Analyzing Affordable
Housing Construction Costs
Discussion Leader
Darrell Beavers, Oklahoma Housing Finance Agency
Participants
Tom Capp, Chief Operating Officer, Gorman & Company, Inc.
Michael Duffy, Senior Vice President, McCormack Baron Salazar Inc.
Andrew Jakabovics, Senior Director, Enterprise Community Partners, Inc.
James Kroger, Partner, Novogradac & Company LLP
Los Angeles
June 1‐4
Certain costs are specific to affordable housing
developments compared to market rate
◦ Minimum construction standards (ie. energy efficiency)
◦ Required site features and amenities
◦ Projects designed for targeted populations
Differences that may exist
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Design
Location (prime market rate real estate)
Available funding
Data limitations
California Construction Costs
2000 to 2009
Source: TCAC Annual Reports, 2009 & 2006
California Council for Affordable Housing (CCAH)
Recommendations of the Low Income Housing Tax Credit (LIHTC) Program Improvement Task Force
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Apples-to-apples comparison
Costs of a 9% vs. a 4% project
◦ Costs of a new-construction vs. an acq/rehab project
◦ Unit vs. bedroom vs. square footage
◦ Bedroom size adjustment (per unit metric)
◦ Project size adjustment (per unit metric)
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Controlled experiment (easy in high school but
difficult in the real world!!!)
o
An experiment that isolates the effect of one variable on
a system by holding constant all variables but the one
under observation.
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Developer experience
Project construction duration
Environmental mitigation
Local design requirements
Existing site infrastructure
Energy efficiency standards
Square footage
Weather conditions
Community opposition
Minimum wage requirements
Parking
Site Work & Structures includes
 direct construction costs
 landscaping
Adjusted Total Development Costs includes Site Work &
Structures plus:
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contractor fees/profit/overhead
furniture and fixtures
architect fees, engineering fees, and developer fee
impact fees
Total Development Costs includes Adjusted TDC plus:
 land, insurance, loan fees & interest, legal fees
 environmental study and market study
 state agency fees and reserves
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Location – rural v. urban
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Housing types – family v. senior v. special
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Project size – <30 units, 30-59, >60 units
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Unit design – detached v. nondetached
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Developer type – vertically integrated
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Local Factors - Community opposition, design
review changes, and redevelopment projects
• increased costs about 6% on average
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Developer – Larger and/or vertically integrated
• may correlate with cost efficiency
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Economy of Scale
• 10% increase in unit count correlates with a 1.7%
decrease in per-unit cost
New Mexico Cost Study
Findings
Cost of Site Work & Structures by Project Size
of 100% LIHTC New Construction 9% Projects in NM
2006 – 2013
(Average Cost per Unit)
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Lower Requested Credits
Lower Cost Competiton
Lower Basis (actual or requested)
Experience points
Larger Projects
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Minimum Rehab Costs per Unit
Project Amenities
Sustainable Design/Energy Efficiency
Mixed Income
Smaller Projects
Tenant Ownership (generally single family,
detached units or townhomes)
Location
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No easy answer to reducing costs, but can
make changes when better informed about
construction cost drivers and trends
◦ Project size  lower unit cost for larger projects
◦ Project design  lower unit cost for non-detached
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State-specific analysis required because
costs/trends within each state can vary
 For example: in California, rural < urban, but in New
Mexico, rural > urban