The escalating West Asia conflict is poised to significantly reduce the fresh supply of affordable housing in India, as soaring input costs for construction materials like steel and cement further squeeze already tight developer margins, making new projects increasingly unviable.
Key Points
- The West Asia conflict is increasing input costs for construction materials like steel, copper, and PVC, making affordable housing projects less viable due to already thin margins.
- Construction expenses have risen by 15-30 per cent, limiting developers' ability to pass on costs to price-sensitive buyers and discouraging new project launches.
- New affordable housing launches in Tier-I markets have dropped significantly, with a nearly 17 per cent decline from 2022 to 2025, primarily due to high land costs and regulatory burdens.
- The price cap of ₹45 lakh for affordable housing, unchanged since 2017, is a major disadvantage for developers, who are increasingly shifting to mid- and premium segments with higher margins.
- While a complete phase-out is unlikely, the segment's survival hinges on policy support, such as recalibrating the Credit Linked Subsidy Scheme or introducing construction cost relief mechanisms.
The West Asia conflict may reduce fresh supply in affordable housing in India to a trickle, as higher input costs further erode the segment's already thin margins.
According to market watchers, fluctuations in crude oil and gas prices, along with higher freight costs, are raising prices of cement, steel, and other construction materials, leading to a spike in construction costs.
"Construction expenses are up 15-30 per cent, squeezing thin margins and limiting pass-through to price-sensitive buyers," said Jash Panchamia, promoter, Suraksha Smart City, indicating that investment in new affordable housing projects is becoming challenging, as even small cost increases affect project viability.
Impact of Global Disruptions on Housing
"The affordable housing segment is particularly vulnerable to global disruptions because of its already compressed margins.
"The ongoing West Asia conflict has pushed up prices of key construction materials such as steel, copper and PVC products, directly impacting project viability and putting further pressure on the already shrinking supply pipeline," said Dr. Niranjan Hiranandani, chairman, Naredco.
Ashwinder R Singh, chairman of the Confederation of Indian Industry Real Estate Committee and cofounder of Bengaluru-based BCD Royale, echoed this sentiment.
While affordable housing has lower direct exposure to imported materials than luxury construction, the cumulative impact of freight inflation on electrical fittings, adhesives, polymers, and finishing materials is quietly eroding the thin margins that make affordable projects feasible.
This, he added, could hit the affordable housing pipeline, resulting in fewer upcoming projects.
"As a result, developers are becoming more cautious about launching projects.
"The pipeline in this segment is already under pressure, and if cost volatility continues, fresh supply — especially in urban markets — could slow further," said Praveen Jain, president of developers' body National Real Estate Development Council.
Shrinking Supply and Developer Shift
This comes at a time when the pipeline has been contracting over the past few years due to rising land costs and developers increasingly shifting towards premium and luxury housing.
According to real estate consultancy Anarock, new affordable launches in Tier-I markets dropped nearly 17 per cent, from 72,400 units in 2022 to 60,150 units in 2025.
The first quarter of 2026 (January to March) saw only 12,850 new affordable units launched.
Experts say a key reason is high land costs, regulatory burdens, and limited availability of well-located land parcels in Tier-I hubs.
"Standalone affordable projects have declined significantly, with most supply now coming through inclusionary zoning policies or mandated allocations such as economically weaker sections and low-income group units within larger residential developments," said Sharad Sharma, sales director at Square Yards.
These reserved units often form the bulk of new affordable stock in prime urban centres, indicating the segment is no longer commercially viable at scale without policy support or cross-subsidisation.
Santhosh Kumar, group vice-chairman at Anarock, added that such projects, once viable on city peripheries, have gradually retreated even from those locations as urban expansion pushes land values upward and infrastructure development follows, compressing affordability.
Affordable Segment Runs into Supply Wall
The price cap of Rs 45 lakh defining affordable housing has remained unchanged since 2017 despite rising construction costs and inflation.
Developers have long pushed for an upward revision to Rs 90 lakh.
"This leaves developers and the segment at a disadvantage. For example, Tier-I peripheries such as Mumbai's outskirts now command prices of Rs 80-85 lakh for entry-level units," a Mumbai-based developer told Business Standard.
"We have seen developers shift to mid- and premium segments offering 25-30 per cent margins. This reallocation of developer attention is already well underway in Tier-I markets and is now beginning to show up in select Tier-II cities as well," the developer added.
Future of Affordable Housing in India
While fresh supply may become a a challenge, experts such as Anarock's Kumar do not expect the segment to be phased out anytime soon, given its importance to India's housing ecosystem.
"A complete phase-out is unlikely, but a continued and accelerating contraction of the segment in its current form is a reasonable expectation," Kumar said.
"The affordable housing segment is unlikely to disappear because India's housing demand remains deeply linked to affordability-driven homeownership.
"However, rising input costs, financing costs and urban land values are making sub-Rs 45 lakh housing increasingly difficult in major metropolitan markets, pushing supply towards peripheral and satellite locations," said Hiranandani.
Experts add that the segment's survival hinges on the policy environment, and schemes such as Pradhan Mantri Awas Yojana have historically provided subsidy support that kept developer participation viable.
"A recalibration of Credit Linked Subsidy Scheme parameters, or the introduction of construction cost relief mechanisms, could sustain a meaningful pipeline," another developer said.
BCD's Singh said any upward revision without corresponding income support or subsidy architecture could simply push the same families further out of the formal market.
"Homebuyers' income levels and financing access have not grown at a pace that would support a significantly higher price ceiling," he added.
