High construction cost proves to be an impediment for affordable housing in India

 The Global economy has been severely hit by the Covid-19 pandemic, registering a negative growth rate of 3.5 per cent in 2020 (estimates by IF, World Economic Outlook, January 2021). Considering the size of the Indian economy, the overall damage in terms of lost human lives was relatively less due to a timely but long nationwide lockdown implemented by the Indian government. Though the lockdown prevented a huge tragedy in the form of increased count of deaths, it had adverse implications for almost all sectors of the economy.

One of the sectors that saw a huge dip during the pandemic period was housing. According to reserve bank of India’s (RBI) data, All India housing price increased by 3.92 per cent y-o-y during Q1 2020, slightly up from 3.6 per cent the previous year. This price rise in the Q1 2020 is reflected in the dip in supply of residential stock. As per PropTiger only 12,564 housing units were launched in Q2 of 2020, an 8.07 per cent fall for the same period of the preceding year. For the first half of 2020, total launches were down almost 65 per cent compared to the same period last year. Dampened sentiment and spirit of excess caution impacted home sales in major Indian cities, compounding an already stressed sector’s woes. This has further worsened the situation with respect to affordable housing where the supply has been unable meet its demand due to high cost of projects.

Source: Livemint

A housing project has three broad requirements in terms of inputs –land, labour and construction material. Though land accounts for the maximum cost of a housing project, construction material- like cement, bricks, steel, tiles, sand- accounts for a considerable share of cost.

A rough estimate for a 1,000 square feet plot gives a fair idea for the construction cost associated with a housing project. Construction activity involves a number of materials in varied quantity that together constitute the construction material cost. The information of the material required and its associated cost sourced from a Kerala based construction company is exhibited in table 1 (table gives the quantity and cost of major construction material, while clubbing the rest in “others” category). Based on the construction material requirements and their respective prices, the total construction material cost has been estimated to around ₹20 lakh for a 1,000 square feet plot.

Table 1: Quantity and cost of construction material for 1000 square feet plot

Construction material	Quantity required	Units	Price per unit (₹)	Total cost (₹)
Cement	450	bags	300	135,000
Sand	2000	cubic feet	55	110,000
Aggregate	1500	cubic feet	22	33,000
Steel	2.5	tons	45,000	112,500
Bricks	20000	number	6	120,000
paint	180	litre	145	26,100
tiles	900	square feet	55	49,500
Granite	20	square feet	150	3,000
Kota stone	250	square feet	40	10,000
Other				3,24,600
Total cost of building				1085100
Total cost (₹)				2,008,800

The estimate for construction material cost for a 1000 square feet gives us a rough idea of the large cost that a medium sized housing project will possibly incur on this front. This indicates the impeding role of construction material cost in making housing affordable. According an IDFC Institute report on affordable housing, construction costs constitutes around 30-40 per cent of total project cost in Tier 1 Indian cities.

Taking cognizance of this problem, it is imperative to explore alternative ways to limit the construction cost of a housing project. In this regard, there are a number of ongoing debates around possible technological innovations to reduce the construction cost. One such alternative is principle of circular economy which is aimed at improved longevity of products, waste minimization, sharing, renting, repair and reuse for maximizing product value before returning it to the environment safely. Greater integration of circular economy principles into the construction sector’s activities can possibility reduce the need for new construction, optimize land use, and reduce construction costs. The entire process can contribute to making housing affordable, and can also potentially create demand for skilled labour thereby leading to employment generation.