Is It Possible to Build Affordable Housing?

June 28th, 2022  / Author: Cesar Gomez

Public housing developers from Northern California are having trouble building a unit for less than $1 million due to the high costs of materials and labor. The taxpayers’ money should have provided more units, but the inflation is making it hard to complete projects on previously decided terms.

Northern California, especially the Bay Area, has the highest rents in the US and it is facing an affordability crisis. There is an increasing number of people with financial struggles, and many of them are just above the poverty line. Accordingly, all levels of government recognized the issue and decided to provide help.

Direct funding is aimed at building and renovating housing units, and the government is offering tax credits that reduce Treasury loans to banks funding these projects. The goal is to have housing for 600 low-income families.

Work In Progress

Right now, there are seven active projects: three in San Francisco, two in Oakland, one in San Jose, and one in Concord. Not one of these projects costs significantly south of one million dollars per unit. The most expensive project is a 69-unit housing in San Francisco, which is notorious as the most expensive place for renters. One unit in this project costs $1.2 million to build.

Developers say that the $80 million projects in San Jose need to be done, and soon. These units are addressing the youth homelessness problem, and offer housing to foster kids and their families. Concord project is based around creating an 84-unit space, to offer rent for half the median Bay Area rents - each unit costs $1 million from start to finish.

However, the rising cost of building is slowing everything down. We wrote before about the chain-supply issues, the lack of labor, and the inflation of building materials. However, some news sources insist that it is precisely the government that disrupts the process.

Private Developers Face Fewer Obstacles

Public housing developers are complaining about the unnecessary long process of getting approved, more stringent environmental and labor standards, as well as the bureaucracy of securing the financing. There are also higher parking requirements than for private developers.

Investors are going to have to cap the rent, they are obligated to keep it low enough so that low-earners can afford it. One of the San Francisco units with two-bedroom, three-bedroom, and four-bedroom apartments will have a capped rent sliding from $1,186 - $2,805.

To compare, the median rent in the Bay Area for a two-bedroom apartment is $2,559 a month. However, the problems are already emerging. Since there are so many people in need, there are units with two families living under one roof.

Developers are looking for help from governments on all levels, to find a solution for a supply-chain problem, as well as to speed up the process. They are also having trouble finding a way to cut costs, without taking something essential away like a fair worker salary.

LA Times reminds us about a similar housing project in San Diego, which shut down in 2020 because the building costs increased to unsustainable levels. Let’s hope that the same will not happen in the northern part of the state.



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