Are rising land, construction costs squeezing affordable housing supply in cities?

India’s affordable housing market — once a major driver of urban real estate — is increasingly under pressure. Soaring construction costs, skyrocketing land prices, and shrinking developer margins have sharply reduced the supply of new affordable housing projects in key metros such as Mumbai, Delhi NCR, Pune, and Bengaluru.

According to Darpan Paisal, Director, Jenika Ventures, “Increasing land and building prices have become the biggest spoils to affordable housing stock for large Indian cities.” Construction costs have surged by nearly 40% over the last five years, driven by steep increases in steel, cement, and copper prices, as well as global inflation and material shortages. Labour costs have risen even faster — up 150% since 2019, including a 25% jump in the past year alone.

Meanwhile, land values in metro areas have soared to record highs, pushing many projects beyond economic viability. “Margins are now so thin that mid-tier and smaller developers find affordable housing projects financially unfeasible,” Paisal said. As a result, the share of new affordable housing launches plunged from 40% in 2019 to just 12% in the first half of 2025, with a 38% fall in supply across India’s top eight cities during the first quarter of 2024.

Sujay Kalele, Founder and CEO of TRU Realty, noted that in cities such as Mumbai and Pune, “the cost foundations for affordable housing have shifted dramatically.” He explained, “Pune’s land rates have moved from Rs 5,000–7,000 per sq ft to Rs 10,000–18,000 in key zones. In Mumbai, ticket prices are up over 50% in four years. Steel and cement costs have risen 30–57% and copper nearly 91%.”

These escalating costs have forced developers to pivot toward premium and luxury housing, where margins can absorb input cost pressures. “That’s why affordable housing volumes continue to lag,” Kalele added.

Bridging the gap

Experts believe that public–private partnerships (PPPs) and institutional financing hold the key to bridging India’s widening affordable housing gap. Under PPP models, government agencies provide land and policy support, while private players contribute finance, design, and construction capabilities.

Paisal explained that several states are already offering developers incentives such as Transferable Development Rights (TDR), bonus Floor Space Index (FSI), and tax relief to make projects commercially viable. “PPPs also enable faster clearances and cost-effective delivery,” he said.

Kalele echoed the view, saying, “If PPPs have to genuinely take shape, the government must provide land and infrastructure, the private sector must deliver design and innovation, and institutional capital must ensure scale and long-term funding.” He cited Maharashtra’s new housing policy and cluster redevelopment projects as promising examples of collaboration between the public and private sectors.

Institutional investors — including banks, NBFCs, and housing finance companies — are also playing a key role by providing long-term capital and low-ticket loans to affordable homebuyers. Agencies like NHB and HUDCO refinance these loans, enhancing liquidity across the housing ecosystem.

Future demand

India’s rapid urbanisation and migration continue to reshape housing demand. With over one-third of city residents now migrants and urbanisation expected to exceed 40% by 2030, demand for affordable housing is surging in both metros and Tier-II cities such as Indore, Coimbatore, Lucknow, and Jaipur.

Changing family structures — more nuclear households and a growing working population — are increasing the need for compact, low-cost homes, while aging demographics are creating demand for senior-friendly housing.

According to a joint report by CII and Knight Frank India, India faces a cumulative shortfall of 31.2 million affordable homes by 2030, representing a potential market worth ₹67 trillion.

Government schemes like Pradhan Mantri Awas Yojana (PMAY) and Affordable Housing in Partnership (AHP) continue to support this demand through subsidies, inclusive zoning, and urban infrastructure expansion.

However, experts warn that unless cost pressures and land bottlenecks are addressed through policy reform and collaborative financing, India’s dream of “Housing for All” may remain out of reach for millions of urban citizens.