Affordable housing developers spend a huge amount of time trying to cut the high cost of development—but the knotty problem of high costs can be difficult to untie.

“The drivers of cost come at all points in the development process and are deeply intertwined,” says Lynn Ross, executive director of the Urban Land Institute's Terwilliger Center for Housing.

Researchers from ULI and Enterprise Community Partners are working on series of recommendations they hope will cut through the knot. They released their first findings, Bending the Cost Curve on Affordable Rental Development: Understanding the Drivers of Cost, at ULI's fall meeting in Chicago.

Future reports will identify the particular drivers of high costs in different markets—and will recommend specific policy and programmatic changes to help make the development of affordable housing more affordable. The researchers promise to release more detailed analysis early next year.

To identify the factors that drive costs, researchers visited some of the most expensive cities for development in the country. They held roundtable discussions in Denver, Los Angeles, New York City, and San Francisco. They also interviewed sources in Boston, Houston, Minneapolis, Pittsburgh, and Seattle.

According to the researchers, the main factors that drive the cost of development include:

·   Project scale: Fixed costs such as land, legal expenses, and funding application fees, are not correlated to the number of units and often make smaller projects less economical on a per unit basis;

·   Project design and construction: Community concerns, site selection, the price of construction labor, and state and local regulations affect the ability to produce high-quality units at an affordable cost;

·   Financing and underwriting: Because affordable rentals produce a lower level of profit, developers face several financing obstacles, such as difficulty attracting investors who are strictly yield-driven; complicated deals requiring multiple layers of funding; and limited or no availability of financing for smaller projects and for mixed-income projects; and

·   Complex deal structures: Project fees, timing of tax credit use, higher risk, greater due diligence, longer timelines, and the need to set aside capital reserves all drive up costs.

Their recommendations to improve the development process will fall into six categories:

·   Promoting cost-effectiveness through consolidation, coordination, and simplification;

·   Removing barriers to reduce construction costs and mitigate delays;

·   Facilitating a more efficient deal assembly and development timeline;

·   Improving and aligning of incentives;

·   Improving flexibility of existing sources of financing and creating new financial products to better meet funding needs; and

·   Supporting the dissemination of information and best practices.

To read the report, visit ULI's website.