There have been countless headlines over the years about expensive affordable housing projects and prices in San Diego and across the state have only continued to spike.
Seventeen new construction projects reviewed by the San Diego Housing Commission in the past few years cost an average of $574,000 a unit. Several projects in the city housing agency’s pipeline totaled substantially more per unit.
Given the steep demand for subsidized affordable housing and limited funding, we decided to dive into five especially pricey projects to clarify what’s driving up costs.
What we found: Agencies that help fund affordable housing projects often demand or incentivize amenities, policies and investments that benefit residents and the broader community. That increases costs for these projects reliant on government subsidies.
The added charges come in addition to standard development expenses such as land purchases, site upgrades and building materials that have also been rising.
In the end, line items such as added parking or higher pay rates for construction workers can help fuel eye-popping per-unit costs that aren’t just about new apartments.
Unique project plans such as on-site commercial space and the complex financing process for affordable-housing projects also can increase project tabs.
Affordable-housing developers say higher-cost projects generally make their jobs more challenging. More costs translate into the need for more funding sources, which can then add requirements that add more costs.
“We’re making tradeoffs every time we add a requirement,” said Stephen Russell of the San Diego Housing Federation, which advocates for affordable-housing developers.
Russell and others argue those mandates can be worth it. But they also add to the tab for lower-cost subsidized units that many low-income San Diegans are clamoring for.
SkyLINE Apartments in Rancho Bernardo
The plan: 100-unit, five-story housing project with one-, two-and three-bedroom units and commercial space at a Metropolitan Transit System bus stop
Outside funding: Seven sources including city and county loans, a state infrastructure grant and state and federal tax credits
Estimated cost: Nearly $911,000 a unit
What’s driving up the cost: Mandates from MTS and other plans not solely tied to the project’s housing dramatically increased costs.
MTS, which is leasing its land for the project, required developer Affirmed Housing to replace 85 parking spots which tacked $4.1 million onto the project cost. The MTS deal also called for Affirmed to pay prevailing wages and to enter into a project labor agreement with workers – requirements that Affirmed estimates added about $17 million. (Mandates to pay prevailing wages and union-friendly project labor agreements generally result in higher hourly rates for workers.)
The project also includes a nearly 13,000 square foot commercial space that Affirmed expects to make its new headquarters. This space – which Affirmed plans to rent from MTS – will cost about $5.3 million that can’t be backed by affordable housing subsidies. Jimmy Silverwood of Affirmed said required water and sewer upgrades and adjustments to the landslide-prone property collectively added another $4 million in costs.
Cuatro at City Heights
The plan: 117-unit project spread over four sites along Interstate 15 with 85 units set aside for low-income families and 30 for homeless veterans plus commercial space
Outside funding: Nine sources including federal tax credits, state loans, a state infrastructure grant and a city loan
Estimated cost: About $842,000 a unit
What’s driving up the cost: For decades, four scattered plots near the I-15 that split City Heights sat vacant. Wakeland Housing and Development Corp. decided to pursue housing and community space on the long-barren lots at the urging of former City Councilmember Georgette Gómez. Executing the project that Wakeland argues a market-rate developer wouldn’t take on has been complicated.
Wakeland reports it spent about $4.9 million acquiring the mostly publicly owned properties in 2019 and took out a loan to do so that added $1.5 million in interest charges. More than 13,000 square feet of commercial spaces expected to eventually house the City Heights Community Development Corp. and United Women of East Africa added another $2.1 million to the project tab that can’t be covered by affordable housing subsidies.
Peter Armstrong, Wakeland’s vice president of real estate development, said the need to construct four buildings also added substantial costs. They’re paying for four elevators, amenities including four laundry rooms, four sets of plans and various analyses, and workers to construct each new building. And at one point, Armstrong and CEO Rebecca Louie said, scoring priorities for state programs shifted and led Wakeland to rework its plans to include homeless veterans. That meant $460,000 in new architectural and design costs.
The Iris at San Ysidro
The plan: 100-unit affordable housing project that includes 15 permanent supportive housing units for formerly homeless residents
Outside funding: Eight sources including state tax credits and city, county and Housing Commission loans
Estimated cost: About $663,000 a unit
What’s driving up the cost: Developer National CORE reports it spent nearly $7 million acquiring San Ysidro property that’s close to the trolley, a feature that made it a better fit for affordable housing tenants and more expensive. To make way for its apartments and other future development, John Seymour of National CORE said the developer has also invested $5.2 million in water, sewer and other infrastructure upgrades in the area. He said a decision to accept 25 federal project-based housing vouchers means National CORE must pay prevailing wages to those who work on the project, a dynamic it projects will add more than $5 million to its labor costs.
Like Russell of the Housing Federation, Seymour said government funding sources like these often include requirements and incentives that benefit the community – while also adding costs.
“We get these big wins and sometimes they’re offset by costs, but then again sometimes those costs do make sense,” Seymour said.
Serenade on 43rd in City Heights
The plan: 45-unit affordable housing project mostly made up of studios and one-bedroom apartments, including for 32 formerly homeless people with serious mental illnesses, plus the rehabilitation of 20 existing naturally affordable apartments
Outside funding: Four sources including federal tax credits and loans from the city, county and Housing Commission
Estimated cost: About $624,000 a unit
What’s driving up the cost: Developer Wakeland is teaming with a nonprofit to build new affordable apartments and upgrade two small apartment buildings with naturally below-market rents next door. Wakeland and nonprofit Housing Innovation Partners collectively spent $6 million buying the properties and penciled in another $700,000 in relocation costs for families living in the existing complexes who will be welcomed back.
The decision to incorporate existing apartments isn’t the approach a typical market-rate developer would take. Wakeland decided it wanted to help preserve existing low-cost housing.
Wakeland also chose a particularly pricey building design with a steel and concrete ground floor it decided was needed to make way for amenities such as common areas and parking on the small infill site, tacking on another $700,000. Armstrong said Wakeland’s decision to accept project-based vouchers for the property to serve formerly homeless San Diegans meant it needed to pay prevailing wages to workers, adding an estimated $3.4 million in labor costs. That move also translated into the need to include security features and other amenities for about $500,000.
Modica Family Apartments in Clairemont
The plan: 94-unit affordable housing project with one-, two- and three-bedroom units that’s part of a larger more than 300-unit development at the county’s former crime lab site
Outside funding: Six sources including a county land loan, state and federal tax credits and a Housing Commission loan
Estimated cost: About $619,000 a unit
What’s driving up the cost: Developer Chelsea Investment Corp. reports that the site requires underground parking and related work that costs about $2.5 million. Heidi Mather of Chelsea said stormwater upgrades and the need to do overnight construction and take traffic control measures to accommodate the busy area added another roughly $2 million. The developer’s decision to equip some units to serve people with intellectual and developmentally disabilities by adding features such as grab bars and waterproofing in bathrooms tacked on another $150,000.
Interestingly, Chelsea’s decision to include the value of the land the county is offering up for its project in reports to the Housing Commission and other agencies inflated the project’s on-paper by $92,000 a unit.
This example drives home how the process to seek subsidies for affordable-housing projects can increase costs – even if they simply push up the reported cost. In many cases, government subsidies and the process to access them does lead to real cost increases.
Mather said the county provided a nearly $8.7 million upfront loan to the project that matched an appraiser’s estimate of the value of the developer’s property lease, essentially canceling out the land cost on Chelsea’s balance sheets. Mather said Chelsea chose to incorporate land costs in project estimates to help it fare better in tax credit competitions that provide incentives for projects that leverage multiple funding sources.
Mather said Chelsea’s deal with the county calls for it to make annual lease payments to pay back the county loan.
Thanks, Lisa, this is a great overview of the problems with anything labelled “affordable” that involves government. In government-ese, “affordable” only means “we’re going to throw tax dollars at something to fool people into thinking something is being done economically” when in reality it’s just a layer of frosting on money being funneled to special interests.
The PLA on the Rancho Bernardo project adds $17M to the deal, which works out to $170,000/unit for the 100 units.
What if our priority in affordable housing were to provide affordable housing to the maximum number of people possible, instead of providing pork to everyone else involved?
Its not pork, Todd. It is government trying to address public goals along with building affordable housing. In order to be competitive developers have to provide: community rooms, outdoor play spaces, and learning centers for residents. They also are encouraged to build it in a “sustainable” way, including the recycling of excess building materials, building with recycled materials, recycling water, and possibly using solar generated electricity. Competitive projects also are incentivized to be located near schools, parks, libraries, etc., which results in a higher land cost.
In the first example, the land is public, which requires prevailing wage even if the project were not subsidized affordable housing. In another example, the building will attract tenants by using publicly funded vouchers. Should we then allow our tax money to be used to pay minimum wage–$16 an hour, BELOW what fast-food workers are now earning–on these important projects? Prevailing wage is the law of CA and the nation, when a valuable public good–in this case, the land or the vouchers–is used for a project. It’s not expendable or optional. We have the right to expect labor standards and fair pay when taxpayers’ money is being spent.
“We have the right to expect labor standards and fair pay when taxpayers’ money is being spent.”
I have the right to expect my tax dollars are spent on the objectives we are told those dollars would be spent on. In this case that would be providing affordable housing.
If someone else has some other priority that’s fine, but when we’re presented with tax increases to fund housing the homeless, we’re not told that the money we’re going to give is going to provide a fraction of the housing that it would using the processes that are used to build the houses we ourselves live in.
“In order to be competitive”.
For SUBSIDIZED housing? Why do they need to be competitive? Do you think that people are going to turn up their nose at under-market rent because it has less amenities or was not built in a “sustainable” way?
Forgive me, but I think we should do everything we can to house the largest number of homeless possible.
Apparently not your priority (or the managers of this project)?
By competitive, that means that the builders are competing against each other to get their projects funded by one or more entities that award points for prospective projects that provide certain delineated desirable features. If you project is not competitive. it won’t get funded.
Why would developers and various government agencies intentionally increase costs to projects when that means fewer units can be built overall? Seems like fuzzy math to me.
As i understand it, the reason developers use various tax credits and government housing loans is because it saves the developers millions in interest payments and/or taxes over time. So, while these funding mechanisms increase labor costs, they also provide a concomitant–frequently greater–cost savings to developers. Are those savings being reflected in the per unit “price,” or is this a way to masquerade the net cost for development at taxpayers’ expense?
Fees per unit combined with multiple permit plan checks and inspectors adding costs increase per unit costs.
A lot of the requirements are well intended but seem to undermine the goal of building as much affordable housing as possible
Thanks. A blinding flash of the obvious. Refreshing!
Very low income and low income rents are often insufficient to pay operating expenses, management fees, property taxes (in cases where affordable projects cannot obtain property tax exclusions), insurance and other costs of operating a rental property. As a result, many truly affordable projects do not have enough money to pay their lenders. Multiple layers of financing–often from grants, government or agencies–are one way to get around this fundamental problem. Still, primary lenders often require a cash reserve to backstop the possibility of default. This reserve can be very large. It is often “borrowed” and included in the “cost” of a project. So a combination of flawed government mandates for expensive design or amenities; inadequate infrastructure that needs to be upgraded prior to construction; ever-increasing land and material costs; prevailing wages and very high financing costs make “affordable housing” more expensive to build than market rate housing. Go figure. The obvious solutions–(1) building on publicly-owned land or land held by churches and other non-profits and (2) more state or local tax exempt bond funds for affordable housing and (3) publicly owned affordable housing have been tried and have not produced a great deal of affordable housing at lower cost. The best thing would be for housing authorities to buy foreclosed homes and apartments from lenders during our periodic real estate recessions. Unfortunately, they did not have the money to do so or the vision that this was the cheapest, fastest way to get affordable housing. Maybe next time.
Great suggestions, and unfortunately only obvious to those who want to actually solve the problem, not set up a system also obviously designed to benefit those who are connected to government as much – or more – than the homeless whose interests they claim to be attending to.
I don’t know its so much lack of vision as it is the usual government cooking.
Let’s make a cake that is mostly benefits to our special interests, with a nice thick layer of frosting over it to convince those who don’t think too deeply about it that we’re helping some deserving group.
Yup, the mayor who has bent the rules to political contribution builders and fast tracked projects, catered to the labor industry with PLA’s. Loans, tax credits, and subsidies to the builders. Then whoever owns these projects gets a nicely appraised tax bill.
While prevailing wages are law – their cost is incredible. Here’s a better question to ask.
What is more important? 30-40% MORE affordable houses OR 30-40% fewer affordable houses BUT workers are paid significantly above market rate?
The state just provided more funding for 20% downpayments on houses for people that can’t “afford” housing. Curious how this makes housing affordable. It only keeps driving prices higher and prevents a market correction from occuring. Only a market correction can make housing truly affordable. Anything that keeps prices inflated is not making housing affordable. The crazy thing about the 20% down payment subsidy is that it only gets paid back if the people ever sell at a significantly higher price compared to what we paid. While government is pushing these affordable solutions it is simultaneously managing policies that increase our housing costs.
They act like paying decent wages is some onerous strain. I am sure all the directors and project planners are making prevailing wage already.
All the money goes straight back into the local economy anyway.
Here are 10 friendly online jobs that can help you earn money. If you want to become a freelancer instead of working directly with a company, qu this site is a great place to start.
Go >>>>> https://Day1Self.blogspot.com
Can we ban corporations and venture capitalists from purchasing single-family homes and limit the number of condominium/apartment complexes they can own? They are driving up the costs of homes throughout the country.