The Missing Market: Why Urban India Barely Rents

India's 2011 Census recorded over one crore vacant urban housing units, a figure that has almost certainly grown since given continued construction rates, sitting uneasily alongside the well-documented housing distress of migrant workers, young professionals and low-income urban families who struggle to find affordable, secure rental accommodation in the same cities. This is not primarily a supply problem in the conventional sense; India has built a great deal of housing over the past two decades, much of it sitting unoccupied as investment assets rather than being placed on the rental market at all. The gap between vacant stock and unmet rental demand is a market failure with an identifiable legal origin, and understanding it requires going back to a set of laws most Indians rarely think about until they try to rent out or rent a home.

How rent control broke the market it meant to protect

Rent control laws, enacted by most Indian states starting in the years immediately after independence and modelled loosely on wartime rent freeze measures the colonial government had introduced, were intended to protect tenants from exploitative rent increases and arbitrary eviction during a period of acute housing scarcity and rapid urban migration. Their long-run effect, extensively documented by urban economists studying cities like Mumbai where old rent control tenancies have persisted for generations at rents frozen far below market rates, was to make renting out property so legally and financially unattractive to owners that a large share of India's housing stock was effectively withdrawn from the rental market altogether. An owner under a strict rent control regime who lets a tenant move in risks decades of below-market rent with extraordinarily limited legal ability to reclaim the property, evict a non-paying tenant in reasonable time, or renegotiate terms, since rent control tenancies in several states have historically been treated as inheritable by the tenant's family across generations. Faced with this risk, rational owners across India have overwhelmingly chosen to either leave units vacant, sell rather than rent, or operate entirely outside formal rental agreements through informal, often undocumented arrangements that leave both parties with far less legal protection than a properly regulated formal tenancy would provide.

The informal market that filled the vacuum

What has emerged instead, particularly for migrant workers and lower-income tenants in cities, is a large informal rental sector operating through verbal agreements, minimal documentation, and rents negotiated with little transparency or legal recourse for either party. This informal market disproportionately harms tenants rather than protecting them, the opposite of what rent control was designed to achieve, since informal tenants typically have no written lease establishing their rights, face arbitrary rent increases and eviction with little notice, and have essentially no legal standing to contest either. Slum and informal settlement housing, along with subdivided urban housing let room by room to migrant workers in poor condition, substantially reflects this dynamic, a housing market shaped less by genuine scarcity of urban land or construction capacity than by decades of legal structure pushing formal rental transactions into informality.

The Model Tenancy Act's attempted fix

The central government's Model Tenancy Act, approved by the Union Cabinet in 2021 as a template for states to adopt or adapt since housing and tenancy remain a state subject, attempted to address exactly this imbalance. Its key provisions include mandatory written rental agreements registered with a district-level Rent Authority, capped security deposits, typically two months' rent for residential property, clear timelines for dispute resolution through dedicated rent courts and tribunals rather than the ordinary and notoriously slow civil court system, and crucially, a presumption favouring landlords' ability to reclaim property at the end of an agreed tenancy term, reversing the indefinite-occupancy risk that has deterred owners under old rent control regimes for decades. The Act is explicitly designed to increase formal rental supply by making it commercially sensible again for owners to let vacant property, on the theory that increased formal supply would moderate rents over time through greater competition and reduce the informal sector's dominance.

Why adoption has been slow

Because the Model Tenancy Act is a template rather than binding central legislation, actual implementation depends entirely on individual states repealing or amending their existing rent control laws and adopting equivalent legislation, a process that has moved slowly since the 2021 Cabinet approval, with only a handful of states and union territories having formally notified new tenancy legislation broadly following the model by the mid-2020s, while many of the largest and most housing-stressed states, including Maharashtra and parts of the National Capital Region, continued operating chiefly under older rent control frameworks or amended versions that retain significant tenant-favouring provisions. The political economy of reform here is genuinely difficult: existing rent-controlled tenants, however few relative to the overall housing market, are a concentrated and vocal constituency who benefit enormously from below-market rents locked in sometimes for generations, while the beneficiaries of reform, future tenants who would gain access to a larger formal rental market with more transparent terms, are diffuse, largely unorganised, and in many cases not yet even resident in the city where the reform would help them, giving them essentially no political voice in the states' legislative calculus.

What reform would not fix, and what it might

It is worth being honest about the limits of tenancy law reform alone. Model Tenancy Act adoption would not by itself solve urban housing affordability broadly, since land scarcity, restrictive floor space index and building height regulations in many Indian cities, and slow, discretionary building approval processes also constrain housing supply and raise costs independent of rental market structure. Nor would it immediately formalise the vast existing informal rental sector, since landlords accustomed to informal, undocumented arrangements, often to avoid property tax and income disclosure rather than purely because of rent control risk, may be slow to shift toward registered formal tenancies even where a friendlier legal framework exists. But rebalancing tenancy law remains a necessary, not sufficient, condition for a functioning rental market, since no amount of housing supply expansion will translate into accessible rental stock if the legal structure governing rental transactions continues to make owners reluctant to rent at all. Cities that have modernised tenancy law alongside supply-side housing reform, a combination India has yet to attempt seriously at scale in any major metropolitan market, offer the clearest evidence of what a genuinely functioning urban rental market could look like, one where the crore of vacant units currently sitting outside the market might finally start to meet the demand that has been waiting, informally and insecurely, right beside them.