Energy market volatility is raising the cost of affordable housing at a time when the United States is already short millions of affordable homes for low-income households. TD Economics reported on the material rise of crude oil prices since the beginning of this year as global energy markets have been disrupted. Prices have eased recently, but construction costs have not reset, and cost swings still ripple throughout developments.
Diesel was up roughly 44% year over year, and the broader index for new residential construction inputs was up 6.5% since July 2025. That reaches a development in a number of hidden ways through products bought in large quantities.
The price of fiberglass insulation, for example, has climbed to 65 cents per square foot, up more than 13%. Five cents may sound immaterial. Across an entire building, though, that's thousands of dollars for one item before accounting for similar increases elsewhere in the job. Apply the same kind of change to asphalt, PVC pipe, and dozens of other line items, and the budget increases quickly. It rarely arrives as one obvious cost spike. It shows up everywhere.
Affordable housing developments have less capacity to absorb those increases because rents are restricted and the public/private sources in the capital stack are generally fixed by the time a project closes. A 7% increase in construction costs does not translate neatly into a 7% increase in total development costs, but it can erase contingency, increase interest carry, and create a gap that must be filled.
Affordable housing owners and operators are already working within tight margins, and funding allocation cycles and local permitting often move more slowly than market conditions. When costs rise quickly or unexpectedly, that timing gap can threaten feasibility.
What Keeps Projects Moving When Costs Change
The best developers are realistic early, not optimistic late. Volatility is a risk inherent within the construction business, but costs moving faster than funding is the part that teams can address through tighter planning, earlier coordination, and financing structures that recognize how affordable housing gets built.
1. Underwrite the risk earlier and talk sooner
Affordable housing deals do not have the margin to handle surprises. If a project is relying on assumptions that are already thin, a small change in energy, labor, or materials pricing can quickly turn into a larger issue.
That makes the front-end work more important. Budgets need to be tested against realistic contingencies, escalation assumptions, utility costs, supply-chain timing, and the risk that subsidy sources may need to be bridged. The goal is not to overcomplicate the financing, it's to identify the pressure points early enough to deal with them.
Lenders can add value when they are engaged early, understand the capital stack, and help borrowers understand sources, timing, reserves, and repayment risk. Together, we can assess what has changed, what still works, and what needs to be solved before the project loses time and money.
Keeping projects moving forward isn't just good execution, it's good risk management.
2. Make durability and operating costs part of the discussion
Cost control should not mean choosing the cheapest option in every category. In affordable housing, the wrong short-term savings can create higher costs later for owners, residents, and public partners.
Energy efficiency, durable materials, better building systems, and thoughtful operations can reduce utility and maintenance pressures. Scope choices must be evaluated against the full life of the project, not just the construction budget. When costs are moving, we need to be disciplined so that value-engineering doesn't take away from long-term affordability and sustainability of the building.
3. Keep decision-makers aligned
Affordable housing depends on many parties moving in the same direction—public agencies, lenders, tax credit investors, developers, contractors, community partners, and local officials. When costs change, delays in one part of the process can create problems everywhere else.
If things change, especially when it's out of anyone's control, having the right partner and financing flexibility can help avoid otherwise viable projects getting stuck. Regular communication and candid, reasonable, and solutions-driven responses build trust when a deal hits a bump. The best proof that someone can execute the next project is how they handled the last one.
Measuring Success Through Stronger Communities
Construction prices are constantly changing, and affordable housing developers have become experts at budgeting through uncertainty. But there are limits to what even experienced teams can absorb alone. With only 35 affordable and available rental homes for every 100 extremely low-income renter households, the sector cannot afford to let volatility slow projects that are otherwise ready to move forward.
Getting a project built is one milestone. Keeping it affordable and financially sound after the ribbon-cutting with rents that are affordable to residents over the long term is the real measure of success.
Andrew Warren is head of community development lending at TD Bank U.S.