Affordable housing: Businesses caught between market demand and profitability

Nguyen Quoc Hiep, Chairman of the Vietnam Association of Construction Contractors, said businesses are fully aware of the strong potential of this segment. However, developing reasonably priced commercial housing is currently facing many obstacles due to sharply rising input costs.

Affordable housing development sustainably requires addressing both supply and demand. Photo: VA

Multiple barriers

According to Hiep, land prices, land-use fees, construction materials, labor costs, and financing pressure have all increased significantly in recent years. At the same time, to make products affordable for buyers, businesses must keep selling prices at a reasonable level, leaving increasingly limited room for profit.

“Businesses want to develop reasonably priced housing, but with the current cost structure, it is very difficult to balance investment efficiency. If selling prices are too low, profits cannot be secured. If prices are raised, the products are no longer suitable for the target customer group,” Hiep said.

The problem is that the segment with the highest demand in the market is not necessarily the most attractive in terms of investment returns. While high-end projects can generate better profit margins, affordable housing requires developers to control costs tightly while still ensuring quality, infrastructure, and amenities.

Market research firms also share the view that this segment is facing systemic barriers, not only challenges for individual developers.

Nguyen Van Dinh, Chairman of the Vietnam Association of Realtors (VARS), said the current housing supply is heavily skewed toward the mid- and high-end segments. One key reason is that businesses struggle to find an effective business model for affordable housing development amid continuously rising input costs.

According to Dinh, in addition to pressure from land availability and land prices, lengthy investment procedures also significantly increase financing costs. Many projects take years to complete legal procedures, forcing businesses to absorb additional financial costs and opportunity costs. This directly affects product prices once projects are brought to market.

Access to medium- and long-term capital also remains a challenge for many businesses. Although interest rates have become more stable than in the previous period, capital costs still have a major impact on the investment efficiency of affordable housing projects.

Developing funding sources

Dr Can Van Luc, Chief Economist at BIDV and a member of the National Financial and Monetary Policy Advisory Council, said sustainable affordable housing development requires solving both the supply and demand sides. In addition to accelerating investment procedures and creating suitable land banks, it is necessary to develop medium- and long-term funding sources for the real estate market, including bank credit, corporate bonds, and real estate investment funds.

In many countries, the affordable housing segment receives a certain level of support through land, financial, or tax policies to ensure people’s access to housing. In Vietnam, meanwhile, most businesses still have to balance all input costs themselves under market mechanisms.

Experts said the issue of affordable housing is not simply a matter for businesses or homebuyers. It is also linked to sustainable urban development and social welfare. As long as bottlenecks in land, capital, and investment procedures remain unresolved, the segment expected to meet the needs of the majority of people will continue to face a paradox: demand is huge, but supply remains difficult to improve, while businesses are stuck between market demand and profit targets.