It’s expensive to build housing. And we need more of it. Figuring out ways to reduce costs reasonably is something on everyone’s agenda.
We’ve talked about it recently in our roundtable on zoning and regulation, and in Alan Mallach’s provocative piece “Don’t Build Mixed-Income Communities, Buy Them.” There are ongoing conversations about how green building affects affordability, depending how long term you look.
But you know what doesn’t help lower the cost of affordable housing? Spuriously blaming some of the organizations that are working hardest to create it in the most difficult situations, or implying that new affordable housing in booming central cities isn’t worth it.
Unfortunately, this is exactly what happened in the recent CityLab piece “Why Is Affordable Housing So Expensive?,” in which regionalism advocate Myron Orfield claims one of the problems is “the high overhead costs of CDCs” and is quoted as arguing that “central city development programs are inefficient, spending much more per unit of new affordable housing in the central cities than comparable housing costs in more affluent, opportunity-rich suburbs” and that “many of the leading developers working in the poorest parts of the region also pay their managers very high salaries.”
Joe Kriesberg, executive director of the Massachusetts Association of CDCs, expresses the frustration that many housers felt in response to these assertions:
-The notion that affordable housing built by CDCs is more expensive than affordable housing built by for-profit developers is not based on any empirical evidence that I have seen.
-First, there is no nationally recognized definition of the term “CDC” so we don’t even have agreement on which organizations are being criticized.
-Second, I have not seen any studies documenting higher costs among nonprofits or community based nonprofits or CHDOs. Do such studies exist?
-Third, the idea that CDC salaries are the driving force behind the high cost of affordable housing is laughable to anyone who has tried to recruit real estate professionals to work for a genuine, community-based CDC.
Josh Ishimatsu of National CAPACD adds:
Doing affordable housing in suburbs also has lots of other hurdles— NIMBYism and unsupportive local pols are a couple of the obvious ones. But also suburban zoning and how lots have been subdivided means that there are actually very few infill sites that are large enough to put together a property that can be entitled for a feasible affordable projects.
This doesn’t mean, of course, that we give up trying to build in the suburbs, but it does mean that the costs might not be as low as for apparently “comparable” buildings.
Ishimatsu also notes that most of the highest prices described in the article “are in hot markets where the land prices are a big percentage of the increased costs. In most of these hot markets (urban California, especially), suburban land prices in the same regional market are generally going up as fast.” After all, land costs reflect the desirability of an area, and opportunity, including school districts, will play into that. (Also NIMBYism can drive up the cost of even eventually approved projects, with delays and added design requirements.)
It’s also worth saying that transaction costs are just higher on affordable projects due to the layers of financing needed. A simpler more consistent funding stream would help with that, but in the meantime, ignoring this reality when looking at market-rate project costs means comparing apples and oranges.
Finally, since the majority of affordable housing units are currently built by larger developers who are often for-profit, it’s worth pointing out that CDC projects are often the ones that needed doing, but were too risky or had a low return for larger organizations, especially for-profit ones. They might be smaller scale, but have other important community impacts—renovating a long-vacant eyesore on a corner lot, for example, or serving a high-need population, or incorporating increased access to health care. CDCs are often doing harder projects with more ambitious ends—so it is not surprising that sometimes their costs will be higher. These projects might indeed be harder to pull off, but their effects are large. (Not to mention that their developer fees head right back into the community, not to generate profit somewhere).
Community developers are one part of the affordable housing ecosystem (and are by no means perfect or above critique). But they are not the drivers of rising costs. “In Massachusetts, CDCs (we have formal state CDC certification program so the term is meaningful here) build less than 25 percent of the state’s affordable housing,” notes Kreisberg. “I suspect the percentage is much smaller on a national basis since most states do not have as large a CDC network as we do. Why do critics focus so much on CDCs when other players are much more significant? Is there another agenda in play?”
Let’s try to keep away from straw man arguments when we take on the challenges of making good use of scarce subsidy and increasing the available funding. We’re all in this together.