By Michael A. Spotts
Discussing the cost of affordable housing production can be difficult. Developing and/or preserving income-restricted housing is a complex process, and questions about why things are done a certain way rarely lend themselves to quick and easy answers. Detailed, nuanced explanations and dialogue have trouble gaining traction when costly development efforts make the headlines. This is unfortunate, as the mismatch between needs and available resources makes it ever more critical that subsidy dollars are spent as effectively as possible. This post is the first in a series that will explain how to better understand cost data, identify the factors that drive costs, and highlight leading ideas and practices for lowering costs without sacrificing quality.
One of the biggest misconceptions about cost-effectiveness is that the affordable housing field is ignoring the issue. From 2012 until the summer of 2017, I was the primary researcher on the cost-effectiveness of the affordable housing delivery system for Enterprise Community Partners. This work included the 2014 Bending the Cost Curve report (in partnership with the ULI Terwilliger Center for Housing) and the 2016 Giving Due Credit report, which focused on balancing cost, building quality, and resident opportunity in the Low Income Housing Tax Credit (Housing Credit) program. In conducting this research, I had the opportunity to talk with hundreds of practitioners from across the country. I believe there are many promising practices currently being implemented, but more must be done to share this information in a comprehensive and continuous manner.
Over the course of the next several weeks, I will be publishing a series of posts that address a number of subjects in greater depth, including:
- Understanding the data: Total development cost and/or per-unit cost data are frequently cited to underscore the cost-effectiveness (or lack thereof) of affordable housing. These are relevant and important numbers. However, the highest profile developments are not always reflective of the broader landscape and there are major differences between the affordable and market-rate financing and development models that skew comparisons.
- Location matters: The ease of acquiring sites for affordable housing varies significantly by market context. Land costs are generally higher in high-opportunity neighborhoods. A singular focus on lowering costs could eliminate sites in such communities, exacerbating historical legacies of exclusion and segregation. Furthermore, affordable housing developers face capital constraints that often make it more difficult and/or costly to acquire land.
- The many goals of affordable housing: Affordable housing efforts are rarely narrowly focused on providing safe, decent shelter. Developers often incorporate supportive services, retail space, environmentally beneficial design/construction practices, and a myriad of other elements that sometimes add cost as well as value. Whether affordable housing should serve as a platform for other benefits is a legitimate conversation, but these factors should be explicitly taken into account when considering the cost-effectiveness of development.
- Bending the cost curve: Debates about whether existing affordable housing efforts are cost-effective do matter. However, regardless of a person’s perspective on that issue, the reality is that the need for affordable homes far exceeds the subsidies available. To solve this crisis, it is critically important to address market barriers that drive up costs across the board, and find additional subsidies for committed affordable units. Yet we also need to make sure we are stretching every existing dollar as far as possible. This can be accomplished by focusing on improvements on the margins (e.g., streamlining existing programs, prioritizing investments) and conceptualizing and testing new models that can radically reduce the cost of affordable housing production. Efforts to accomplish both are underway across the country.
To receive updates on this series and other related issues, I encourage you to follow us on Twitter (@NBHDFundLLC and @MichaelASpotts). Please feel free to share thoughts, critiques and suggestions via Twitter, e-mail, or the comment section below. In the meantime, if you would like more information I recommend reading the aforementioned Bending the Cost Curve and Giving Due Credit reports, which include detailed explanations of relevant issues and real-world examples of efforts to control costs.