Why it's so hard to build affordable housing: It's not affordable

[Yo_Mama_Been_Loggin]

A real estate developer wanted to increase affordable housing in Denver, trying to make fiscal sense out of a plan to build rental apartments for people making only 30 percent of the area's median income—the kind of housing America desperately needs. He discovered that, no matter what lever he moved or compromise he made, he was going to need some money from the government to make it work. Then he was going to need some more.

Almost one in four U.S. renters spends more on housing than they can afford, according to a report in June from Harvard University‘s Joint Center for Housing Studies—and the problem gets worse at the lower end of the income spectrum. About 10 million renter households earn 30 percent or less of the area median income, accounting for a quarter of the renter population. The U.S. would need to add more than 7 million cheap apartments to meet demand from such extremely low-income renters, according to a recent report from the National Low Income Housing Coalition.

“If we want to prioritize closing the gap for low-income households, we’re going to need more funding from public subsidy,” said Erika Poethig, director of urban policy initiatives at the Urban Institute, which published an online simulator Tuesday for the purpose of illustrating the challenges to building new affordable housing. Our Denver developer above is fictional, but he's an illustration of what that simulator churns out: No matter how you slice it, creating the affordable housing needed today probably requires government help.

With the interactive tool, users can play developer, toggling their costs and expected revenues in an attempt to make a project "pencil out," a real estate euphemism for profitable, adjusting everything from rent levels and vacancy rates to debt service coverage, administrative expenses, and construction costs. The data underlying the project comes from a handful of recent affordable housing developments in Denver, a fast-growing city in the middle of an apartment-building boom that has increased costs for developers of market-rate and rent-regulated buildings alike.

http://www.msn.com/en-us/money/realestate/why-its-so-hard-to-build-affordable-housing-its-not-affordable/ar-BBuSQBH?li=BBnbfcN&ocid=edgsp

[LWolf]

1. Maybe one answer

is to make affordable housing public, and take the profit out. If the developer doesn't have to "pencil out," the problem doesn't exist, and the housing gets built.

It seems like this is a continuous problem in many areas; it's so hard to provide things like housing, health care, etc., without interfering with the profits at the top.

[Yo_Mama_Been_Loggin]

2. I think the point of the article when one reads further

is that any kind of low income housing will have to be subsidized.

[LWolf]

16. Okay.

Then let's subsidize it.

[Baitball Blogger]

25. Republican and Democrats in the inside circles have no qualm here.

Subsidized housing has kept the good ole boys in the construction industry living high on the hog.

[maxsolomon]

5. even non-profit developers have to "pencil out"

they're not making a profit, yet they cannot make it pencil out. that's the point.

I've been working in this area for 2 decades. it must be directly subsidized, and even then it's like pulling teeth. and then people complain that it looks too cheap, or god forbid, too nice. all the government wants to provide nowadays are "tax credits".

Europe does it so much better. http://www.governing.com/topics/economic-dev/gov-affordable-luxurious-housing-in-vienna.html

[LWolf]

15. Not using the given

meaning of "pencil out:"

in an attempt to make a project "pencil out," a real estate euphemism for profitable

Of course, if "pencil out" means "complete within available budget," then they certainly need to do so, non-profit or not.

I look forward to reading your link.

[maxsolomon]

18. for-profit developers have a profit margin in their calculations,

non-profit developers do not.

neither of them are in the business of losing money.

[LWolf]

20. I think I just said

that, or something like that.

I'll stand by my original premise: perhaps it would be easier to provide affordable housing without "losing money" if it were non-profit. Then all that profit can be added back into the budget.

[maxsolomon]

21. we need both profit and non-profit

my firm is doing workforce apartment buildings with a for-profit developer - but on parcels that are part of a public housing redevelopment. there's not that much profit for them, frankly. 3-4%?

we're also doing non-profit, subsidized housing - but those developers have to compete on the open market for parcels.

in general, its not the profit margin/greed that prevents affordable housing from being built. its the land cost. so, you're right - government needs to get in the game.

[geek tragedy]

10. the point is that it's not possible for anyone

in the private sector to build it and not lose money.

The only way it gets built is (a) government subsidies or (b) the government just pays for the whole thing.

Either way, of course then the question becomes how much do taxes go up to pay for it.

[Warpy]

3. Profit margin on a piece of land is everything

and a yuppie barn or apartment complex is going to generate more of it on any given piece of land. Builders can't stay in business producing stand alone 2 or 3 bedroom houses for working people.

This is where the mean old gummint needs to step in to any capitalist venture: if you need more of something, subsidize it. If you need less of something, tax it. It's the only thing that has ever worked.

[6chars]

4. location, location, location

structures aren't so expensive. the problems with affordable housing arise when in order to have a decent life, you need to be in one location and not another, e.g., near jobs, transportation, schools, stores, safety, amenities. The scarcity of these drives up prices of places where we would want more affordable housing, which makes it expensive one way or another to create that housing - developers are paying for land and they have to cover that cost and that's harder to do if they have more affordable units.

From a policy perspective, we need to make all locations more livable, and then the need for affordable housing in particular areas will be much diminished. Better jobs and wages wouldn't hurt either.

[Sanity Claws]

6. I wonder how much is due to inflated real estate prices

Capital from all over the world is flowing into US, Canada and certain other markets increasing prices tremendously. The investors are trying to launder money and trying to find so-called safe vehicles for investments.
Too much capital out there. Not enough for laborers.

[Freethinker65]

7. And that is why HUD has programs...

...such as the LIHTC (low income housing tax credit) and RAD (rental assistance demonstration) programs to provide incentives to developers to build affordable housing. Of course, with government money, comes additional paperwork and bureaucracy, that is often very cumbersome and tedious.

[Igel]

8. This goes back to the "online simulator" at Urban Policy Institute.

http://apps.urban.org/features/cost-of-affordable-housing/

The simulator is worked in throughout the article.

[OxQQme]

9. Fee schedules for permits

in Multnomah County/Portland: https://www.portlandoregon.gov/bds/34184

Lots of hoops to jump through before any shovel touches the dirt.

I wouldn't want to move in to my new house and have it catch fire because of an electrical fault, or have the sewer back up because the contractor ran the outflow uphill, or some such un-inspected flaw.

But geez, the permit prices are enormous prior to paying the architect.

[maxsolomon]

19. You better pay the architect before you get to the point where you pay permit fees!

Or they ain't giving you the drawings!

[Johnyawl]

22. The cost of the permits...

...reflects what the City has to pay for qualified, professional inspectors, and support staff. Municipalities, counties and states normally pay a decent salary with gold plated health care and retirement benefits. Then they have to provide automobiles and expenses to get out to job sites to do the inspections. None of this is cheap, and everybody wants those costs covered by fees, not taxation.

[OxQQme]

11. There's Habitat For Humanity

that could use much more governmental financial support.

A random googlesearch example: --> http://solar.calfinder.com/blog/news/habitat-for-humanity-builds-solar-housing-for-oakland/

[Yo_Mama_Been_Loggin]

12. Good organization

One I've contributed to for several years now.

[Sen. Walter Sobchak]

13. There is no market solution to this problem and there never was

Subsidizing a stagnant rental stock (and no, the new luxury rentals in New York and Los Angeles don't count) is a completely pointless endeavor.

We need to build public housing again, but we also need to prevent it from being garrisoned by criminals and mismanaged into disrepair.

[rug]

14. Housing is a human right.

[kristopher]

17. This reminds me of the allegory about the oversized truck w in the tunnel...

Experts pondered how to remove it, with some wanting to touch off the cab and others suggesting demolishing the structure of the tunnel entrance. After a considerable time elapsed, a little girl watching from her family's car asks her father why they don't just let the air out of the truck's tires....

Instead of trying to make impossibly cheap housing, why not pay a real living wage and provide a real social safety net for those unable to work?

The top 1/10th of one percent probably wouldn't approve, but I really don't care.

[alarimer]

23. Some of that is also NIMBYism.

So many people, even good "progressives" don't want subsidized housing anywhere near them, for fear of lowered property values. Apparently the mere presence of "those people" will lower property values or degrade the neighborhood or some such.

[Yo_Mama_Been_Loggin]

24. I agree

I've seen it first hand.

[David__77]

26. Maybe the solution involves cheaper construction materials and streamlined regulation.

I don't know.