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Report: ‘Affordable’ housing actually costs more to build

November 29, 2012
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State-subsidized “affordable housing” projects routinely cost much more to build than those build with private money because of prevailing-wage laws, environmental regulations and general government inefficiency, a new study shows.

By ANNA DUFF
For The Olympia Report

The state of Washington actually pays more to build affordable housing than the private sector does to build market-rate housing, one comparison of two projects in Seattle found.

Members of the House Capital Budget Committee were shown on Wednesday that the affordable housing project studied cost $14,804 more for each unit built than a comparable market-rate development.

Although the affordable units were larger than the market-rate units, other factors typically add substantial costs to the state-funded building, witnesses said.

Those include prevailing wage requirement, which compels builders on publicly funded projects to pay union wages even when non-union workers are used.

Other cost drivers are environmental building standards and so-called soft costs. Those can amount to as much as 23 percent of a project’s total cost, and include architect fees, fees for consultants to help builders wade through a tangle of local, state and federal regulations, and other financial costs associated with projects funded by multiple sources.

“Affordable housing developers do not have the same incentives to contain costs as market-rate developers,” said a report presented to the committee by Common Ground, a nonprofit affordable housing advocacy group.

With public funding, “affordable housing developers…can actually reap financial rewards for spending more money,” because fees are related to the size or cost of a project, the report said.

In all, the Washington State Housing Trust Fund provided affordable housing for nearly 36,000 households last year. Earlier in the week, the HTF awarded $65 million to break ground on 49 new projects creating 2,349 more affordable units statewide.

The Housing Trust Fund provides some of the capital for building or renovating affordable housing, although each project typically finds funding from many sources, including federal and local governments.

That allows the state to add more than $5 in extra funding for every dollar it spends.

Spending from the Housing Trust Fund has declined since its peak of $200 million in the 2007-09 biennium, with $117 million budgeted for the 2011-13 biennium. That sharp decline mirrors an equally sharp run-up in the four years prior to 2007, when spending jumped 145 percent from the 2003-05 biennium.

Still, the decline of recent years has left lawmakers searching for ways to cut costs without sacrificing quality, a topic that was addressed by multiple witnesses at the hearing.

Housing officials are also looking to put in place a web-based affordable housing search program, much like the one already in use in Seattle.

That type of database would allow those in need of housing to find it quickly. It might also help expand the supply of affordable housing. Right now, agencies that help people find affordable housing tend to know only about units at large developments and a database can allow smaller landlords to market their units.

Several witnesses identified a bright spot in trends in homelessness. Since 2006, homelessness in the state has fallen 16 percent, with a 62 percent drop in the number of homeless families.

The city of Spokane has seen even more dramatic declines, in particular showing an 86 percent drop in chronic homelessness.

Jerrie Allard, director of Community, Housing and Human Services for Spokane, credited a program of “rapid re-housing” for the positive trend.

That program provides qualified people with some of the up-front costs of new housing, rather than putting a family through the expensive multiple steps of shelter, transitional housing and then permanent housing.

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