Tariff Shock Waves: Can India's Affordable Homes Persist?

India’s affordable housing dream has been one of the most ambitious social programs in recent decades. With schemes such as Pradhan Mantri Awas Yojana (PMAY) and state-led initiatives, millions of low- and middle-income families have aspired to own safe and affordable homes. However, new economic realities are casting shadows over this vision. Rising tariffs on critical construction inputs, fluctuating global trade rules, and inflationary pressures are creating tariff shock waves that could destabilize the affordability of housing projects.

For Gujarat, one of India’s fastest-growing states, the question is fundamental. Known for its industrial strength, active housing boards, and large-scale real estate projects in cities like Ahmedabad, Surat, and Vadodara, Gujarat has both unique vulnerabilities and resilience factors. This article examines the impact of tariff-driven cost shocks on affordable housing, the mechanisms in place to mitigate the effects, and whether India’s affordable homes can withstand this challenging environment.

Understanding Tariff Shock Waves

A tariff shock wave occurs when tariffs (import duties, export restrictions, or trade quotas) on raw materials ripple through the economy, raising costs across sectors. In real estate:

• Steel, cement, and polymers are directly affected when tariffs or import restrictions are imposed.

• Energy tariffs raise electricity and production costs for material manufacturers.

• Transportation tariffs indirectly push up logistics costs for moving materials.

For affordable housing — where project budgets are extremely tight and per-unit subsidies are fixed — even a small increase in input costs can render projects unviable or delay them.

Basics — How Tariffs Impact Housing Costs

The connection between tariffs and housing affordability operates through three key mechanisms:

1. Input Linkages: Steel and cement together account for over 50% of construction costs. If tariffs or quotas raise steel prices, builders either pass the costs on to buyers or reduce the number of units they construct.

2. Energy & Operations: Power tariffs directly influence the manufacturing costs of steel, bricks, and tiles. States like Gujarat, with regulated electricity tariffs, play an outsized role in stabilizing costs.

3. Financing & Inflation: Rising construction costs mean developers need more working capital. Small and medium-sized developers in Gujarat often face higher borrowing rates, which reduces the viability of affordable projects.

Recent Developments Intensifying the Challenge

• Import Controls on Steel Inputs: In 2025, India tightened import quotas on metallurgical coke, creating supply shortages for steelmakers. Developers have already reported higher steel prices affecting housing margins.

• Rising Construction Costs: Industry reports suggest residential construction costs rose between 2 and 10% YoY in 2024–25, depending on the region. Affordable housing, being price-sensitive, is the most affected.

• Global Tariff Pressures: International tariff escalations, including trade restrictions against Indian exports, indirectly increase domestic industrial costs and inflationary pressures.

Why is Affordable Housing More Sensitive?

Affordable housing projects operate under thin margins and rely on fixed government subsidies. For example:

• PMAY-U 2.0 provides fixed assistance per unit. If input costs rise by 15%, the subsidy’s real value erodes, forcing developers to cut corners or reduce the number of houses built.

• Standardised Designs: Bulk material procurement means even small shocks to cement or steel prices translate into large-scale project delays.

• Financing Gaps: Larger developers can hedge risks, but smaller regional players in Gujarat — who are critical for delivering low-income homes — face tightened credit.

Gujarat: A Case Study in Vulnerability and Resilience

Vulnerabilities:

• Gujarat’s industrial linkages mean that tariffs on imports like coke or machinery directly hit steel plants in Hazira and Bhavnagar, pushing up local prices.

• Rapid urbanisation in Ahmedabad, Surat, and Rajkot means housing demand is high — any escalation in cost translates quickly to buyers.

Resilience Factors:

• Gujarat Housing Board (GHB): Actively delivers affordable homes with state-level flexibility to reallocate resources and fast-track approvals.

• Electricity Regulation: The Gujarat Electricity Regulatory Commission (GERC) has mechanisms for differential tariffs. This allows concessions to developers or bulk construction projects when required.

• Industrial Base: Local manufacturing of cement, ceramics, and pipes in Gujarat reduces dependence on imports compared to other states.

Can Affordable Homes Persist in India?

The answer is cautiously yes. Affordable homes can persist if governments and developers respond strategically. Without reforms, cost shocks will reduce supply and slow progress. With proactive measures such as subsidy indexation, modular construction, and smarter procurement, the affordable housing mission can stay alive.

Policy and Market Responses

1. Indexing Subsidies to Inflation

Instead of fixed per-unit assistance, subsidies under PMAY and state programs should be linked to construction cost indices, ensuring grants maintain real value.

2. Bulk Procurement Models

Central and state agencies could create a national procurement pool for cement, steel, and fittings, ensuring economies of scale for affordable housing developers.

3. Modular and Prefabricated Construction

Encouraging the adoption of prefabricated housing models could cut construction timelines, reduce labour costs, and limit dependence on a single commodity.

4. Trade Policy Calibration

Rather than sudden restrictions, tariff changes should be time-bound and predictable, with transparent quota announcements to help developers plan.

5. Targeted Power Tariffs

States like Gujarat can experiment with concessional electricity tariffs for affordable housing construction phases, reducing input and operating costs.

Recommendations for Gujarat

• GHB: Strengthen procurement systems and explore pre-negotiated contracts for steel and cement.

• GERC: Offer concessional bulk power tariffs to developers constructing affordable housing.

• State Government: Create a cost index tracker to adjust state subsidies in line with material inflation.

• Developers: Shift towards modular construction and invest in partnerships with local suppliers.

• Central Government: Allow flexibility in PMAY subsidies and consider temporary relief measures when construction inflation exceeds a threshold.

End Note

Affordable housing is the backbone of India’s urbanisation strategy and social equity vision. Yet, tariff shocks and rising costs threaten to erode years of progress. For states like Gujarat, the challenge is sharper, but so are the opportunities to innovate. By adopting index-linked subsidies, modular construction, strategic procurement, and targeted regulatory support, India can keep affordable homes within reach for millions of families. The question is not whether India can build affordable homes, but whether it can adapt its policies fast enough to ensure affordability persists in the face of global and domestic economic turbulence.

In case of any query regarding Tariff Shock Waves: Can India's Affordable Homes Persist? Feel free to connect with our legal experts, Tulja Legal, at +91 96380-69905

About the Author

Anju S Nair

Legal Researcher | LLB, MA English| Corporate Lawyer | Business Enthusiast | Founder & CEO at iLawbook.

FAQs

1. What are tariff shock waves?
They are price shocks caused when tariffs or quotas on imports/exports raise costs across sectors, including construction.

2. Are tariffs the main reason affordable homes are becoming costlier?
Not the only reason, but tariffs amplify inflation by suddenly raising input costs.

3. How much have construction costs increased recently?
Between 2% and 10% YoY in 2024–25, depending on the city and segment.

4. What is PMAY-U 2.0?
It is the central government’s flagship urban housing mission, providing fixed financial assistance to make homes more affordable.

5. Why is Gujarat important in this discussion?
Gujarat has both industrial exposure (making it vulnerable) and active state programs (making it resilient).

6. Can modular construction reduce the problem?
Yes, it cuts dependence on volatile inputs and speeds up construction.

7. Will the central government change trade policy for housing?
Unlikely, but calibrated import quotas and predictable policies can help.

8. How can developers protect themselves?
Through long-term contracts, local sourcing, modular methods, and diversified suppliers.

9. Do higher electricity tariffs impact affordable housing?
Yes — they raise material production costs and lifecycle costs associated with home ownership.

10. Bottom line — will affordable homes persist?
Yes, but only with policy reforms and smarter construction models.

References

• Reuters. Indian steelmakers seek a nearly sevenfold rise in met coke import quota amid supply crunch. (Aug 27, 2025).

• Ministry of Housing and Urban Affairs. PMAY-U 2.0 Guidelines & MIS Data.

• CBRE. India Construction Cost Trends 2024–25.

• Colliers. Construction Cost Update 2024.

• Gujarat Housing Board (GHB) official updates on MIG/LIG projects.

• Gujarat Electricity Regulatory Commission (GERC) tariff filings, 2024–25.

• Al Jazeera, Times of India. Coverage of global tariff escalations and India’s trade responses (2025).