Developing nations such as India are facing a major socio-economic challenge of addressing the growing housing shortage. The shortage mainly implies to the low-income groups who reside in congested and inappropriate habitats due to unavailability of affordable shelters. To ensure socially inclusive development, making affordable and adequate housing accessible to all has been the motto of the developing economies. However, promoting massive housing construction programs could create a significant burden on natural resources, energy, water, and land and leads to increased levels of pollution and carbon emissions. It eventually contributes to global warming and climate change, that in turn negates the growth of the economy. Against this backdrop, decoupling economic growth due to housing expansion, from environmental impact is a multifaceted challenge to the construction industry. This paper presents a framework based on system dynamics to facilitate addressing the decoupling challenge associated with the provision of affordable housing in India. System dynamics based modeling facilitates to capture complex interactions and dynamic influences associated with a system and also helps in evaluating various policy scenarios. Hence, the proposed framework helps to evaluate the dynamic interactions between regulatory norms, economic fluctuation, social expectations, and environmental impacts in the process of providing affordable housing. The study shows that about 40 percent reduction in carbon emissions can be achieved in affordable housing projects through suitable decoupling measures and policies. The study concludes that to address the decoupling challenge in the frontier of affordable housing, the policies that reduce the environmental impacts associated with the production and consumption of construction materials should be given due attention along with strategies related to energy consumption during the use phase.