Urban Rent Crisis in Tier 1 Cities

India’s key metros are experiencing a sharp rise in rental demand. Driven by urban migration and increasing career prospects, India’s Tier-1 cities like Bengaluru, Mumbai, and Delhi are experiencing increasing levels of rent and low vacancy. India’s rental housing market is dominated by state-level rent control regulations and the Model Tenancy Act, 2021, that try to balance the rights of landlords and tenants. The Act promotes formalized rental agreements, provides transparent guidelines on security deposits, and tries to promote investment in rental housing.             

Indian Tier 1 cities such as Mumbai, Delhi, Bengaluru, and Chennai are experiencing a sharp rise in rentals as a result of urban migration, housing unaffordability, and rising homeownership costs. Metro rents increased by 7–10% in 2024, above the projected consumer inflation rate of 4.3–4.4%, based on a Reuters survey. Low new supply in the budget segment, high home loan rates, and the culture of short-term stays have also contributed to a shortage of availability. Students and outstation employees traveling back post-pandemic have also been a contributing factor. Increased property tax and maintenance charges are also making landlords raise rentals every year, which is adding to this trend.                                 

To solve the housing crisis, the Indian government has implemented a number of initiatives. Under the Pradhan Mantri Awas Yojana-Urban (PMAY-U), ₹2.2 lakh crore was allotted in the Union Budget 2024 to build one crore affordable dwellings over a five-year period. Additionally, the Model Tenancy Act, 2021, aspires to promote a balanced renting market by formalizing agreements and preserving the rights of both landlords and renters. This particular Act attracted fresh attention in 2024 by formalizing rental agreements, the Act encouraged openness between renters and landlords. It established precise rules regarding notice periods, security deposits (which for residential properties are limited to two months’ rent), and the use of Rent Authorities to resolve grievances. The Act sought to maintain landlords’ rights while shielding renters against capricious increases in rents in metropolitan areas. The government intends to employ public-private partnerships, providing viability gap financing and involving anchor companies, to facilitate lodgings for industrial workers in order to further boost rental housing. The goal of these initiatives is to guarantee fair access to reasonably priced homes and ease the housing problem in Tier 1 cities.

Despite these efforts, problems still exist. Affordable housing is becoming less available; in 2023, its percentage of sales fell from 37% five years ago to 20%. In order to promote building in this market, developers have demanded that the standards for affordable housing be redefined and that incentives be offered. Although infrastructure and employment prospects in Tier 1 cities remain dominant, the dramatic increase in rental costs is encouraging many individuals and families to think about moving to Tier 2 and Tier 3 cities. These new urban areas provide a more balanced cost of living, greater affordability, and better infrastructure. Professionals are seeking better quality of life in smaller cities as a result of the growth of remote and hybrid work choices, which have freed them from urban areas. Due to this, Tier 2 and Tier 3 cities are progressively becoming the next centers of growth and opportunity, while Tier 1 cities see increasing pressure on their rental rates.