This week the California Tax Credit Allocation Committee (TCAC) and Other Agencies released the state’s long awaited California Affordable Housing Cost Study.  Data was collected and analyzed from hundreds of multifamily projects completed between 2001-2011.  Key findings excerpted from the include:

  • Local factors have an impact on costs. Specifically, projects with more community opposition, significant changes imposed 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 significantly to development costs. Specifically, projects with podium or subterranean parking cost 6 percent more, on average, relative to other developments without this type of parking.
  • Choices made by developers matter. Some developers are able to build less expensive projects than others. Larger developers and developers that employ general contractors have all built projects less expensively relative to comparable developers that don’t share these characteristics.
  • Building quality and durability add to costs. Buildings that are more durable, are more energy efficient, or are built to a high standard of quality cost more to develop. Specifically, for each 10% increase in our quality measure (e.g., from “low” to “medium”) costs increased by about 15 percent, on average.
  • Affordable housing is characterized by economies of scale, with larger projects costing less per unit than smaller projects. According to our results, for each 10 percent increase in the number of units, the cost per unit declines by 1.7 percent
  • Different types of units have different development costs. While it may be obvious, larger units, such as those with 3 or more bedrooms, clearly cost more per unit to develop. Smaller units, such as single room occupancy or “SRO” units, cost less per unit but more per square foot to develop. Specifically, our regression analysis suggests that SROs were approximately 31 percent less expensive per unit to construct relative to large family units, while units for seniors were about 18 percent less expensive per unit relative to large family units.
  • Land costs influence the cost of developing affordable housing even when the land costs themselves are excluded from the development cost measure itself. This is true primarily because they indirectly affect the type of project that is built, as developers are more likely to build taller structures that include underground or podium parking on land that is more expensive to purchase. Further analysis would be necessary to determine whether choice of land location influences overall costs.

The report suggests that multiple factors will need to be addressed to lower costs and does explicitly suggest policy changes that should be adopted, urging careful design and implementation to avoid unintended consequences.  The report does seems to suggest that a greater emphasis on cost containment or cost efficiency in the tax credit application, scoring, and award processes should be given further consideration by policy makers.

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