India's Affordable Housing Crisis Intensifies as Construction Costs Surge
India's housing market is grappling with a significant crisis as construction costs have skyrocketed by 40% over the past five years, leading to a sharp decline in the affordable housing segment. According to ANAROCK Research, the share of affordable housing in new launches has plummeted from 40% in 2019 to just 12% in the first half of 2025.
Affordable HousingConstruction CostsHousing MarketAnarock ResearchIndiaReal Estate NewsAug 19, 2025
The squeeze comes amid a 40% jump in construction costs over the last five years, with the most punishing escalation seen after 2021. “The rise has been especially brutal since 2021, due to inflation, supply chain disruptions, higher demand for infrastructure, global macro shocks, and evolving government policy,” said Dr Prashant Thakur, Executive Director & Head – Research & Advisory, ANAROCK Group.
Cost Drivers: Materials, Labour & Approvals
- Raw materials: Cement prices have corrected by 15% in the last year but are still up 30–57% over five years. Steel rose just 1% in 2024 but has climbed nearly 50% since 2019. Copper and aluminium have spiked even more, with copper up 91% in five years.
- Labour: The steepest climb has come here – 25% in just one year, and 150% since 2019.
- Other costs: Higher logistics (fuel), compliance, and approval charges have further burdened budgets.
City-wise Cost Variations (2025 estimates, INR/sq. ft)
In Mumbai, affordable housing costs ₹2,500–4,500 per sq. ft, mid-segment ₹3,500–5,000, and luxury ₹5,000+. Delhi NCR ranges from ₹2,000–3,500 for affordable, ₹3,000–4,500 for mid, and ₹4,500+ for luxury. In Bangalore, affordable homes are ₹1,800–3,200, mid ₹2,800–4,000, and luxury above ₹4,500. Tier-2 cities like Kolkata start at ₹1,500, while luxury still tops ₹4,000.
Even small cost hikes hit demand hard. A rise of ₹500–800 per sq. ft adds ₹5–6 lakh, often derailing homeownership plans for price-sensitive buyers.
Developer Strategies & Buyer Impact
- Passing on costs: Most developers transfer 5–6% of rising costs to buyers through escalation clauses in builder-buyer agreements.
- Margin squeeze: Small affordable-housing developers face thin margins and are slowing launches or cutting amenities. Large and luxury-focused developers can absorb hikes due to stronger brands and higher margins.
- Price impact: Residential prices have risen 9–12% annually in metros, driven by both construction and land costs.
Affordable vs Mid vs Luxury
- Affordable housing: The hardest hit, with stalled sales and vanishing supply share.
- Mid-range: Buyers are stretched but can still absorb some hikes.
- Luxury: Least impacted, as buyers seek exclusivity and can bear higher costs.
Tariff Threat Adds to Woes
If tariffs of 25–50% on imports like steel, aluminium and finishes are imposed, construction costs could jump another 1.5–5%:
- 25% tariff: 1.5–2.5% rise in costs.
- 50% tariff: 5%+ rise, especially in luxury and commercial projects.
- Impacts: Developers may delay projects, affordable buyers could be priced out further, and supply chains may be disrupted.
GST Reform — A Silver Lining?
The government’s proposed GST reforms — shifting to a two-rate structure (5% and 18%) and reducing GST on cement from 28% to 18% — could provide some relief.
- Affordable housing: Prices could dip 2–4% if input tax credits (ITC) are restored.
- Mid-segment: A cut from 5% to 3% could trim prices by 2–3%.
- Luxury: Limited benefit, since imported high-end finishes may fall under the proposed 40% sin rate.
The housing affordability crisis is intensifying. With affordable supply dwindling and construction costs showing no signs of stabilising, policymakers face growing pressure to intervene. Incentives for developers, local sourcing strategies, and faster regulatory approvals could be critical to reviving the affordable housing dream.
“Affordable housing is facing its toughest challenge in a decade. Without policy support – whether through GST rationalisation, tariff relief, or labour reforms – the segment risks further marginalisation,” Dr Thakur cautioned.
Frequently Asked Questions
What is the main reason for the decline in affordable housing supply in India?
The main reason for the decline in affordable housing supply in India is the significant increase in construction costs, which have risen by 40% over the past five years. This has led to a decrease in the share of affordable housing in new launches from 40% in 2019 to just 12% in H1 2025.
How have raw material prices affected construction costs?
Raw material prices have significantly impacted construction costs. For instance, cement prices are up 30-57% over five years, steel has climbed nearly 50% since 2019, and copper has spiked by 91% in the same period.
What strategies are developers using to cope with rising construction costs?
Developers are using several strategies to cope with rising construction costs, including passing on 5-6% of the costs to buyers through escalation clauses, slowing down launches, and cutting amenities. Large and luxury-focused developers can absorb these hikes better due to their stronger brands and higher margins.
How might proposed GST reforms impact the housing market?
Proposed GST reforms, such as shifting to a two-rate structure (5% and 18%) and reducing GST on cement from 28% to 18%, could provide some relief. Affordable housing prices could dip 2-4% if input tax credits (ITC) are restored, and mid-segment prices could be trimmed by 2-3% with a cut from 5% to 3%.
What are the potential impacts of imposing tariffs on imports like steel and aluminium?
Imposing tariffs of 25-50% on imports like steel and aluminium could lead to a 1.5-5% rise in construction costs. This could cause developers to delay projects, further price out affordable buyers, and disrupt supply chains.
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