Surging Cost of Labour, Copper and Construction Work Makes Affordable Housing a Distant Dream

The narrative being pushed is simple: construction costs are up 40 per cent in five years, and so housing is less affordable. But that neat figure hides an uglier truth. It’s not cement, not even steel, that’s bleeding homebuyers dry. It’s the labour cost. The cost of keeping workers on site has exploded by 25 per cent in just the last year, and 150 per cent since 2019. For a sector already teetering, this single factor is warping the economics of affordable housing, as per a report by Aanarock.

Look closer at the numbers. Cement actually eased a bit, dropping 15 per cent over the past year. Steel slipped barely 1 per cent. Copper and aluminium? Drastic spikes, copper up 91 per cent over five years, aluminium not far behind. But nothing matches labour. When the daily wage bill triples, developers don’t absorb it; they pass it to the buyers, square foot by square foot, the report added.

That’s why what once cost Rs 2,200/sq ft in 2021 now costs closer to Rs 2,800 in 2024. And in Mumbai, affordable housing is no longer affordable at all. The so-called “budget” segment starts at Rs 2,500 per sq ft, closer to mid-range pricing in other cities. Delhi NCR isn’t much kinder, with the cheapest segment starting around Rs 2,000–Rs 3,500. Meanwhile, Kolkata still offers entry points at Rs 1,500/sq ft, but even there, the climb is relentless.

Homebuyers don’t need charts to feel this in their bones. An extra Rs 500–Rs 800 per sq ft doesn’t sound catastrophic on paper, but for a two-bedroom unit, it balloons into Rs 5–8 lakh more. That’s the difference between scraping together a loan approval and walking away from a booking. No wonder affordable housing launches collapsed from 40 per cent share in 2019 to just 12 per cent in early 2025, the report added.

Impact on Property Prices, Developer Strategies

On buyers: Developers rarely absorb costs. At least 5–6 per cent of total input hikes are passed directly into housing prices. For affordable buyers, that translates into lakhs added to the final ticket price, which can knock entire families out of eligibility. Premium buyers, by contrast, hardly flinch.

On developers’ margins: Smaller builders in the affordable space are getting squeezed hardest. With razor-thin margins, they’ve slowed down launches or trimmed amenities to stay alive. Major brands, especially those in the mid- and luxury segments, are able to absorb costs more easily owing to the bigger margins and stronger brand pull.

On contracts: Most builder-buyer agreements include escalation clauses, which allow developers to hike prices mid-way on under-construction projects legally. That flexibility ensures the burden shifts quickly to buyers, with no real shield in place.

On housing prices overall: The net effect is annual price growth of 9–12 per cent in recent years, driven not only by construction costs but also by rising land prices and shrinking inventory. Pricing power is sharpest in metros, less so in smaller cities.

The policy tweaks on offer GST on cement cut from 28 per cent to 18 per cent may shave off 2–4 per cent in costs. Helpful, yes, but nowhere near enough to counter a 150 per cent labour cost jump. The math simply doesn’t balance. For every lakh a family saves on GST relief, labour-driven escalation adds two or three more.

This isn’t just a price story, it’s a survival story. Smaller developers who once dominated the affordable segment can’t absorb the hit. They either cut corners or retreat altogether, leaving only the big brands in play brands that prefer selling premium apartments with fat margins. That shift has already gutted affordable housing stock, pushing thousands of potential homeowners into permanent renters.

Tariffs Impact

And here’s the kicker. If tariffs on imported inputs climb to 50 per cent, as some scenarios predict, construction costs could spike another 5 per cent or more. For luxury buyers, it’s an irritant. For affordable buyers, it’s the end of the line. The dream home simply disappears into thin air.

Tariffs on imported construction inputs could deepen the crisis.

• At 25 per cent tariffs, construction costs rise another 1.5–2.5 per cent.

• At 50 per cent tariffs, costs rise 5 per cent or more.

Luxury buyers can shrug. Affordable buyers cannot. For them, even a 2 per cent increase could cancel eligibility for a home loan. Developers, meanwhile, may stall projects reliant on imported finishes, delaying delivery further.