#15: The Housing Hoax - Why 2 Crore Urban Homes Remain Vacant in India?

While the poor live in slums, flats gather dust - revealing a moral and policy failure at the heart of India’s housing story.

India’s cities face a cruel irony, with towering new high-rises standing empty while families crowd into tin shacks and overcrowded tenements below.

Government data a decade ago estimated an urban housing shortage of around 1.9 crore households – almost entirely among low-income groups – yet at the same time over 1.1 crore urban housing units were vacant.

This highlights not a lack of homes per se, but a deep mismatch between supply and what people can afford or access – a crisis of distribution, not quantity

The scale of the mismatch is stark: according to the 2011 Census, 12% of urban homes (enough to house 5 crore people) were unoccupied.

Today that number is likely higher, creeping toward 2 crore empty homes, even as the urban poor hunt desperately for a decent roof over their heads.

Nearly half of urban Indians live in slum-like conditions, because they cannot access formal housing – while flats across town collect dust, locked up by their owners.

It is a tragedy of misplaced resources and misaligned priorities, hitting the poorest the hardest.

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Why would any country let homes sit vacant when so many citizens are in need?

The reasons are woven deep into structural, economic, and policy failures.

A big part of the answer lies in India’s archaic rental housing laws and weak contract enforcement.

For decades, rent control regulations – originally meant to protect tenants – have backfired. Laws frozen in the 1940s and 50s made it nearly impossible for landlords to evict tenants or increase rents, creating a climate of fear for property owners.

Even today, evicting a tenant who stops paying rent can take years in court.

Research confirms that these pro-tenant rent controls, coupled with India’s notoriously slow legal system, have led to abnormally high vacancy rates.

Landlords simply decide it is safer to keep a house empty than to rent it out and risk losing control of their property.

The Knight Frank consultancy found that many owners don’t bother with renting because the rental yields are extremely low and the hassle is high – dealing with maintenance, the threat of squatting, or a dilapidated unit that isn’t worth repairing.

In short, our laws intended to make housing affordable ended up encouraging owners to withdraw housing from the market altogether.

The economic incentives around housing have also been unfairly twisted.

Housing in urban India isn’t just shelter; it became an investment vehicle – a safe deposit box made of brick and mortar. For those with money, buying an extra apartment (or five) became a preferred way to park wealth, including unaccounted “black” money.

Through the 2000s, real estate prices surged and investors flocked in, but many had little interest in becoming landlords to a needy family. Why would they?

Rental income is a tiny fraction of a property’s value (often yielding only 2-3% per year), while property values themselves were rising by double digits annually in boom years.

Add to this the fact that there has been virtually no penalty for keeping a home vacant. Property taxes in India are modest, and until recently the law let you own two houses without even a notional rent tax on the empty one.

Owners of unoccupied houses essentially pay a negligible cost for hoarding this asset.

Unlike some countries, we have had no vacant-home tax in our cities to prod owners to put their properties to use.

The result: it’s often economically rational for a rich investor to buy a second or third home and just lock the door. The market rewarded speculation over occupancy.

Government policies unintentionally contributed to this – for instance, by abolishing the old wealth tax (which could have discouraged holding multiple houses) and by not reforming property taxation to punish vacancy.

As one policy brief bluntly observed, India’s 1.1 crore urban vacant homes exist due to factors like low rental yields, fear of repossession, and a lack of incentives to rent.

In other words, everything is stacked in favour of leaving a house empty and waiting for its value to rise.

What Happens When Cities Build for Profit, Not for People

Poor urban planning and a skewed housing supply make the problem worse.

Developers have built plenty of apartments, but mostly for the middle-class and rich, not for the poor who actually lack housing. There is a glut of high-end flats in many cities that few can afford, many of which remain unsold or investor-owned.

Meanwhile, affordable housing is in short supply or in the wrong place.

It’s common to find entire newly built complexes on city outskirts with hundreds of vacant units, yet inner-city slums keep expanding because that’s the only place low-wage workers can find shelter near jobs.

Gurugram, one of India’s boomtowns, has over a quarter of its homes sitting vacant, even as tens of thousands of migrant labourers in the same city crowd into dorms and shanties.

This mismatch is the outcome of years of misdirected urban development – city plans that allocate land for expensive gated colonies while neglecting worker housing, and infrastructure projects that don’t keep up with where housing is built.

Even government-built housing for the poor has sometimes missed the mark.

Under the central “Housing for All” initiative, the Pradhan Mantri Awas Yojana (Urban), millions of affordable houses were sanctioned for construction.

Yet tellingly, a survey (link at bottom) found nearly 47% of the houses built under PMAY-U remained unoccupied.

Why? Because many were built in areas without basic amenities, far from people’s workplaces and the city’s facilities.

In essence, paper targets were met – the houses existed – but real people did not move into them due to poor location and planning.

It is a stark reminder that building houses is not the same as providing housing people can actually live in.

To be fair, the government is not oblivious to these contradictions.

Policymakers have taken some steps, acknowledging that simply building more homes while existing ones lie unused is not sensible.

The Model Tenancy Act (MTA) was introduced by the Union government in 2021 to overhaul rental laws.

It aims to strike a balance between tenant rights and landlord rights, make evictions and rent revisions transparent, and thereby encourage owners to rent out vacant property.

This was a step in the right direction – recognising that unlocking vacant houses is crucial. However, housing is a state subject, and the uptake has been painfully slow.

More than two years after its introduction, only four states (like Tamil Nadu and Uttar Pradesh) have adopted new tenancy laws based on the model act. Most states simply haven’t bothered to implement it, despite repeated reminders from the central ministry.

So the old British-era and post-Independence rent control laws continue to govern rentals in many of our largest states, leaving the fundamental issues unaddressed.

On another front, the government launched a scheme in 2020 for Affordable Rental Housing Complexes (ARHC) to provide cheap rental homes to migrants and the urban poor.

The idea was excellent: convert existing vacant government-built housing into rental units, and involve private partners to manage them, so that migrant workers could get a clean, safe room instead of a slum shack.

But here too, execution has fallen flat.

By late 2024, less than 7% of the identified 83,000 vacant government houses had actually been turned into rental units for migrants.

Major states like Maharashtra, which had tens of thousands of empty housing board flats available, did not convert a single one for this scheme.

Good policies have been announced – housing for all, rental housing pilots, new tenancy frameworks – but on the ground they have not moved the needle enough.

The vacant homes still far outnumber the occupied affordable homes.

The Global Housing Paradox

This pattern of empty homes amidst housing shortages is not unique to India. Other large economies have wrestled with similar problems, offering cautionary tales and occasional bright spots.

China, for instance, went on a construction spree for decades, building massive housing complexes and entire new cities.

The result has been infamous “ghost cities” – a nationwide survey in 2017 found roughly 22% of China’s urban housing stock was unoccupied, amounting to over 5 crore empty apartments.

Chinese President Xi Jinping himself warned that “houses are for living in, not for speculation”, as the government scrambled to discourage people from treating apartments like investment stockpiles.

Despite limits on multiple home purchases and experiments with property taxes, China is still dealing with the hangover of speculative overbuilding – a mismanagement that India must be wary of replicating.

The United States, at the other end of the spectrum, has a dynamic housing market with more robust taxes and enforcement, yet it too faces a paradox: over 1.5 crore homes sit vacant across the U.S. even as more than half a million Americans are homeless on a given night.

That averages to roughly 27 empty homes for every one homeless person.

In cities like New York and Los Angeles, expensive apartments often lie unused as wealthy owners’ second (or fifth) homes, while the working poor struggle with sky-high rents.

A few U.S. cities have started adopting vacancy taxes or “empty home” fees to push these units back into the market, but it’s a nascent effort.

Indonesia, much like India, has a huge housing backlog (about a crore units) despite years of government housing programs.

In fact, a startling finding in Indonesia was that 60–80% of the houses built under one subsidised housing scheme were lying unoccupied– essentially a mirror to our own story of misallocation.

The intended low-income buyers either couldn’t occupy them or were never the real beneficiaries. This points to corruption and poor planning – homes built, subsidies spent, but no one actually living there.

Brazil provides another sobering snapshot: it has an urban housing deficit of around 58 lakh homes, mostly among the poor, yet millions of homes are empty. The city of São Paulo alone had about 5.89 lakh vacant housing units in 2022 – 12 times the city’s homeless population.

In Brazil, social movements have taken matters into their own hands at times, with homeless families organising to occupy vacant buildings in city centers, pressuring authorities to turn abandoned properties into low-income housing.

Brazilian law even empowers cities to penalise owners of idle properties (under the “right to housing” provisions and the City Statute), though enforcement is uneven.

These international comparisons highlight a common lesson: when housing becomes a commodity for speculation or an output of mismanaged policy, millions of homes can lie empty even as millions of people lack homes. It is a systemic failure, not just a moral one, and only systemic solutions can fix it.

So what can be done?

First, we need to candidly recognise that the status quo – where the market builds housing and the government occasionally subsidises a few units – will not automatically resolve this mismatch.

We must change the rules of the game.

Vacant houses should be taxed or otherwise disincentivised, to nudge owners to either occupy them or rent them out. Keeping urban housing vacant should hurt the pocket.

Imagine a steep “vacancy tax” on apartments left empty for over, say, six months – this could prompt many investors to put those homes up for lease, instantly expanding the rental supply.

Some countries and cities have tried this with success: for example, places like Vancouver have an empty homes tax that pushed vacancy rates down and brought units back on the rental market.

India can tailor its own version.

Next, we have to make renting viable and attractive for both landlords and tenants.

• This means overhauling rent control for old tenancies (perhaps through negotiated settlements or gradual decontrol) and simultaneously enforcing the Model Tenancy Act (or state variants of it) nationwide so that new rental contracts are fair and secure.

• Landlords need to trust that they can evict a non-paying tenant in a reasonable time, and tenants need to trust that they won’t be arbitrarily thrown out or gouged.

• The legal system’s efficiency is crucial here – special fast-track courts for tenancy issues or arbitration mechanisms could help.

The goal must be to break the fear that keeps homes locked.

At the same time, rental housing models beyond individual landlords should be promoted.

Why can’t we have companies or cooperatives that build and manage affordable rental housing at scale?

The government could incentivise private developers to create rental housing (not just upscale apartments for sale) by giving land or financing support with conditions to rent at affordable rates.

Public agencies too could build or refurbish housing to rent to low-income families – essentially social housing.

In many countries, social housing provides a crucial stock of affordable homes; India has largely skipped this, focusing on home ownership schemes instead.

It’s time to correct that course and provide a dignified rental option for those who may never be able to buy a house in the city.

Crucially, urban planning has to put low-income housing at the center. We need to stop building housing for the poor in distant locations where no one wants to live.

If new metro lines, industrial parks, or offices are coming up, there must be concurrent plans for housing the workers of all income levels nearby.

Integrated planning – where housing is seen as part of infrastructure – will prevent situations like thousands of flats vacant in one corner while slums grow in another.

For example, if city authorities identify large vacant developments (perhaps stuck projects or unsold inventories), they could consider acquiring or leasing them and filling them with families from slum resettlements or waiting lists for housing – essentially matching empty homes to those who need homes.

This would require political will and budgetary support, but it directly addresses both problems at once.

Turning Empty Houses into Homes…

At the same time, we should also acknowledge the steps that have shown glimmers of progress.

The Real Estate (Regulation and Development) Act, 2016 (RERA) has started to rein in some of the worst excesses of speculative real estate, by forcing developers to finish projects and be transparent. This can rebuild buyer trust and avoid unfinished ghost projects.

Some cities have begun using unused publicly owned land and buildings for housing – for instance, converting old government colonies into apartments. These efforts need amplification.

And civil society – regular citizens – have a role too, in pushing for change.

The outrage over empty houses should be as strong as the outrage over homelessness. Communities can demand that local authorities map vacant houses in their area and come up with plans to utilise them.

The media and activists can keep highlighting this contrast, to shame authorities into action. After all, a house is not just a private asset; it’s part of a community, and leaving it bricked-up helps nobody.

In the end, solving India’s urban housing crisis is not about a shortage of physical structures – those we have built plenty. It’s about unlocking those structures for the people who need shelter.

It’s about policies that ensure houses become homes. Every empty flat with rusting locks is a reminder of policy failure and also of potential – a home that could be.

The human cost of inaction is visible in every pavement dweller, every child growing up in a slum, every worker commuting hours because they can’t afford to live near their job.

We should not accept the excuse that this is simply how markets work or an inevitable side effect of urban growth. Other countries have stumbled in similar ways, and we have the benefit of learning from them.

Let’s learn from China’s mistakes and avoid runaway speculative construction; let’s borrow Brazil’s zeal where citizens insisted housing is a right and forced unused property into use; let’s note the U.S. and Indonesia experiences that show even wealthy or fast-growing nations must consciously correct housing imbalances.

For India, the path forward must blend better policy and active citizen pressure.

Governments will need to bite the bullet by taxing vacancy, liberalising rental markets, and investing in affordable housing stock.

And as citizens, we need to demand these changes – to insist that the promise of “Housing for All” is not met only on paper while ghosts dwell in our skyscrapers.

The sight of thousands of vacant homes amid a sea of homelessness is more than an economic inefficiency – it is a moral affront. It tells us that our system has valued the wrong things.

But this is a solvable problem.

The houses are already built; the money has already been spent. Now we must summon the political will to connect the supply to the demand.

Every empty house brought into use can shelter a family and chip away at the injustice. It’s time to turn the key and open those locked doors.

Until we do, the gleaming towers and the sprawling slums will continue to stare each other down, a sobering symbol of a society that must do better – and can.

Much thanks to the support from good folks at Zero1 by Zerodha, making the research for this newsletter possible.

Best,
Jayant Mundhra

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References:

1. India’s housing paradox policy brief_F.indd

2. Fewer People Live in Slums But Progress Is Slow - Statista

3. 11.09 mn homes are lying vacant in India: Report

4. PM Awas Yojana: Almost half of 9.7 lakh houses built under Pradhan Mantri Awas Yojana-Urban remain unoccupied; know why - The Economic Times

5. 2 years and many reminders later, just 4 states adopt tenancy law | India News - The Indian Express

6. 4.5 years after launch, just 7% of vacant houses allotted to migrant workers under affordable rental scheme | India News - The Times of India) ( 4.5 years after launch, just 7% of vacant houses allotted to migrant workers under affordable rental scheme | India News - The Times of India

7. A fifth of China's housing is empty. That's five crore homes - The Economic Times

8. Homelessness & Empty Homes: Trends Since 2010 | Self.

9. Unoccupied Subsidized Houses in Indonesia Reach 60-80 Percent

10. Homelessness in Brazil Went Up 16%. Read Our Presidential ...

11. What the latest census says about housing in Brazil - BRIC Group