I really appreciate the article for going into the reasons for the cost of housing being so high. $700,569 per unit just to build housing right now means that even if developers sold at cost, (an...
I really appreciate the article for going into the reasons for the cost of housing being so high. $700,569 per unit just to build housing right now means that even if developers sold at cost, (an unlikely concept in most cases) a 30 year fixed mortgage would cost $2400 a month or $28,800 a year. With the average household income in Salinas being 62k, that's 45% of their income, well above the goalpost of 30% for housing costs and not even thinking about any of the other costs of owning a unit.
It's easy to denigrate for-profit developers for their many failings (shoddy materials, low building life expectancy, limited range of housing options flooding the high-end of the market, etc,) but there's a huge amount of money sunk into each and every desperately needed building. California is projected to need 600,000 new housing units each year for the next three years, and is currently building about 80,000. Housing costs are cripplingly high for many residents of California, and with the cost to build so high no amount of increased supply will actually bring the price down very much without housing subsidies.
It's possible that some efficiencies can be gained through improved zoning and construction codes that allow for smaller/more efficient housing, and new technologies may eventually open up new resources for construction materials, but it doesn't really seem like housing is going to get cheaper.
For comparison, Project Homekey converts former hotels into housing for "vulnerable individuals" at less than $200,000 a unit. I thought that was a lot, but I guess it's a bargain? It makes me...
For comparison, Project Homekey converts former hotels into housing for "vulnerable individuals" at less than $200,000 a unit. I thought that was a lot, but I guess it's a bargain?
It makes me wonder whether new construction makes sense for affordable housing. Maybe new housing should be sold at market rates and older buildings converted into affordable housing?
Also, I wonder what it means to "apply for federal tax credits," whose taxes are lowered, and why they were approved now. Being able to delay until next year would probably save a lot of money?
Converting older apartment buildings to affordable housing is a great idea, imo. Especially as almost all housing is being built for sale at (fairly unaffordable) market rates, moving older...
Converting older apartment buildings to affordable housing is a great idea, imo. Especially as almost all housing is being built for sale at (fairly unaffordable) market rates, moving older properties into enforced affordability seems like a great choice.
I actually have a bit of familiarity with how the federal tax credit system works. Essentially, it's a way of subsidizing housing without the government outright handing over money. An organization who controls a property can get an ongoing tax credit for making the units low-income for a term of 55 years. On its face, this is pretty good. The tenants get long-term protection, the stock of affordable housing increases, the owner gets money to make up for decreased rental income, everyone's happy.
However, the tax credits are, in themselves, a monetizable asset. In addition to new construction, there's been a (somewhat predatory) push to have independent affordable housing communities sell their building to an investment firm in exchange for cash up front. The investment firm can harvest the tax credits and pay a third party to manage the building. This seems ok, but it has led to long term trends of consolidation in the affordable housing management industry, with commensurate reductions in quality of management.
As the property manager only really has to report to the far away investment company who only really cares about the tax credits, the tenants are now merely the product at the center of a money cycle that mostly flows between the government, the investment company, and the property manager. This is a downside for previously independent communities, as their agency when it comes to their housing situation mostly vanishes.
I have so many questions about why Homekey costs $200k per unit. I would assume hotel units are largely well on their way to being full-time livable. May need some extra appliances to enable...
I have so many questions about why Homekey costs $200k per unit. I would assume hotel units are largely well on their way to being full-time livable. May need some extra appliances to enable cooking one's own food in them, but $200k a pop? Wish they had some photos on their site or something, like a before/after.
You can find the pdf for property and design guidelines here. They go into more details throughout the doc and I haven't had time to deeply read it but this is from the executive summary on page...
You can find the pdf for property and design guidelines here. They go into more details throughout the doc and I haven't had time to deeply read it but this is from the executive summary on page 3:
The cost of converting a property to permanent housing varies depending on the following key cost drivers:
Change of use and code compliance: converting hotels and motels built before 1/1/2008 is not considered a change in use. Converting any other type of building (including newer hotels or motels) to residential is a change in use that will trigger the entire structure to be upgraded to meet current code;
Size of units: Whether they meet (or must meet) minimum unit sizes;
Extent of fire protection (rated walls and ceilings, extent of fire alarm and fire
sprinkler systems);
Whether kitchens or kitchenettes are already present in units, or if plumbing,
ventilation and electrical services are convenient to add kitchens;
Degree of accessibility provided at the property;
Cost of securing the property (e.g. fencing and gates);
Building location and configuration with respect to seismic concerns;
Age and condition of roof, HVAC units, and other building system;
Whether tax credit funding (e.g. through CTCAC) or other sources is
contemplated, and what conditions such other funding requires."
EDIT: From the "Recommendations and Lessons Learned" section on page 40:
One of the biggest cost drivers in the conversion of hotel or motel rooms to permanent housing is the addition of kitchens in each room. This requires plumbing, additional electrical, and ventilation systems to be extended to the kitchen areas (and usually electrical system capacities to be increased). The additional construction also takes a lot of time, during which the property is not available to provide housing. There are two ways to mitigate or minimize this cost:
Select properties for purchase that already have kitchens or kitchenettes in each room. “Extended stay” hotels typically meet this requirement. While the per-room purchase cost may be slightly higher, the overall cost is significantly lower by avoiding the construction and delays.
Consider the model of “Single Room Occupancy” apartments with shared kitchens. Most hotels and many motels have commercial cooking facilities (e.g. for “breakfast bars”) that could be used as shared kitchens. This option was not considered for Project Homekey because the justification for the program was to provide separate living facilities for people at risk of COVID-19, and shared kitchens would have increased their risk of catching and spreading the virus. Outside the pandemic environment, however, this may be a viable strategy to reduce remodeling costs.
Oh I thought that was total cost - acquiring and converting - in the same way I'm assuming the $700k figure includes land cost. If it's just conversion then that definitely does seem high.
Oh I thought that was total cost - acquiring and converting - in the same way I'm assuming the $700k figure includes land cost. If it's just conversion then that definitely does seem high.
Thanks for confirming! Was that in one of the linked docs, then? I did click through but I'll put my hands up and admit that I got lazy before I got as far as diving into PDFs.
Thanks for confirming! Was that in one of the linked docs, then? I did click through but I'll put my hands up and admit that I got lazy before I got as far as diving into PDFs.
I'd very much like to see a breakdown of Californian new build costs by component. It seems that building is expensive in California — and that regulatory hurdles add a significant cost...
I'd very much like to see a breakdown of Californian new build costs by component. It seems that building is expensive in California — and that regulatory hurdles add a significant cost multiplier.
Personally, I'd like to see the mass construction of lower-quality, low-end housing — studios, even cubicles with communal facilities — aimed at low-income individuals as short-term housing shortage triage. It has become apparent that housing stabilization is the necessary base for all other meaningful social progress.
"Cage" homes and other tenement construction in East Asian cities are often the focus of western pity, but they form the critical low end of the housing market there. They're unpleasant, but they're shelter and let people stabilize their lives at least.
In the west, the poor either hit the jackpot with the affordable housing lottery or they're SOL.
Yeah, the local control of zoning and housing requirements is a serious issue. When you combine zoning limits that prevent building more densely with rules requiring housing be set back from the...
Yeah, the local control of zoning and housing requirements is a serious issue. When you combine zoning limits that prevent building more densely with rules requiring housing be set back from the curb so that there's space for a lawn for every house, you get a high cost and a low supply. And indeed, one of the things that Project Homekey is looking at doing is providing individual rooms with private bathrooms but a shared kitchen. Personally I think that communal bathrooms are a downgrade too far, adding in significantly more risk and less privacy for the tenants in exchange for not that much cheaper of construction, but some degree of triage to help handle the housing situation may be valuable here.
I really appreciate the article for going into the reasons for the cost of housing being so high. $700,569 per unit just to build housing right now means that even if developers sold at cost, (an unlikely concept in most cases) a 30 year fixed mortgage would cost $2400 a month or $28,800 a year. With the average household income in Salinas being 62k, that's 45% of their income, well above the goalpost of 30% for housing costs and not even thinking about any of the other costs of owning a unit.
It's easy to denigrate for-profit developers for their many failings (shoddy materials, low building life expectancy, limited range of housing options flooding the high-end of the market, etc,) but there's a huge amount of money sunk into each and every desperately needed building. California is projected to need 600,000 new housing units each year for the next three years, and is currently building about 80,000. Housing costs are cripplingly high for many residents of California, and with the cost to build so high no amount of increased supply will actually bring the price down very much without housing subsidies.
It's possible that some efficiencies can be gained through improved zoning and construction codes that allow for smaller/more efficient housing, and new technologies may eventually open up new resources for construction materials, but it doesn't really seem like housing is going to get cheaper.
For comparison, Project Homekey converts former hotels into housing for "vulnerable individuals" at less than $200,000 a unit. I thought that was a lot, but I guess it's a bargain?
It makes me wonder whether new construction makes sense for affordable housing. Maybe new housing should be sold at market rates and older buildings converted into affordable housing?
Also, I wonder what it means to "apply for federal tax credits," whose taxes are lowered, and why they were approved now. Being able to delay until next year would probably save a lot of money?
Converting older apartment buildings to affordable housing is a great idea, imo. Especially as almost all housing is being built for sale at (fairly unaffordable) market rates, moving older properties into enforced affordability seems like a great choice.
I actually have a bit of familiarity with how the federal tax credit system works. Essentially, it's a way of subsidizing housing without the government outright handing over money. An organization who controls a property can get an ongoing tax credit for making the units low-income for a term of 55 years. On its face, this is pretty good. The tenants get long-term protection, the stock of affordable housing increases, the owner gets money to make up for decreased rental income, everyone's happy.
However, the tax credits are, in themselves, a monetizable asset. In addition to new construction, there's been a (somewhat predatory) push to have independent affordable housing communities sell their building to an investment firm in exchange for cash up front. The investment firm can harvest the tax credits and pay a third party to manage the building. This seems ok, but it has led to long term trends of consolidation in the affordable housing management industry, with commensurate reductions in quality of management.
As the property manager only really has to report to the far away investment company who only really cares about the tax credits, the tenants are now merely the product at the center of a money cycle that mostly flows between the government, the investment company, and the property manager. This is a downside for previously independent communities, as their agency when it comes to their housing situation mostly vanishes.
I have so many questions about why Homekey costs $200k per unit. I would assume hotel units are largely well on their way to being full-time livable. May need some extra appliances to enable cooking one's own food in them, but $200k a pop? Wish they had some photos on their site or something, like a before/after.
You can find the pdf for property and design guidelines here. They go into more details throughout the doc and I haven't had time to deeply read it but this is from the executive summary on page 3:
EDIT: From the "Recommendations and Lessons Learned" section on page 40:
Oh I thought that was total cost - acquiring and converting - in the same way I'm assuming the $700k figure includes land cost. If it's just conversion then that definitely does seem high.
As laid out in Micycle_the_Bichael's comment, the acquisition cost is included in that number.
Thanks for confirming! Was that in one of the linked docs, then? I did click through but I'll put my hands up and admit that I got lazy before I got as far as diving into PDFs.
I'd very much like to see a breakdown of Californian new build costs by component. It seems that building is expensive in California — and that regulatory hurdles add a significant cost multiplier.
Personally, I'd like to see the mass construction of lower-quality, low-end housing — studios, even cubicles with communal facilities — aimed at low-income individuals as short-term housing shortage triage. It has become apparent that housing stabilization is the necessary base for all other meaningful social progress.
"Cage" homes and other tenement construction in East Asian cities are often the focus of western pity, but they form the critical low end of the housing market there. They're unpleasant, but they're shelter and let people stabilize their lives at least.
In the west, the poor either hit the jackpot with the affordable housing lottery or they're SOL.
Yeah, the local control of zoning and housing requirements is a serious issue. When you combine zoning limits that prevent building more densely with rules requiring housing be set back from the curb so that there's space for a lawn for every house, you get a high cost and a low supply. And indeed, one of the things that Project Homekey is looking at doing is providing individual rooms with private bathrooms but a shared kitchen. Personally I think that communal bathrooms are a downgrade too far, adding in significantly more risk and less privacy for the tenants in exchange for not that much cheaper of construction, but some degree of triage to help handle the housing situation may be valuable here.