Affordable housing in India is facing one of its most challenging periods in recent years. Construction costs have surged significantly, driven by inflation, labor shortages, supply chain disruptions, and rising demand for infrastructure. Over the last decade, residential construction costs have increased steadily, with the period from 2019 to 2024 alone witnessing a staggering 40% rise. The escalation has been particularly pronounced since 2021, as global macroeconomic factors and evolving government policies further strained the market.
According to Dr. Prashant Thakur, Executive Director & Head – Research & Advisory, ANAROCK Group, the average cost of constructing Grade A residential projects in tier-1 cities jumped from approximately INR 2,200/sq. ft in October 2021 to around INR 2,800/sq. ft by October 2024. City-specific variations remain significant: Mumbai, Delhi NCR, and Bangalore consistently have the highest construction costs due to elevated land prices, labor charges, and demand for skilled workers. By comparison, tier-2 and tier-3 cities offer comparatively lower construction expenses, benefiting from easier access to land and materials.
City-wise Construction Cost Trends (2025, INR/sq. ft)
Mumbai: Affordable 2,500–4,500 | Mid-range 3,500–5,000 | Luxury 5,000+
Delhi NCR: Affordable 2,000–3,500 | Mid-range 3,000–4,500 | Luxury 4,500+
Bangalore: Affordable 1,800–3,200 | Mid-range 2,800–4,000 | Luxury 4,500+
Chennai: Affordable 1,700–2,800 | Mid-range 2,500–3,800 | Luxury 4,200+
Hyderabad: Affordable 1,600–2,700 | Mid-range 2,400–3,500 | Luxury 4,000+
Pune: Affordable 1,800–3,000 | Mid-range 2,400–4,000 | Luxury 4,500+
Kolkata: Affordable 1,500–2,500 | Mid-range 2,200–3,500 | Luxury 4,000+
Affordable housing typically relies on standard materials and basic finishes, keeping costs around INR 1,500–2,000/sq. ft even in major metros. Mid-range homes use better-quality materials and branded fittings, costing INR 2,000–2,800/sq. ft, while luxury projects often with imported finishes, high-end amenities, and premium architecture exceed INR 3,000–5,000/sq. ft in top cities.
Labor costs have been a key driver, increasing 150% since 2019, while raw materials like cement, steel, copper, and aluminum also surged, with five-year price increases ranging from 30% to 91%. Other factors, including logistics, compliance, approvals, and overheads, have added further pressures.
Impact on Housing Market and Buyers
Developers typically pass rising input costs to buyers. Even small increases of INR 500–800/sq. ft in affordable housing can sharply affect accessibility, adding lakhs to the overall home price. Smaller developers face thinner margins and have slowed launches or reduced amenities, whereas larger players and luxury developers can better absorb cost increases. Escalation clauses in homebuyer agreements allow developers to adjust prices according to input cost changes, reinforcing price transmission.
Affordable housing’s share of new launches has plummeted from 40% in 2019 to just 12% in H1 2025, while its sales share dropped from 38% to 18%, highlighting significant market stress. Mid-range projects retain some pricing flexibility, but rising costs and inflation are increasingly affecting demand. Luxury housing remains least affected, as buyers prioritize exclusivity and premium features over cost concerns.
Policy Relief and Future Outlook
Revised GST reforms could partially alleviate cost pressures. The proposed reduction in cement GST from 28% to 18% may lower affordable housing prices by 2–4% and mid-segment housing by 2–3%. Luxury projects are likely to see minimal benefits due to high-end materials still attracting higher taxes. Developers may also explore local sourcing to reduce dependency on imports, though tariff-related cost increases potentially 5% or more could further impact project timelines, especially for luxury and commercial segments.
While construction costs have surged sharply, affordable housing remains under pressure, with declining supply shares and affordability challenges. Policy reforms, local sourcing, and regulatory support will be key to stabilizing costs and maintaining access to homes for India’s price-sensitive buyers.
