Lower Costs Mean More Housing

I only occasionally skim through my Twitter feed but I spotted something about transit other day that caught my eye: “We must have a serious national conversation about getting transit capital costs under control.” The Tweet linked to a CNBC story about raising the question “Why American Subways Are Some Of The World’s Most Expensive?” This reminded me of the same problem with rising costs of so called “affordable” housing, especially housing built with the Low Income Housing Tax Credit. Not only are the costs of subsidized units on the rise, but worse, nobody (except yours truly) is asking probing questions about why the costs are so high and how to address that. I recently wrote an analysis and recommendation at the Foundation for Research on Equal Opportunity to ring this bell again.

Read the full policy memo at OPPBlog

As for the case of costs, I can give a couple of examples. First, in California, the cost of a subsidized unit of housing has now reached $1 million. In a post titled “$1 Million For An Apartment: ‘We Could Get That!’” The post is about a story in the Los Angeles Times which called out the rising costs of LIHTC housing in California. What I noted in the headline and my post is that these outrageous costs aren’t met with reflection or pause, but restatements that more money is needed. It’s part of a culture that dominates the housing world; when a City Councilmember in Seattle was presented with a drop in the count of homeless people in Seattle, her response was, essentially, that’s not possible because we haven’t spent nearly enough money.

The second was the outrage from a top level public relations person at the Department of Housing and Urban Development (HUD) who demanded a correction when I posted the per unit cost of housing built with the Housing Trust Fund (HTF) in the following paragraph.

“But the performance of this program since 2016 suggests otherwise. According to the Department of Housing and Urban Development (HUD), 3,522 units have been built using money from the HTF at a total cost of $389,007,470 to the trust, or about $110,450 per unit. But a look at the “leveraging” figures tells a different story. For each dollar of HTF money spent, there were 9.5 “other dollars.” That means those 3,522 units cost $4,180,451,732, which means the price tag for each individual unit is a staggering $1,049,281.93. This chart is also from the National Production Report.”

All the figures come from HUD data in the link to the National Production Report. But this outrageous people that should otherwise be concerned. The official that contacted me clarified the numbers saying, “The label “OTHER Dollars for Completed HTF Units” is misleading because these other (non-HTF) dollars are for all units in the project – HTF and non-HTF. HUD will revise the report label to avoid further confusion.” The leveraging figure included funds spent for all the units in funded projects, not just the ones funded by HTF. It’s hard to verify how much these projects cost since I have yet to find a database that accurately reports project costs for all funded projects and what the capital stack of those projects looks like.

It’s this very lack of transparency of answering the question “where did all the money go” that aggravates the problem of answering the question in the first place. The FREOPP recommendation includes a call to require more accurate reporting of where LIHTC is being used and how much it is actually costing taxpayers. What’s true about transit is also true about LIHTC housing. From the CNBC report on subways:

“High labor costs, overbuilt tracks and stations, and onerous regulations all jack up costs . . . the high costs hurt the case for public transit in less dense areas of the country. Lowering those costs could go a long way toward building affordable and accessible public transit for smaller cities around the country and reducing traffic congestion, pollution and traffic accidents.”

I’ve pointed out that rural areas don’t get much benefit from LIHTC or many other subsidies because the LIHTC model is so expensive. People earn more in bigger cities, even poorer people, and thus can pay more rent. Yes, residents of LIHTC projects have to pay rent. And in those bigger cities costs are out of control. I wrote about Los Angeles’ Proposition HHH which raised millions and caused Ezra Kline to call the costs insane. I highlighted one project including a swank rooftop deck funded with an array of subsidies including HHH funds.

“Why is the project so expensive? It isn’t the deck. According to Urbanize, it is “due in part to the use of Type I construction, the inclusion of subterranean parking, and a project labor agreement.” There it is, regulation and prevailing wage requirements.”

I hope that the larger housing community, both advocates and non-profit developers, can join me in asking the question of why LIHTC and other subsidy programs are so inefficient. As I repeat often, efficiency is compassionate. Lower costs mean more units and more people housed. And just as important, freeing up market production means deeper subsidies for people who need more than just an apartment key, but more sustained support.