Over the past half-decade, India’s property construction costs have surged by nearly 40%, eroding affordability and reshaping the housing market. Affordable housing, once the backbone of India’s real estate story, has witnessed its share of supply collapse from 40% in 2019 to just 12% in the first half of 2025. Rising raw material prices, escalating labor expenses, policy shifts, and potential tariff shocks now threaten to further widen the affordability gap. While luxury housing is proving more resilient to inflationary pressures, developers catering to mid-range and affordable buyers are facing one of their most challenging operating environments in decades.

Construction Costs Climb Relentlessly

Over the last decade, the cost of building homes in India has followed an unrelenting upward trajectory, particularly since 2021, driven by inflation, supply chain turbulence, and surging demand for infrastructure amid global macroeconomic headwinds.

Between 2019 and 2024, average construction costs for residential projects expanded by nearly 40%, representing one of the steepest cost escalations in recent memory. To put this in perspective: in October 2021, a Grade A residential project in a tier-1 city cost roughly INR 2,200 per square foot to construct. By October 2024, that figure had surged to INR 2,800 per square foot, representing a 27.3% rise in just three years.

Such sharp increases have rippled across the real estate ecosystem, directly impacting housing affordability and squeezing developer margins, especially in the cost-sensitive affordable housing segment.

The Anatomy of Rising Costs

The surge in costs stems from a potent mix of factors: volatile commodity markets, wage inflation, and escalating compliance expenditures.

Raw Materials:

Cement: Prices dropped 15% in the last year, but that hardly offsets the 30% increase over five years.

Steel: Prices ticked down by only 1% annually, but are still 57% higher compared to 2019.

Copper: The standout gainer—up 19% in one year and a staggering 91% over five years.

Aluminium: Another key input with substantial long-term increases.

Labor: The single largest driver of cost escalation, labor expenses rose 25% in 2024 alone and an eye-watering 150% since 2019. Rising urbanization and increased demand for skilled construction workers in metros have exacerbated wage pressures.

Other Expenses: Growing costs around approvals, compliance, logistics, and energy due to persistent fuel price increases have compounded the challenge for developers.

Regional Cost Variations: Metro Cities Lead

Construction costs are far from uniform across India. Major metros—Mumbai, Delhi NCR, and Bangalore—remain the most expensive due to higher land values, premium material choices, and costlier skilled labor requirements. By contrast, tier-2 and tier-3 locations still enjoy relatively lower cost bases, benefiting from cheaper land and easier access to raw materials.

Estimated Construction Costs in 2025 (INR/sq. ft)

Impacts on Buyers and Developers

For the end consumer, cost escalations have translated into annual housing price growth of 9–12% across many markets. Developers attempting to balance margins with demand stability have often passed on 5–6% of increased input costs directly onto buyers.

Affordable Housing: Even a price increase of INR 500–800 per sq. ft can add INR 5 lakh or more to total purchase costs, disproportionately burdening lower-income households.

Mid-Range Projects: Developers have some leeway to pass on cost hikes, though affordability thresholds remain fragile.

Luxury Projects: The least impacted, as high-net-worth buyers prioritize exclusivity and brand reputation over cost considerations.

On the supply side, smaller developers operating in the affordable space face compressed margins and thinning viability, leading many to delay launches or downgrade amenities. Conversely, established players in the mid-to-luxury segments continue to withstand rising costs due to stronger margins and diversified financing.

Affordable Housing: A Declining Share

Perhaps the starkest illustration of the crisis is the fall in the proportion of new affordable housing supply. According to ANAROCK Research, its share plummeted from 40% in 2019 to just 12% in the first half of 2025. Sales data echoes the same trend, with affordable housing’s contribution to total sales sliding from 38% in 2019 to 18% in 2025.

This erosion underscores how inflation and cost shocks have priced millions of aspiring homeowners out of the market, despite government programs promoting mass housing.

Tariffs: Another Threat on the Horizon

On top of inflationary pressures, the prospect of new tariffs on imported materials—spanning steel, aluminium, cement, and other construction finishings—poses yet another hurdle.

A 25% tariff would inflate construction costs by approximately 1.5–2.5%, disproportionately affecting luxury and commercial projects reliant on imported inputs.

A 50% tariff raises the specter of cost escalation exceeding 5%, with the added risk of global retaliatory measures amplifying supply chain volatility.

This could slow down import-heavy project pipelines, reinforce the demand slump in price-sensitive housing, and force developers to fast-track local sourcing strategies. However, localization transitions require time and new industrial support, leaving near-term risks elevated.

GST Reforms: A Ray of Relief

While costs climb, tax reforms offer a potential cushion. The government’s proposed revision to the GST framework, reducing rates to 5% and 18% and lowering cement GST from 28% to 18%, could shave meaningful costs.

Affordable Housing: Prices may ease by 2–4%, contingent on the restoration of input tax credits.

Mid-Range Housing: Cost relief of 2–3% could be passed to buyers.

Luxury Housing: Gains are limited since luxury finishes may remain under a 40% GST slab, mitigating the relief.

Although modest in percentage terms, such reductions could substantially improve affordability for sensitive buyer segments and restore some momentum to the housing space.

Strategic Takeaways for Investors and Policymakers

The trajectory of India’s housing market underlines both systemic opportunity and acute risks:

Investors must remain cognizant of diverging segment dynamics — luxury housing remains robust, while affordable housing faces existential pressure.

Policymakers need to support cost stabilization through incentives for local sourcing and streamlined regulatory approvals, ensuring the nation’s affordable housing mission does not collapse.

Developers may accelerate innovation in material use, modular construction, and digital project management to counter runaway input costs.

Fundamentally, unless rising costs are tempered by supply-side reforms and demand-side policy support, India’s promise of “Housing for All” risks slipping further out of reach.

Sources: ANAROCK Research, Industry Data, Government Announcements