Part II: The Great Production Debate

Editor’s Note: Affordable low-income housing developers should forego over-designed projects and architectural frills, says housing development consultant Bob Santucci. Instead, they should concentrate on increasing production of basic, high-value housing so more of the nation’s poor can have decent homes. In his response to architect Charles Buki’s essay in the last issue, Santucci cautions against using limited funds for housing as a means of neighborhood enhancement.

The argument for stressing quantity in affordable housing development is based on two beliefs: there will never be enough money to house all of the people, all of the time; and savings in production and operating costs can be used to create more affordable housing.

Cutting costs does not necessarily mean reducing quality. In fact, when seeking to lower long-term operating and replacement costs, we often use “high-value” materials. But before we focus on affordable low-income housing, let’s investigate how affordability and value operate when purchasing an automobile.

For an automobile to be affordable to someone with a low- to moderate-income, its purchase price and operating cost must be low. The most inexpensive family cars are available for under $10,000, but a high-value automobile must provide benefits that exceed the initial purchase price. High value is defined as a positive imbalance between the cost and benefits of a specific product. To search for high value among inexpensive cars, I’m going to load my database with measurable criteria, such as five-year ownership costs, safety features, and resale price.

Without the emotional constraints of prestige and ego enhancement, clear winners emerge. For about $12,000, a car like a Saturn offers the lowest five-year ownership cost and the best resale price in a very safe envelope. If the best buys are around $12,000, why is the average purchase price of an automobile between $18,000 and $20,000? Because people are purchasing perceived benefits. They are looking for excitement and prestige – wishes that may be best fulfilled with a $31,000 luxury import, like a BMW.

Applying this comparison to affordable housing development, it’s important that everyone get high-value, basic transportation before anybody gets a luxury ride – at least as long as the public is subsidizing these homes.

With affordable housing, we are balancing initial cost against measurable criteria like current appraised value, utility of the space, size of the total structure and individual rooms, safety of the structure and its surroundings, included amenities, and potential resale value. Unfortunately, this initial cost can be translated into a monthly cost that is highly manipulated by reducing the interest rate. Many affordable housing organizations use the trick of applying an excellent mortgage or low cost loan to an expensive home to mask high production costs and extravagant design.

The quantity camp of affordable housing downplays the importance of aesthetics. Simply stated, nice houses do not solve social problems. The opposite – that bad architecture does not cause illiteracy, poverty, drug use and bigotry – is equally true. I believe that even if Frank Lloyd Wright or I.M. Pei were to individually assess low-income families and create a unique housing environment for each, few, if any, of the families’ social problems would be solved. It follows that helping people attain affordable housing is only the beginning of empowering and refocusing low-income families. Service enhancement, not housing enhancement, is required to address social concerns. The money spent on non-structural, but “high class” brick facades and copper roofing is much better placed in prenatal counseling, job training, drug counseling, etc.

Housing developers who reject the notion of building as many units as possible tend to favor more amenities, more complex exteriors, and extensive fenestration. Initially, federal and state payments may make these products affordable, but the maintenance and long term care of those expensive structures exceeds those of a basic home. Over time, the maintenance and replacement budget for the expensive building fails to replace the original home.

My colleague Charles Buki blames design inadequacies for the eventual failure of many subsidized developments. But the real cause is the lack of replacement reserves, operating funds, and specialized property management. Great design cannot be used as a substitute for insufficient support.

Low Cost, High Value Affordable Housing

Achieving low-cost and high-value housing development involves a process of first identifying measurable characteristics and then prioritizing their relative importance. My goal is to build a house that is safe, practical, low cost, durable, low maintenance, and energy efficient. Affordable housing developers who want to build as many units as possible for their money try to attain these characteristics in the most cost-effective manner.

Before most low-income housing developers can even consider building a low-cost product, they must learn or purchase four main skills: affordable design, value engineering, creative response, and efficient construction management.

Setting cost-effective design standards is the first step for any developer. Before the designer is hired, the developer should create a room-by-room set of design standards. These are common sense decisions that each developer can make, such as whether to provide six, eight, or ten feet of kitchen cabinetry, a linen closet, a security system; etc. Creating high value means providing low-cost amenities like pre-wired phone and cable TV, hookups for dishwashers, washers and dryers, and where appropriate, ceiling fans. It means realizing low operating costs by providing high efficiency mechanical systems, housewrap, and a heavily insulated envelope, and by eliminating north-facing windows.

The next important skill applies life-cycle cost analysis or selecting the best buy in specific construction materials or methods. Kitchen counter tops can be constructed of wood, plastic laminate, ceramic tile or granite. When you select the one that has the lowest life cycle cost you’re practicing good value engineering. By life cycle costs, I mean initial costs plus operating costs plus maintenance costs plus replacement costs, all expressed in today’s dollars. Sometimes the best buy is a disposable item like a lightbulb, or a very long-lasting item like a concrete patio or a standard building material like fiberglass asphalt roof shingles. I call these best buys “1 percent solutions.” Using any one of them won’t save you much money, but using 10, 20, or 30 will lead to significant savings both initially and over time.

The third big category of low-cost methods I call “creative response.” Here’s where volunteers, sweat equity, donated material, in-house contracting and other difficult – but potentially very cost-reducing – techniques reside. Developers should be flexible and willing to scout around for such opportunities.

The last way to save money in affordable housing is with an efficient, high-production developer. Many affordable housing producers are miserably inefficient. Only a few shops have ever reached even a moderate level of production, and low production is often associated with overdesign.

False Affordability

Low-income developments are often expensive to build for a variety of reasons. The developer, the local government, and the financiers want to be associated with an over-designed, expensive-looking, aesthetically pleasing product. With locally controlled block grants, housing money may be viewed as political spoils and homes as prizes for effective political organizing. Some developers are carrying the guilt of our society and feel we ought to provide high quality to make up for past inequalities and thus purposely avoid true affordability.

Many affordable housing developers also stress quality over quantity because bankers, syndicators, even state housing finance agencies all demand that the properties be worth more than they cost to develop. In most distressed communities, following the number one rule of location, location, location, the appraised value is also distressed, below market and below total development costs. Developers over-improve property with public funds to protect the underlying mortgages. The better way to achieve high value is through low-cost new construction and component rehab.

Another problem may lie in the switch in the perceived client due to neighborhood control of housing dollars. Subsidized housing programs are initially funded to aid lower income groups and special needs individuals. Neighborhoods are usually most interested in a limited geographic market that requires revitalization. When the neighborhood is the client, the goal of housing the poor and disabled can be quickly abandoned for “build the best we can.” Like the examples cited by Mr. Buki, many affordable housing projects are used primarily as community development programs, appropriating the housing funds of the masses in an attempt to invigorate the community.

Some of the movement towards overdesign comes from low-income clients themselves, who may have a misunderstanding of the low-end market available to all first-time home buyers. People purchasing starter houses often demand many of the characteristics of middle-income, move-up housing.

Even those developers who understand the need for truly affordable homes are often defeated by the difficulty of the task. Low-income housing is beset by thousands of well-meaning but expensive historic, environmental and public review regulations. Another difficulty is that aspects of affordable housing development, such as value engineering, cost-benefit analysis, and maximization of appraised value are second-level skills that most developers learn only after the third or fourth project.

Standards of Affordability

Each community and developer must define its standards for affordable low-income housing. In a rural setting, a $28,000 manufactured home may be the standard. Another example is found in a $30,000 single-family ranch of the Nordau subdivision in Howard County, Maryland. City Home, Inc. in Baltimore provides affordable housing through renovation of 100-year-old brick townhouses even though their construction costs are escalated by special needs populations they serve. City Homes is an especially efficient developer whose six staff members have lived exclusively off of market-rate construction, development, and property management fees since 1987.

Such low-cost projects don’t dismiss design entirely; they just demand superior practitioners who understand that affordable housing must be conceived within clients’ needs and with the recognition that very few housing dollars are available. In 1986 a small group of outspoken developers, construction managers, and code officials began to promote the low-cost development concepts described above. If all nonprofit housing developers had subscribed to these guidelines, at least 250,000 additional families would be housed today.

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