September 7, 2018

New Report Finds Reasonable Development Costs in Housing Credit Units Nationwide

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Today the National Council of State Housing Agencies (NCSHA) published a new report, Variation in Development Costs for LIHTC Projects, which analyzes total development costs in Low-Income Housing Tax Credit (Housing Credit) developments nationwide. It finds that Housing Credit developments costs, on average, are roughly the same as development costs for all multifamily apartments.

The report, which NCSHA commissioned Abt Associates to complete, studied 2,500 Housing Credit properties containing more than 160,000 units created over a number of years. Key findings include:

  • Housing Credit-financed apartments cost on average roughly the same to develop as the typical apartment, even though Housing Credit properties must by law meet many requirements that typical apartment buildings do not.
  • Housing Credit development costs have grown no faster than, and likely more slowly than, development costs for apartments overall over the last several years. 
  • The median total development costs per unit between 2011 and 2016, including soft costs – such as fees for contractors, architects, and other professionals – and land costs, was $164,757, adjusted for construction cost inflation. The mean was $182,498.
  • The primary factors that drive the development costs of all apartment projects, including Housing Credit properties – costs of land, labor, and materials – involve market forces, not state agency administration.
  • Costs were higher for projects developed in New England, the Mid-Atlantic and the Pacific regions; smaller projects were more expensive per unit than larger projects; and new construction was substantially more expensive than projects developed by acquiring and rehabilitating existing structures.

See NCSHA’s summary of the report for more information.

The Housing Credit is the nation’s largest and most successful tool for encouraging private investment in the production and preservation of affordable rental housing, and this new report, developed by Abt Associates, is a powerful testament to the Housing Credit’s success. Over the past 30 years it has financed over 3 million affordable apartments, providing homes to more than 7 million low-income households, generating $323 billion in local income and $127 billion in tax revenues, and supporting approximately 3.4 million jobs.

Despite the Housing Credit’s tremendous success, much more affordable housing is still needed to meet the vast and growing demand nationwide. According to Harvard University’s Joint Center for Housing Studies, nearly 20 million renter households pay more than 30 percent or more of their incomes for rent, and 11 million pay more than half their income.

Enterprise has been leading efforts to lower the costs of developing and preserving affordable housing. We recently published a white paper, Proven Local Strategies For Expanding the Supply of Affordable Homes and Addressing Cost Challenges, which draws on the successes of some of the country’s most expensive areas to offer options to communities working to address the scarcity of affordable homes and the rising cost of development. And our Bending the Cost Curve series, launched five years ago, continues to introduce and disseminate methods for reducing costs, such as the use of public lands, streamlining financing methods and sharing best practices. We remain committed to working with a broad array of federal, state and local partners to reduce costs so that we’re able to serve even more people in need.

Earlier this week the House Financial Services Committee held a hearing on The Cost of Regulation on Affordable Multifamily Development, which examined regulatory barriers that inhibit or even prevent the development of affordable housing. The hearing also highlighted policies that can help meet the future demand for affordable rental housing, including the Housing Credit.

Enterprise thanks the Committee for their attention to the critical issue of affordable rental housing and encourages the Committee to consider the Housing Credit as a central part of the solution. The Affordable Housing Credit Improvement Act, bipartisan legislation in both the House (H.R. 1661) and Senate (S. 548), would enact nearly two-dozen provisions to strengthen the Housing Credit and make the program more efficient. These provisions include making the Housing Credit more effective in rural areas, streamlining the ability to combine it with other financing sources, and improving the Credit’s ability to serve certain populations like veterans, seniors, and tenants living in supportive housing, among other common-sense improvements. Visit the ACTION Campaign website for more information about the Housing Credit and resources to advocate for the Affordable Housing Credit Improvement Act.

Well-designed, affordable homes are crucial for creating opportunity, and Enterprise continues to work to find ways to help provide more of this housing at the lowest possible cost.

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