
Why Is 'Affordable' Housing So Expensive to Build? - misnamed
https://www.citylab.com/equity/2017/10/why-is-affordable-housing-so-expensive-to-build/543399/
======
IkmoIkmo
I was expecting something else...

Let's be frank, affordable housing typically isn't expensive. Construction
costs around the country and indeed the developed world aren't too far apart.
In the US it's about $100-200 per square foot, in Western-Europe it's
€1000-1500 per square metre.

The problem isn't really in construction, typically. Of course, there's always
room for improvement everywhere, in construction too. But the big culprit are
land prices. Take the Mission, they quote units costing $600k each, not
affordable housing. But you're talking about a place where you need to pay
$1.5m to just buy the piece of land on which you then build three small $100k
units, for an average of $600k each.

Completely different story from the $100k unit in 'Portland', which was
actually Gresham, east of Portland, where the average square foot price to buy
land+home is <$200. Oh and the units were 375 square foot... $100k is
expensive, if anything. The author completely ignores the market realities,
again, mostly of expensive land prices.

And this creates the debate as to whether we should subsidise such housing.
After all, if you put the same quality house in another city with cheaper
land, you could build 4x as many homes, or twice as many that are twice as big
or twice as luxurious. Why should we subsidise a fraction of our poor people
to live in the most expensive place on the planet with public money that could
go towards helping a larger fraction of people?

That's a though question to answer, I find... and I struggle with it,
especially because I'm one of those guys who's in favour of these subsidies.
Economic segregation is damaging in many ways, plenty of sociological studies
have shown. It's important to keep our cities accessible to everyone and
create a healthy mix of people from all socioeconomic backgrounds, as opposed
to rich enclaves and poor ghettos. But, finding the balance is hard. I don't
live in the US but we have similar problems here in Western-Europe with
subsidised housing, at the end of the day it's an issue of land prices
skyrocketing, it doesn't have as much to do with construction costs as we tend
to think. And it's really hard to find the right balance of using public money
to buy expensive land for a small group of people.

~~~
Retric
The obvious solution to this is to build taller and thus more expensive
housing in major city's. Unfortunately simply building large buildings like
this directly results in 'slums'.

I suspect the way around this is to require the first X floors to be
affordable housing without subsidy, and then let people build as many
expensive floors above this as they want. This attacks the problem from both
ends by reducing the impact of land prices, avoiding blighted areas, etc. But,
avoids directly handing money to developers which is a clear avenue for
corruption.

~~~
slg
That plan causes a whole set of other problems when actually executed. First
off, two big factors in the price of an apartment are location and amenities
of the building. So you can't really build affordable and luxury units in the
same building. What you end up with is luxury units and subsidized units. That
is certainly a category of "affordable", but the result is a bunch of people
will get angry sharing their building with other residents who are paying a
fraction of the price for basically the same apartments.

Also not everyone who needs affordable housing is a working class family that
is trying to pull themselves up by their bootstraps. You can get a lot of
"less desirable" residents like current and recovering addicts or people with
mental illnesses. They obviously deserve affordable housing, but you will find
that plenty of people who buy luxury apartments don't want to share the
elevator with them.

You can just check the Yelp reviews of any building that has a mix of luxury
and subsidized housing to see examples of these issues. Buildings like this
always attract bad reviews, suffer from high turnover, and therefore have low
occupancy rates among their luxury units.

~~~
Retric
You could have separate entries for each part of the building and not share
amenities, but this gets back to the central idea. If you allow people to
segregate by price then they will do so. If every building in a city must have
some affordable units then the city as a whole is better off, but it's going
to feel less exclusive.

I can see both sides of the argument, but we need to figure out how to build
cities that work or we are in for a lot of chaos.

~~~
boulos
Separate entries are often done, but rightly referred to as "the poor door". I
don't think there's much sense in half measures to do affordable housing:
making a building that is effectively segregated is less efficient and
sensible than the current San Francisco "just pay us" system.

~~~
Nomentatus
But the poor want half measures a great deal more than they want none.
Sometimes a door is just a door, and ya don't need access to the swimming
pool, just to your job.

------
wpietri
I was expecting more to the article than I got. It doesn't really answer the
question. I don't even think it asks the question well.

E.g., is the question really "why is affordable housing so expensive?" or is
it "why is housing so expensive?" They hint that publicly funded housing might
be more expensive, with a mealy-mouthed "the case has been made". But they
give just one apples-to-oranges comparison, and, worse, one hypothetical
comparison. Where's the statistical data?

It also doesn't look at all at _why_ we need affordable housing. E.g., with
rapidly spiking inequality (in the US generally, and especially in SF), demand
for affordable housing is going up.

In talking like we can't afford it, it doesn't put numbers to that, either.
For example, in 2015 the US spent $71 billion on the mortgage interest tax
credit, 90% of which went to households making over $100k/year. If we stopped
subsidizing the housing of rich people, could we afford to subsidize the
housing of poor people? And might that giant subsidy be part of why housing is
so expensive?

So A+ title, D+ content.

~~~
T2_t2
I agree about your assessment of the article, but I think you've missed the
question of the right abstraction. Why does SF/Bay area need affordable
housing? Sure, the world needs affordable housing, but why does the Bay Area?
Why is the right level for affordable housing the region, and not the state or
the country or, heck, in the other direction the suburb or street? Why is this
city region the correct abstraction?

We've reached a point where certain places - London, NYC, San Francisco,
Singapore, Hong Kong and perhaps even Shanghai - are so large and economically
important that the idea they should include affordable housing, when there are
alternatives that are much more financially effective, seems a little off to
me.

I'm not sure why anyone would want to live in affordable housing in SF, when
everything is so expensive. Wouldn't it make more sense to move whole family
groups to Portland, for the same prices as one of those families could live in
SF? Not even that far, to Oakland maybe, or the outskirts.

And why is the right abstraction one house? A policy of whole family moves, or
community moves so people keep their connections, would seem like a more
sensible idea. People stay in areas that are awful often because they don't
want to lose those connections - which I 100% get. So why not move groups of
people - willingly - so they have the best of both worlds?

~~~
erikpukinskis
For what it’s worth, the U.S. is built on the strategy of pushing people who
grew up on a piece of ok land onto shittier and shittier land to make way for
settlers, until the displaced people are in such remote, harsh places that
they can barely survive.

So there is precedent for what you’re proposing.

But the argument against it is that people have some sort of right to remain
in their “homeland”. And that a city whose “native sons” can’t afford to live
in it isn’t a healthy city. That a healthy city has places for both rich and
poor. For owners and operators. For speculators and locals.

------
lj3
There's a great reddit post where an LA architect specializing in multifamily
residential units explains why all of the new units being built in LA are
luxury condos instead of low cost housing.

tl;dr: city specific zoning laws.

To be fair, the post is specific to LA, but it makes me wonder what legal
hoops developers have to jump through to build in other cities and how
expensive those hoops are.

[https://www.reddit.com/r/LosAngeles/comments/6lvwh4/im_an_ar...](https://www.reddit.com/r/LosAngeles/comments/6lvwh4/im_an_architect_in_la_specializing_in_multifamily/)

------
schmidtc
I was expecting this article to provide some insight in regards to the title.
It does not. The article should be titled, “Here Are Some Examples of
Expensive ‘Affordable’ Housing Projects”.

------
pdx6
In Brown we trust, along with Scott Wiener; these are the only two politicians
doing anything to address housing prices. In San Francisco, the Mayor's Office
of Housing (SFMOH) has created a complicated program of silent second liens to
enable 'low' and 'moderate' income residents purchase regular condos at below
market rate. Units built strictly for income bands and subsidized, or
'affordable units', run into a problem of funding; it is either developers who
elect not in include below market rate units (BMR) and pay into the fund or
churches building their own structures such as Mercy Housing.

But what about the land? I don't think that has to be the major cost, at least
in San Francisco. There are a plenty of vacant lots owned by the city, and in
a recent case the feds sold land for $1 to the city for pre-fab condos near
the court house for 'formerly homeless'. Indeed, if you have an apartment, you
are no longer homeless.

And this is where we start talking about the real expense -- union labor. The
pre-fab units clock in at under 250k each, but they are built over in
Vacaville with non-union labor. Anything else needs highly paid craftsmen
which goose a market rate unit over 700k+. If the lot needs to be abated for
pollution, usually for former gas station sites, the price goes even higher
plus delays. Want steel framing for going over 7 stories? The price goes up.
Not that SF Planning's zoning will allow 7 stories, even near BART.

The solution to affordable housing is to just build more housing -- just
regular housing. Built it tall, 100 stories or more, and right on top major
transportation lines like BART stations -- on all 4 street corners. We'll need
to overcome labor costs and zoning before we can get there.

------
notadoc
$700,000 per unit? Or even $100k? For "affordable" housing?

Meanwhile, in Mississippi.... regular brand new houses (not "affordable"
housing) are actually affordable at $150k, or less than a down payment in any
west coast US city.

[https://www.zillow.com/ms/new-homes/](https://www.zillow.com/ms/new-homes/)

Or check out a brand new 2200sq ft house in Indiana for $200,000 that would
sell for about $2.5 million in the Bay Area, or about $1.5 million in Seattle
or Portland

[https://www.zillow.com/community/harrison-
lakes/2095745355_z...](https://www.zillow.com/community/harrison-
lakes/2095745355_zpid/)

Sometimes I wonder why people aren't more willing to move to new states. I
realize that Indiana and Mississippi aren't particularly "cool" and certainly
not trendy, but what matters more in life? Being in a trendy spot, or actually
being able to afford a reasonable lifestyle?

~~~
khuey
Median income in the SFBA: $96,677 Median income in Mississippi: $36,919

~~~
notadoc
Take a bay area income and telecommute from the south and you're really living
large.

But really, even at the much lower income levels of the south the money goes
so much further.

~~~
khuey
Taking a bay area income and telecommuting from the south is not an option for
the vast majority of residents of the bay area.

------
beager
It seems to me like one of the big problems with "affordable" housing in
desirable areas is that everyone who has bought an "unaffordable" house is now
in on the con, and "affordable" housing threatens to correct (read: deflate)
the value of the very expensive thing that they have bought.

I'm not a homeowner, but being near NYC, if I manage to get myself into buying
a home, I would probably be inclined to support any measure that ensures that
the demand for my home—and therefore its price—continues to rise at as great a
rate as possible to make sure that I wasn't on the hook for a large
depreciation on my mortgaged property. This is the reverse of my current
desire, which is for housing to be affordable enough for me to get into so I
don't have to rent and can provision that part of my income toward building
wealth and not someone else's wealth. The moment I become a homeowner, those
motivations flip.

If the median home price were closer to the median income in a given area, I
surmise that the desire from homeowners for increased demand and value would
abate, because homeowners would stand to gain or lose less in their house vis
a vis their income. Instead, you have folks who may gain more value in their
homes in one year than they would make in salary. And conversely, price
correction at such a great disparity to median income would mean that you now
owe the bank a year or more's salary more than what your home is worth.

~~~
pixl97
>who has bought an "unaffordable" house is now in on the con,

Yep, people are using houses as investments instead of just places to live.
When a person is invested in something they _will_ willingly engage in
behavior that leads to harmful outcomes to everyone, even themselves long
term.

A corollary of this is summed up in this famous statement

“It is difficult to get a man to understand something, when his salary depends
on his not understanding it.” -Sinclair

~~~
Tempest1981
Sure, if you're 100% sure you will never move, you can ignore the financial
aspect. But people _do_ move, for many reasons. If you owe more than your
house is worth, now you're trapped. Hard to ignore.

I assume this is one reason we have zoning rules -- so you know what your
neighborhood will look like in 10-20 years. Important with a 30 year mortgage.

(If your point was those with 2nd homes or investment properties that they
don't live in -- that's an issue. See Vancouver, and various Bay Area cities.)

Edit: by "investment", you might mean someone seeking an appreciation of $500k
vs $300k. I was thinking of $0k vs losing $200k. It happens.

~~~
grandinj
so one option would be to limit the length of mortgages, which has been tried
elsewhere and supposedly slows down the land price growth

------
boulos
Because it hasn't been mentioned yet, here in California / San Francisco
there's finally a bill being put forward to mandate higher density near
transit:
[https://sf.curbed.com/platform/amp/2018/1/4/16850000/transpo...](https://sf.curbed.com/platform/amp/2018/1/4/16850000/transportation-
near-housing-bonus-wiener-ting) .

The challenge really is that people block this kind of development. Most of
San Francisco is 2-3 stories with 3-6 units per building. Given the value of
the land beneath, that sets a floor on pricing greater than $200k per unit.
Then you have to pay for all the legal and development fees to push this
through the planning process, and work with the community. The reason
developers make small buildings is that they don't stand a chance at getting
larger buildings through community input, discretionary reviews and so on.

It's not clear to me that this new bill attempts to address that angle. FAR
(floor area ratio) isn't nearly the burden the article makes it sound like,
but DR (discretionary review) from neighbors certainly is, and often rightly
so. Presumably having a transit bonus on the books will encourage planning to
tell people "tough shit" if they're trying to oppose larger projects in
transit dense areas. Expect bigger projects in SOMA and the Mission :).

------
ivm
In Chile we have an incremental building program: you get half a house
constructed and finish the other half by yourself. The cost per unit was less
than $10k in 2002.

[https://99percentinvisible.org/episode/half-a-
house/](https://99percentinvisible.org/episode/half-a-house/)

------
CharlesMerriam2
I think 'Affordable Housing' is one of the topics where people gloss over the
basics.

* Affordable Housing returns are always below market-rate housing. * Requiring a percentage of building to be affordable housing is a tax. Builders have an interest in avoiding taxes. * Acquiring an affordable housing unit is a long term benefit. Those advocating for housing have an interest in acquiring benefits. * Long term housing prices are driven by regional economics. * Short term housing prices are can be manipulated. Solving manipulations like the simultaneous remodeling of large complexes; raising rates with too little notice to effectively move; or jumping rates by high percentages in a year have different solutions.

Thinking in these terms separates concerns of equity in society; the high cost
of service workers in congested areas; the rise of empty buildings; the
gouging of existing tenants; and subsidized housing for some workers.

Recognize this debate has been going for a while. On could argue that
providing cheap housing for the Phoenician immigrants would make Athens better
for Athenians, or that people like Plato need an affordable place to live to
make our city-state great!

------
octaveguin
A solution to the housing a problem never mentioned is intentional
communities. They seem to solve a good portion of the problems.

Here's why they make sense:

1\. They can be cheap because they can be built in places with low land prices
and low regulations. These are the chief factors in why housing is so
expensive.

2\. They can solve desirability by building together that stuff that makes a
city desirable - other people, businesses, walkability, modern design.

3\. They're more feasible than ever because remote work is so practical that
you don't have to live in the middle of a city for a job.

4\. A model for bringing people who have this goal together has been recently
validated on a large scale (kickstarter type systems).

So I'm left wondering - am I just not seeing the projects or why have I not
heard of them?

~~~
dragonwriter
> They can solve desirability by building together that stuff that makes a
> city desirable - other people, businesses, walkability, modern design.

The things that make a city desirable (and supportable) are largely natural
features of its location, which you either can't currently practically
engineer (pleasant weather) or which are very expensive to engineer (like
access to fresh water supply). Places that are currently unpopulated and have
low land prices are usually lacking these things.

~~~
mch82
How come people continue to live in flood planes, hurricane zones, or the
Northeast?

Massive Winter Storm Hits Northeast - [https://www.npr.org/sections/thetwo-
way/2018/01/04/575643483...](https://www.npr.org/sections/thetwo-
way/2018/01/04/575643483/blizzard-conditions-possible-as-massive-winter-storm-
hits-northeast)

~~~
dragonwriter
> How come people continue to live in flood planes, hurricane zones, or the
> Northeast?

Because those places have desirable geographical features, like access to
fresh water (flood plains tend to have this in spades), access to arable land
(doesn't always support high density, but supports at least people to farm and
support farming, because people living elsewhere need to eat), access to
natural features that are convenient in trade (like navigable waterways and
natural harbors), access to valuable natural resources, etc.

------
agrarianjustice
As a thought experiment, what would happen if a city like San Francisco
required you to own the home or condo you lived in, and provided financial
guarantees. So any non-owner occupied residence was illegal.

And then the city paid a variety of contractors to build studio apartments
which would rent for $500/month without any commitments, deposit or credit
score. With 2-4BR for families.

The thought is the city, community & companies build up immense value for real
estate owners. It's somewhat unfair to create this fantastic system we have in
the Bay Area, where all these smart hardworking people gravitate to work on
new, sometimes transformative ideas but then we channel lots of the profits to
early real estate holders who effectively got lucky. While unnecessarily
adding a ton of stress to people's lives.

Of course, it would never be implemented. But the basic idea is that all
apartment rentals would be through an open system via local government and all
condos & homes would require the owner to live in them.

~~~
lev99
I don't think as many people would want to move to the Bay Area is they were
forced to either buy a home or rent municipal owned housing.

~~~
closeparen
Stopping people from moving here is the most popular thing a Bay Area
politician could possibly do.

~~~
lev99
Attracting young smart workers is one of the Bay Area's greatest assets, from
an outsider's point of view.

~~~
closeparen
Voters find the low density (light, air, lack of bulk, lack of height) to be a
much more important asset, and the two are not compatible.

------
EADGBE
This really does stems down to the lack of building something affordable, even
in affordable cities. Most people have it in their heads they need something
much better/bigger than they actually do.

Every new house built is larger than traditional smaller/starter homes. My
30-year-old 1200 sqft home isn't produced anymore here. I'd say, on average
this has turned into a 1600 sqft, 3-car, multi-level (or more) home. New
starter homes (in traditional terms) are really just for senior-age targeted
clientele which forgo more bedrooms for a larger bedroom size (empty nesters
target possibly?).

We're having fewer and fewer kids (on average - I've got 3, which presents its
own issues in the house hunt), but we're needing more and more square footage
for everything. There's a slight adjustment for this by what seems to be a
reduced lot size, but this is only marginal, and allows maybe one or two
houses on the street than previous standard lot size 40-50 years ago.

Every apartment complex that goes up has to be "posh" and include shopping
underneath. (There's very little multi-family units going up, most are 30
years or older). Most of the rents for a 1 or 2 bedroom in these developments
in already the cost of my 15-yr mortgage.

 _This is just what I experience, but it seems relatively the same, in every
suburb surrounding my relatively large city, including inside city limits
itself._

------
nautilus12
Increase taxes to build affordable housing. Hand the contract over to a
developer. Developer builds $700,000 units. The model is not economically
sustainable. Increase taxes. Rinse repeat. Now even the middle income people
can't afford to buy a $300,000 house, and have to move into the affordable
housing. Housing developers are living like kings.

Welcome to the USA, where taxes are spoken for before they are even levied.

------
coldcode
Housing is often not an issue so much as land is. Even billionaires have
trouble finding land in the Bay Area, but there are many cities in the center
of the country with lots of land where building basic housing would be cheap.
The other issue is having the land and housing near enough to a supply of
jobs. Look at Detroit, you can get incredible deals but the jobs are no longer
there.

~~~
panic
We have plenty of land, though! The similarly-sized Tokyo metropolitan area
(5,419 square miles, 37.8 million people) has over six times the density of
the 9-county Bay Area region (6,966 square miles, 7.68 million people).

------
CapitalistCartr
We can build affordable housing easily here in Florida; we rarely choose to.

We can build 800sq. ft. (75 sq. m.) apartments in 3 story buildings for about
$40,000, not counting land.

But we don't. Because most Americans don't want to live in 800 sq. ft. and
most builders want to cater to the middle standard deviations of the
population. They make more money selling to people who make more money.

------
pcurve
I'm sorry, charging $700k for units like pictured here isn't anything out of
ordinary considering some units will have up to 4 bedroom.

[https://www.eastbaytimes.com/2017/10/11/emeryville-
affordabl...](https://www.eastbaytimes.com/2017/10/11/emeryville-affordable-
housing-project-breaks-ground/)

It's not exactly located in cheap area either.

[https://www.google.com/maps/place/3706+San+Pablo+Ave/@37.832...](https://www.google.com/maps/place/3706+San+Pablo+Ave/@37.8322188,-122.2799415,16.42z/data=!4m6!3m5!1s0x80857e11bbfaf877:0xbbaa197891b68995!4b1!8m2!3d37.828093!4d-122.278539)

Building up makes sense, but considering complete lack of undeveloped land in
this area, that's not really feasible.

In some countries, residents of a city block can work with real estate
developers to build-up, and as long as 80%-85% agree, the project proceeds.
Not sure if equivalent mechanism exists in CA.

------
ksec
A few things to add and few already mentioned in other comments.

1\. We need to compare price per Square Foot or Square Metre. Not One / Number
Bedroom housing that (Strong Words Deleted) used when comparing. I pointed
this out in the previous Founder salary article when they mention New York has
a slightly more expensive One Bed Room Flat rent then Hong Kong or Tokyo.
Well, the NY One Bed room flat's bathroom is properly bigger then the actual
one bed room flat in Hong Kong.

2\. When we say building cost, i tend to separate building and finishing. As
mentioned in other comment, construction costs around the world isn't that far
apart. After all metals, cements, etc are pretty much the same level of
pricing everywhere. The Cost of material dont differ much, it is the labour
cost that has higher variation, but even so the difference in labour cost of
developed countries Vs the differences in total cost of the apartment /
housing is negligible.

3\. While we have tech and Automation to make building cost cheaper, finishing
cost scales linearly with the area you are selling. Floors, Electric Wires ,
Waters, Pipes, etc all these are still labour intensive. And we have no way of
bringing this cost down.

4\. Not that any of the above matters, because when we have limited supply of
land due to politics, prices of land will shoot up. The only places I know
that is immune to this blood sucking property investment bubble is either
Germany or places where population density is very low.

5\. Take Hong Kong for example, you could literally buy up every single Flat
on sale in the market, protest on every government land proposal due to
environmental concern or what ever, and you have a Housing Market that only
goes up.

The creation of fiat currency and money supply with limited land means in some
places in the world we are forever slave of rent or mortgage.

------
notatoad
I don't see an answer in the article, but are there any comprable unsubsidized
housing projects that can be compared to? Is housing simply that expensive to
build, or is this a problem of beaurocracy or other inefficiencies specific to
subsidized housing?

The quote about reducing the regulatory burden for but only for affordable
housing to cut down on the cost seems telling - essentially admitting that at
least some portion of the regulations in place aren't necessary and are simply
a waste of money.

~~~
dragonwriter
> The quote about reducing the regulatory burden for but only for affordable
> housing to cut down on the cost seems telling - essentially admitting that
> at least some portion of the regulations in place aren't necessary and are
> simply a waste of money.

It is not such an admission, because it could just as well view the regulation
as generally beneficial but in tension with the goal of providing affordable
housing.

You are viewing desirability of regulation in an unreasonably context-blind
and binary manner.

------
monkeypizza
Check out this video explaining why you can buy new detached homes in Tokyo
for about 300k usd.

[https://www.youtube.com/watch?v=iGbC5j4pG9w](https://www.youtube.com/watch?v=iGbC5j4pG9w)

* Land owners have an absolute right to develop their own land - neighbors can't block you. * You can build a 60 m^2 x 3 floor house on 100m^2 of land, or more.

So basically they build way denser, and reduce opportunities to
block/rentseek.

------
bostonscott
The central problem is the motive. Low income individuals do not have such a
powerful lobby that they're able to compel States to create laws that require
affordable housing. It's the real estate/development/construction lobbies.
They are very powerful and affordable housing is a big business. Everyone has
to get their cut.

------
ggm
How much of the build cost is land cost? How much of the build cost is local
compliance costs? How much of the cost is market adjusted price, and not
actually cost per se?

------
hbgl
The bottom line is that affordable housing is expensive because it is provided
by a central planner.

------
bluedino
Land is cheap. Even in high priced areas there are always parcels ripe for
redevelopment.

There are two reasons: one is that the units are built out more luxurious than
they need to be. At least 30-40% higher.

The second is union labor (or prevailing wage) you're spending three times the
amount on labor as hiring local, cheaper labor.

~~~
albertgoeswoof
> Even in high priced areas there are always parcels ripe for redevelopment.

Please tell me where these are, I’d love to know so I can redevelop them and
make a few million.

------
conanbatt
The best way to increase worker's income, reduce housing costs and eliminate
all the ridiculous laws around housing regulation and property taxes is to
replace sales tax and prop taxes for land value taxes.

As soon as the political gain to block construction dissapears, developing
anything will be much cheaper and changes into policy will come with popular
demand both by renters and landlords.

