Why Affordable Housing Costs So Much to Build (Part 1)

Last year the federal government doled out nearly $2 billion in funding to public agencies across the country for the creation of affordable housing.

That doesn’t include the millions of additional dollars that the states allocate to the projects in the form of set-aside property tax revenues and federal and state tax credits to firms that invest in the housing projects.

Aimed at providing low-income Americans find a clean and safe place to live at a subsidized cost, the underlying goal behind all this funding is clearly well intentioned.

But when it comes to how public agencies spend all that cash, it can leave a lot to be desired.

A closer look at the affordable housing industry nationwide reveals a tangled web of rapidly rising construction costs, misspent funds, and in some cases, major fraud allegations against public officials and housing developers. And all that that ultimately means fewer housing units are being built to help house the nation’s poorest residents.

So where are public officials going wrong?

Here’s a rundown of the factors fueling the massive cost of creating affordable housing and what some agencies are doing to try to combat it.

A new affordable housing philosophy

In many cases these new developments are nothing like what many people think of when they think of public housing “projects.”

Facing increasing city and state regulations and the hurdle of convincing often-less-than-welcoming residents, many public housing developers have added a host of sustainable building and design features to their housing projects — ranging from solar panels and expansive fitness centers to parks and amphitheaters.

Nonprofit news site Voice of San Diego reported on the massive cost of affordable housing construction in a July special report titled “The Game: Building ‘Taj Mahals with Taxpayer Money.”

“Far from the ugly concrete towers of the past, today’s affordable housing projects are often the best-designed, most beautiful buildings in their neighborhoods.”

And this philosophy can be seen in other cities across the country, such as in New York City where a recent NY Times architecture review hailed the new Via Verde development as an architectural gem.

“Unlike so many public-housing projects, Via Verde rethinks the mix of private and public spaces to encourage residents to spend time outside, in the fresh air. It breaks the mold of subsidized housing whereby clinics, low-income rentals and home ownership are all conceived, financed and regulated separately. Piecing them together, it takes the healthier, holistic tack. Healthy design comes down to fundamentals in this case: air, light, places to stroll, things to look at.

Which is Via Verde’s other distinction: its premium on looks.”

Supporters hail the changes as a massive improvement over the often poorly designed public housing projects of decades past. They point out that in many ways these buildings serve a variety of purposes beyond providing affordable housing, such as removing blight or adding important green space to dense urban areas.

But it comes at a cost.

Many of these projects have hefty price tags, reaching into the tens of millions, to house only a few hundred families, if that.

In San Diego, for example, construction costs have reached as $477,000 per unit, double what private developers spend to develop high-end apartments, according to the Voice of San Diego investigation.

Some public officials argue that spending so much on single units misses the point of providing as much affordable housing as possible.

In Glendale, Calif. where I used to work as a City Hall beat reporter, Mayor Ara Najarian often questioned the city’s policy of purchasing land to build pricey new housing, developments when he said the same ends could be met by rehabilitating existing apartment or condo units for low-income renters or buyers at a lower cost.

“I think our obligation as a Housing Authority is to provide as much clean and safe housing to the public as possible. That doesn’t mean brand spanking new,” he said. “I think we are on the wrong track.”

Because, Najarian and other critics say, at the end of the day, when projects costs are high, fewer units are built, and more people are left on mile-long waiting lists.

Take the Via Verde development, as written about in the NY Times architecture review.

“The complex, with 71 co-ops and 151 rental apartments, is harder to get into than some of the toughest colleges. Some 800 families have applied for the co-ops alone.”

Rising construction costs

Expensive design plans, though, are only one of the factors fueling the major price tags to build these projects.

In California, many in the public housing industry point to the state committee that hands out the tax credits that in most cases are needed to make the developments a reality.

Voice of San Diego reported that many insiders have dubbed the business “The Game,” where the projects with the highest costs are often rewarded with the tax credits.

“Developers spend months putting together applications that are often inches thick and that break down their projects to the finest detail. The trick is to score as high as possible on the committee’s points system, a process that during the last decade has become increasingly daunting and has resulted in escalating bills for taxpayers, who eventually foot the cost.”

Housing officials themselves acknowledge that the process is growing out of control.

Joel John Roberts, chief executive officer of Los Angeles nonprofit housing People Assisting the Homeless, took on the issue in a January 2011 blog post.

He attributed the high costs to four main factors:

1. Cost of land. You can’t simply strong-arm a land owner to lower their price despite the difficulty in selling in this economy. If public funding is used to build housing, the land has to be purchased at the going market rate.

2. Cost of accessing public funding. No housing can be built and offered at affordable rent rates without public funding, from local, state, or federal funding sources. The application process is arduous, time-consuming, and political. The cost to put together a complicated housing development can be expensive. You almost need a PhD in finance, politics, and housing to be successful in public funding.

3. Building and planning codes do not cater to affordable housing. A city in the Los Angeles region mandated that we provide two parking spaces per unit, even though we all knew that the building was designed for formerly homeless persons who would be lucky to have one car. That one requirement cost us more than a million dollars in building a garage larger than what was needed. Other codes mandate unit sizes that are larger than what could be used in affordable housing.

4. Prevailing wage ordinance requirements. Most states mandate that if a development receives public funding, the developer must pay their construction workers prevailing wages. These wages are higher than minimum wage, and are geared toward insuring that low-income workers are paid high enough wages to prevent poverty. Builders believe this requirement increases construction costs by 10% to 50%.

In turn, Roberts says that policy change is needed to ensure all housing dollars are spent effectively.

 “If we truly see homelessness as a crisis, we should be instituting emergency rules that temporarily breakdown bureaucratic barriers, overcome expensive rules, and streamline the building process.”

For a look at the more nefarious factors fueling the rising costs, check out Part 2 here.

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One Response to Why Affordable Housing Costs So Much to Build (Part 1)

  1. Pingback: Why affordable housing costs so much to build (Part 2) |

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