Tailored loan products for informal workers
Beyond guarantees, the Department of Financial Services has worked with banks to develop special home loan products for beneficiaries from informal employment sectors. These products are designed with flexible documentation, repayment structures and eligibility norms.
States and union territories are also expected to facilitate home loans through tripartite agreements between beneficiaries, lenders and implementing agencies. The objective is to simplify processes and reduce delays that often discourage eligible families.
A quieter, deeper housing reform
Unlike headline-grabbing announcements, India’s affordable housing push is unfolding through layered reforms. Policy frameworks, credit support, tax rationalisation and institutional guarantees are working together to address long-standing gaps.
The challenge ahead lies in execution and coordination. Yet, the direction is clear. Affordable housing is no longer treated as a standalone welfare initiative but as a critical pillar of urban planning and economic growth.
As cities expand and aspirations rise, the success of PMAY-U 2.0 and allied reforms will shape not just skylines, but the everyday lives of millions seeking a secure place to call home.
