Mirage of Prosperity | Is India’s housing boom stretching the middle class?

If India’s economy is booming, why is it getting more difficult for the very middle class that could sustain that growth to own homes? India’s housing market, however, is in a quiet but seismic transition. For example, a March Reuters housing market poll demonstrated that homes costing greater than ₹1 crore comprised 63 per cent of 2025 residential sales, with demand for homes below this figure declining sharply.

Simultaneously, urban home prices continue to rise across major cities, in line with the National Housing Bank’s RESIDEX housing price index that announced about 5-7 per cent annual price growth in 2025.

From India’s middle-class perspective, the result is a paradox. Home ownership continues to serve as the ideal emblem of financial security, but increasingly to enjoy it, you need to borrow. As housing affordability wanes and household leverage spikes, growth’s not a story of prosperity so much as a balance sheet bet for middle-income families.

The result is further widening affordability gaps. Recent studies found that the price-to-income ratio for housing in larger Indian cities varies between seven and 10, i.e., it takes seven to 10 years of gross income of a household to have an average home purchase. The ratio greater than five to moderate the level of affordability stress as international housing economists often would assess it is considered a serious concern. To India’s salaried middle class, this translates into that home ownership increasingly demands major mortgages rather than savings saved over the years. Households have reacted to this affordability squeeze by borrowing.

According to the Reserve Bank of India's (2024) Financial Stability Report, household debt soared to 41.9 per cent of GDP in December 2024, an increase from the previous decade. The composition of borrowing is similarly revealing. Non-housing retail loans (personal loans and credit cards) constitute over half of household debt, indicating that borrowing is not merely financing homes but also serving the function of supporting consumption. Together, the trends suggest a more fundamental discrepancy between economic growth and household balance-sheet resilience. The structural tension is illustrated by the following indicators.

The GDP growth and urbanisation have definitely risen consumption and investment. But soaring home prices also have increasingly forced middle-class families to depend on long-term loans to get houses. Meanwhile, increased consumer credit suggests that debt is now being used not just to purchase goods or services, but to sustain living standards as well.

That pattern reveals a structural weakness. If incomes don’t rise as rapidly as housing costs, the middle class becomes reliant on credit expansion to feed both housing and consumption. Such a system exists in periods of robust growth with stable interest rates, but can be fragile as borrowing costs increase or employment conditions weaken.

Housing policy recognises this challenge but cannot effectively overcome its structural causes. Meanwhile, government programs such as Pradhan Mantri Awas Yojana (PMAY) are meant to provide affordable housing options, however, urban land and construction economics push developers to work on more profitable projects. Tax breaks and housing loans can be a tool to encourage demand, but they don’t help supply a lack of affordable urban housing.

The broader implication being that India’s middle-class expansion is taking place on an ever-more leveraged foundation. Home ownership is the bedrock aspiration of upward mobility, but servicing that aspiration through growing debt leaves households at greater financial risk. When housing affordability decreases but leverage rises, the middle class will be willing to exchange long-term stability for short-term access to assets.

Thus, perhaps, India’s growth story is entering a more complex phase. The question is not whether the middle class can buy homes anymore, but if it can do so without borrowing away its financial security?

Shrabani Mukherjee is Independent Researcher, Economics and Public Policy, Chennai. Debdulal Thakur is Professor, Vinayaka Mission’s School of Economics and Public Policy, Chennai.

(Disclaimer: The views expressed above are the author's own. They do not necessarily reflect the views of DH)