The average cost per unit of a new affordable housing development in California was $260,000 in 2011, according to a much anticipated housing cost study.
For the most part, costs increased each year starting in 2001, reaching a high of $334,000 in 2009 before declining the next two years.
No single factor was found to be responsible for the pattern. Instead, a combination of components influenced costs over the 11-year study period. For example, the fraction of projects that included podium parking declined in the latter years, which tracked with the drop in costs per unit. Also, the number of projects requiring significant changes as a result of a local design review process also moved in a pattern that loosely followed cost changes, reveals the study.
The findings give developers and housing officials new information about what’s driving development costs.
“A comprehensive look at affordable housing costs had not been done for a good 20 years,” says Claudia Cappio, director of the California Department of Housing and Community Development (HCD), explaining it was important to learn what was happening.
The state’s four housing agencies—HCD, California Housing Finance Agency, Tax Credit Allocation Committee, and Debt Limit Allocation Committee—joined together to commission the analysis. Data from 400 projects across the state—big and small, urban and rural—were studied.
“Reflecting this diversity, the costs of developing these projects varied as well, from about $4 million at the low end to more than $250 million at the high end, when converted to 2012 dollars,” says the report. “Even when viewed on a cost per unit basis, there was a considerable amount of variation in the data, with the least expensive projects costing around $100,000 per unit while the most expensive were $500,000 or more per unit.”
The analysis found a significant difference in cost depending on a project’s location. In the San Francisco region, the average cost per unit was $406,000, more than twice the amount to develop a unit in the state’s Capital and Northern Region.
The study also looked at how the costs of developing affordable housing compared with market-rate projects. The market-rate projects for which the team had data were larger and more likely to be built in one of the higher-cost regions. They were more expensive per unit ($300,750 per unit as compared with $287,932 for affordable projects) but slightly less expensive per square foot ($281 compared with $288 per foot for affordable projects).
It's important to note that the market-rate information came from just 22 projects, so the data was limited.
Other key findings included:
- Local factors have an impact—Projects with more community opposition, significant changes by local design review requirements, or that received funding from a redevelopment agency cost more, adding 5 percent, 7 percent, and 7 percent respectively to the cost per unit, on average;
- Certain types of parking can add significant costs—Projects with podium or subterranean parking cost an average of 6 percent more than developments without this type of parking;
- Affordable housing is characterized by economies of scale—Larger projects generally costs less per unit than smaller ones. The studied found for each 10 percent increase in the number of units, the cost per unit declines by 1.7 percent; and
- Choices made by developers matter—Larger developers and developers that employ general contractors have built project less expensively relative to comparable developers that don’t share these characteristics. However, the study notes that building quality and durability add to costs.
The findings raise a number of issues for policymakers and others think about, according to Cappio.
As just one example, she points to the cost of providing parking. “As we move toward more infill, denser development that’s closer to transit, perhaps we can consider reviewing how much parking is really required,” Cappio says.
Looking ahead, officials at the state agencies would like to build on the knowledge gained from the study.
“Everyone agrees that keeping more consistent track on an annual basis of the costs associated with our projects is a very important thing to do,” Cappio says. “We intend to put together a basic sheet or template so that upon a completion of an affordable housing project the developer can fill that out, and we can set up a database.”
The Affordable Housing Cost Study: Analysis of the Factors that Influence the Cost of Building Multi-Family Affordable Housing in California can be found at http://www.hcd.ca.gov/hpd/docs/FinalAffordableHousingCostStudyReport-with-coverv2.pdf
Connect with Donna Kimura, deputy editor of Affordable Housing Finance, on Twitter @DKimura_AHF.