Why is Affordable housing so expensive? – Healthcare Economist

From Coby Lefkowitz in Building Optimism:

In Los Angeles, “luxury” units in non-high-rises can be delivered for around $300,000 to $400,000 per unit. Non-“luxury” market rate units can be completed for half of that, conditional on their size and location. Capital “A” Affordable units, on the other hand, can cost more than $850,000 for what is often a rather small and austere space. In San Francisco, they routinely cost more than a million dollars. In New York, where the Affordable construction apparatus is more robust…some units can still run as high as $750,000.

The actual material and labor costs for building an “Affordable” and market rate apartment are not that different. Why is it that “Affordable” housing costs so much?

Contracts for the construction of Affordable Housing using public fund often require the use of unionized labor with prevailing wages requirements…extensive environmental review, and years of community outreach…As a rule, Affordable Housing projects face a financing gap in order to get built. Unlike market rate developments that can attract investments and financing from private individuals and institutions because of the returns they offer, Affordable projects offer no return. They must thus rely on federal subsidies, municipal coffers and grants that have no expectation of yield along with a select few tax credit investors…

Moreover, regulation, oversight, and delays are much more common in Affordable housing units than market-rate units.

You can find more interesting information on how our communities are built in Building Optimism: Why Our World Looks the Way it Does, and How to Make it Better.