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Why does it cost so much to create affordable housing?

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The cost to create a unit of affordable housing can seem staggering, often approaching $200,000 per housing unit. This represents not just construction costs, but the total cost of developing the housing, including the cost of acquisition and environmental remediation, architectural and engineering fees, development fees, the cost of relocating residents during construction, interest expenses, and operating costs during construction.

The creation of permanently affordable housing is expensive for other reasons as well. First, the projects targeted by the Trust often entail the purchase of severely dilapidated properties, considered “untouchable” by most private developers. These projects tend to be expensive because the condition of the building is typically so deteriorated.

Second, WWHT is required to meet stringent development guidelines for housing quality and safety because it receives public funds for its rehabilitation work. Development guidelines include lead paint and asbestos abatement requirements, historic preservation standards, Federal energy efficiency standards, Americans with Disabilities Act requirements, anti-displacement regulations, and other state and federal mandates. These mandates are good public policy, but they do add cost.

Third, high-quality and durable rehabilitation, including the installation of energy-efficient systems, is required to ensure affordability for many generations to come. Public funding is available for the initial rehabilitation, while rents must finance ongoing maintenance and repairs. While initial construction costs are increased, higher-quality rehabilitation upfront often results in the least overall costs when the building is owned for a long period of time and is maintained in good condition.

A significant factor in the overall cost of developing affordable housing has been the escalation of construction costs in recent years. Because the cost of construction is such a large portion of the total housing development budget for WWHT projects, when construction costs go up so do project budgets.

While some have suggested that it would be more cost effective to tear a property down and build (rather than rehabilitate), this is typically not the case. The per-square-foot cost of new construction has averaged about the same as renovation costs, and when the cost of demolishing and removing the building is factored in, rehabilitation becomes even more cost effective.  Furthermore, historic properties often have materials that are more durable than what can affordably be included in a new construction project.

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