One of the biggest obstacles to building housing that’s affordable to working families is the cost of land, according to developers across the country.
When they say that, though, they usually don’t mean just the cost of the parcels of dirt themselves. They mean the cost of getting the land entitled and permitted, the amount they pay for impact fees, the time it takes to get land rezoned or to go through the environmental review process, the higher per-unit cost imposed by regulations that limit density, and a host of other restrictions.
All those barriers push up the cost of new housing. “It’s almost like a mathematical equation,” said Henry Cisneros, chairman of CityView and former secretary of the Department of Housing and Urban Development. “If you let it get out of balance on one side, then don’t be surprised if the house price is going to rise.”
Developers interested in building new apartments affordable to workforce families are likely to have more success making deals pencil out if they partner with nonprofit developers who may have access to cheaper land and financing, as well as aiming their efforts at municipalities that have tried to trim builders’ costs by lowering regulatory barriers.
In Austin, Texas, officials set up a process to review city codes, neighborhood plans, and development fees to identify those with a negative impact on affordable housing. Planners offer streamlined reviews and fast-tracking of housing projects that meet the guidelines of the city’s SMART program, an acronym for housing that is safe, mixed-income, accessible, reasonably priced, and built to green standards. Typical cost savings to developers are $600 per multifamily unit and $2,000 per single-family home, according to one report.
New York City offers density bonuses for projects that make at least 20 percent of their units permanently affordable.
Chicago has incentives ranging from expedited permit reviews to fee waivers and infrastructure investments for projects that include workforce housing. In Cincinnati, local officials set up a pre-development meeting process that brings all agencies together to resolve development issues at one time.
San Francisco and other cities in California are experimenting with lowering parking requirements in areas well-served by mass transit to allow developers to keep construction costs, and consequently, prices, at lower levels.
Developers who want to serve the middle- and lower-income segment of the market have to be willing to make tradeoffs, said Mike Costa, president of Simpson Housing Solutions, an affordable housing developer and low-income housing tax credit syndicator in Long Beach, Calif. A developer asking for a density bonus, for example, might need to agree to restrict rents at a certain percentage of a project’s units for, say, 30 years in order to maintain affordability.
Developers must also demonstrate their good faith to municipalities they’re working with, according to Costa. “One of the things you’ve got to do when you’re going down this path is you’ve got to open up your pro forma,” he said. When it comes to building rental housing for the middle-income population, he added, “We’re all trying to figure out how to get there, because there’s such a huge demand for it.”