$1 Million For An Apartment: “We Could Get That!”

The Los Angeles Times in June published a story with the headline, “Affordable housing in California now routinely tops $1 million per apartment to build.” I suppose the headline was intended to shock. It should. But I’m not shocked or surprised; I’ve been pointing out the rising cost of subsidized housing for most of the last decade and urging another approach. The amount reminds me of John Dean’s conversation with President Richard Nixon about payoffs to keep the Watergate burglars quiet. Certainly, Dean thought, if I say “$1 million” the President will change course. But he didn’t. Nixon said, “We could get that.” Will government and non-profits finally change course or will they keep saying, “We could get that” for ever more pricey subsidized housing?

So why, according to the Times, is private non-profit housing so expensive per unit?

“In comparison with private sector development, low-income housing is often saddled with more stringent environmental and labor standards. Affordable housing projects also frequently face high parking requirements, lengthy local approval processes and a byzantine bureaucracy to secure financing.”

I’ve been writing about this for a long time, and way back in 2018 I got a chance to hear what people said about my criticism when I was not in the room. It turns out that the project I often mentioned, an 88-unit project on Capitol Hill in Seattle with a price tag of $47 million, was really getting under the non-profit developer’s skin (the Capitol Hill Housing Improvement Program, called CHHIP at the time). I had done simple division to arrive at a per-unit price tag of $534,000 per unit. This upset many in the non-profit world who agreed, in private, that it was more expensive than market rate housing and that the reason, in one board member’s words, “there are cost differentials, we could give examples of why it might be more expensive and that those things should be changed (i.e., government regulations).”

I always liked to think of this transcript as the “smoking gun” because while people were mad at me for pointing it out, when they were alone in a room with each other, agreed that their product is more expensive that it should be and much of that cost was regulation. Has this spurred a move toward deregulation of housing? Of course not. Especially when legislatures, local governments, and businesses keep giving non-profit housing groups more and more money to produce increasingly expensive units.

The Times story has all the things I’ve experienced over the years, with officials avoiding public comment, complaining that the reasons things are so expensive is that there is not enough money being spent, and lots of finger pointing. But get rid of all the rules? There was a backlash when I suggested back in 2016 that maybe then incoming President Donald Trump might drain the swamp of Low Income Housing Tax Credit Housing (LIHTC) housing by eliminating the requirement for prevailing wage, higher wages, often than market wages for workers on LIHTHT
C projects. I heard right away from proponents of the LIHTC system: “Gotcha,” they said, “The federal government doesn’t require prevailing wages!” Ok. But can you name a LIHTC project that hasn’t paid prevailing wage? “Umm, well, no,” was the answer.

Now that the Los Angeles Times has done actual journalism and exposed the scandal of non-profit subsidized housing, we’ve crossed into Doctor Evil territory with the number $1,000,000 for a subsidized unit will we see reform? I doubt it. The low-income non-profit housing complex has broad political support from Republicans and Democrats. And don’t forget, many well-heeled lawyers getting paid for transactions on low-income housing; the Times story found that “a significant part of the cost comes from developers paying attorneys and consultants.” These interest lobby congress relentless for more tax credits and money, maybe even more than non-profits.

Finally, politicians can pander to local neighborhood interests with restrictive zoning knowing that the lack of supply they’ve created won’t be blamed for high prices, but instead greedy developers and landlords. The only solution, of course, isn’t loosening regulation, but demanding more money from federal and state government. Local politicians boost prices with regulation, a housing inflation crisis follows, and then state and federal politicians arrive with cash to subsidize million-dollar units. So yes, as Nixon said, they can get that.