Today the National Council of State Housing Agencies released a report conducted by Abt Associates on Low-Income Housing Tax Credit (Housing Credit) development costs. The Government Accountability Office has been conducting an analysis on the same topic that will be released this month.
The report found Housing Credit-financed apartments on average cost roughly the same to develop as a typical apartment, even as Housing Credit properties must by law meet many requirements that typical apartment buildings do not.
The analysis of more than 2,500 Housing Credit properties containing more than 160,000 units, over a multi-year period from 2011 – 2016, found that the median total development cost for a Housing Credit apartment was $164,757 per unit, and the mean total development cost was $182,498. This data includes both new construction and rehabilitation of existing properties.
In comparing the costs of only new construction, including soft costs and land costs, multifamily apartments overall cost roughly $196,000 – $204,000 per unit between 2011 and 2016, while Housing Credit apartments cost an average of $209,000. The report noted that while the cost of new construction for Housing Credit developments was slightly higher than the cost of developing new market-rate properties, the higher costs are likely explained by financing requirements that generally do not apply to market-rate apartment developments, such as the need for higher upfront operating reserves and funding to cover the developer’s services. Market-rate apartments can generate capital to pay these costs by charging higher rents, while residents in Housing Credit properties are required by law to pay restricted rents.
The report also looks at factors that impact costs, such as location, development and unit size, and development types. Total development costs were higher for properties in metropolitan areas and in HUD-designated difficult development areas and qualified census tracts, and were also higher for properties that have fewer units, more bedrooms, and multiple financing sources going into the development.