$530/Square Foot for Affordable Housing?

A lot of federal money for housing is funneled through non-profit organizations, and those non-profits become lobbyists for continued federal funding. Yet it isn’t clear that they actually do much to make housing affordable. This can be seen from a blog post by Roger Valdez, who says he “was a non-profit housing director for about three years.”

His post analyzes an affordable housing development in the Seattle area being planned by a non-profit called the Plymouth Housing Group, whose purpose (according to its 2016 IRS form 990) is to “develop and manage affordable housing for homeless and very low income individuals.”

Valdez notes that, from 2008 through 2017, non-profits produced 5,576 units of housing. Someone miscalculated to be 620 units a year (they divided by nine when in fact there were ten years from 2008 to 2017). Obviously, that’s more like 558 units per year.

According to table B25002 of the American Community Survey, the city of Seattle had 338,824 occupied housing units in 2016, while King County had more than 900,000 and the Seattle urban area nearly 1.4 million. Building 5,576 units of supposedly affordable housing help house a few low-income people, but it’s not going to put a dent in that housing market. In other words, affordable housing doesn’t make housing in general more affordable.

Nor is the housing that has been built particularly affordable. According to Valdez, these 5,576 units of housing cost nearly $1.4 billion, or an average of $246,000 apiece. He doesn’t adjust for inflation, however, and 2017 projects averaged $337,000 per unit. Using GDP deflators, the inflation-adjusted cost of all 5,576 units averaged nearly $263,000.

Now, $263,000 may sound affordable in Seattle, where the median home price in 2015 was (according to Zillow) $767,000. But the median home price in Houston was just $176,000, so a $263,000 home would be for people whose incomes were well above the median. Certainly, even in Seattle, $263,000 wouldn’t be affordable for “homeless and very low income” people.

The housing project Valdez scrutinizes is called Housing at Lincs (Lincs being a fishing tackle store that once occupied the site). The Plymouth Housing Group is planning to build a six-story building on the site that will contain 84 units of housing. The total cost of the project will be just over $30 million, or $358,000 per unit. Worse, the average unit will have just 469 square feet, and the cost per square foot (including non-residential parts of the building) will be $530. In Houston, $358,000 would buy you a home that is close to ten times that big.

This particular project is getting $9.7 million of its funds from government housing programs, plus another $17 million in low-income housing tax credits. Plymouth itself is putting in just $2 million, which it expects to get back in rents from whoever lives in the project.

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Actual construction is estimated to cost $19.4 million, or $341 per square foot. In Houston, home construction is still around $100 per square foot. (New homes in the Houston metro area cost around $120 per square foot, but that includes various development costs beyond just construction.) One of the reasons construction is so high on the Seattle project is that it is six stories tall, so it requires a lot more concrete, steel, and other expensive materials, plus the cost of an elevator. As the Antiplanner has previously noted, a Portland housing study found that high-rise (six story and more) housing cost 68 percent more per square foot than low-rise housing, and I suspect that’s an underestimate.

Most of the rest of the costs are financing, architect fees, and developer fees. Most single-family homes are built without an architect, which would save $1.1 million. New homes in the Houston area are mostly built on land subdivided by developers, but I doubt that the developer fee per home would be $29,000 as it is in this case.

A hidden cost that contributes to the financing costs is time. Plymouth purchased the property in February, 2017. It expects the building to be ready for occupancy in February 2020. That’s actually fast for Seattle, as non-profit housing groups get to avoid much of the red tape a private builder would face. In Houston, you can buy a lot, get the permits, build, and move in within as little as 120 days.

Valdez points out that the head tax to raise funds to house the homeless that the city of Seattle recently passed, then repealed, would have yielded enough money to build just 130 units per year at the cost per unit of this project. Since Seattle estimates it has 14,000 homeless people, it would have taken more than a hundred years to house them all.

Valdez thinks that the non-profits pay too much for land and for construction compared with what private developers spend. But even cutting costs in half yields costs per square foot that are twice the costs in Houston.

The Antiplanner thinks that the non-profits and public housing agencies have lost sight of the goal, which is to provide decent and affordable housing for everyone. For the affordable-housing-industrial complex, the goal has become to turn out overpriced units and get enough subsidies for them that they can rent them out at below-market prices and still cover their costs (including, in Plymouth’s case, paying staff more than $6 million a year).

Any serious effort to make housing affordable would first reduce land costs. That means eliminating urban-growth boundaries and other constraints on developing rural land. Second is to reduce construction costs. That means building low-rise housing rather than high-rise housing. Low-rise apartments might be fine if there is a market for them, but the cost per unit might not be significantly less than the cost per single-family home of comparable size. Third is to reduce regulatory costs, which especially means to reduce regulation in unincorporated and undeveloped areas around the cities. Any housing group that doesn’t advocate for these changes is wasting taxpayer time and money.