California's state housing finance administrators published a long-delayed study October 13 on the cost of building affordable housing. It found no single factor to blame for California's high costs per unit. But it said economies of scale tend to help, and multiple layers of restrictions don't help, and that perhaps cost containment should be a more important factor in awarding housing tax credits.

The study found per-unit new construction costs averaged about $288,000 across the period from 2001 through 2011, for all units financed by the California Tax Credit Allocation Committee (TCAC). Those units would have been financed primarily with state and federal low-income housing tax credits, but with other funding sources layered in as well, especially where deep affordability subsidies were used to house people living on public benefits or minimum-wage incomes.

Overall, costs increased when projects involved community opposition, local design-review requirements, underground or podium parking, or funding from redevelopment agencies. Smaller units cost less; higher construction or energy-efficiency standards cost more. Economies of scale were possible when a big developer, a big project, or a general contractor was involved: "for each 10 percent increase in the number of units, the cost per unit declines by 1.7 percent."

Among other findings, the study said high land costs tended to raise per-unit costs even when the price of the building site wasn't part of the calculation, because expensive building sites tended to be used for taller structures that were more expensive to build.

In general the study concluded that developers' own choices can influence costs, and costs rise when requirements are added by the demands of a particular location or cooperating funding source. It suggested adding "a greater emphasis placed on cost containment or cost efficiency" in the competitive application process for tax credit allocations.

The authors reported they attempted to gather market-rate project costs as a basis for comparison but received few sufficiently complete responses from developers so the results were unscientific. In general they found market-rate construction costs averaged higher.

The cosponsors of the study were four state agencies: the Department of Housing and Community Development (HCD); the California Tax Credit Allocation Committee (TCAC), which distributes state and federal LIHTC credit allocations; the California Housing Finance Agency; and the California Debt Limit Allocation Committee.

The full text of the report as posted this month is on the HCD Web site at http://bit.ly/1rtNZN6.

Although the project was described as prepared "over the course of a year," it appeared to be the institutional descendant of a September 2011 hearing on affordable housing costs before the TCAC. Materials from that initial discussion are still posted under the heading, "Affordable Housing Cost Study" at http://www.treasurer.ca.gov/ctcac/tax.asp. The September 14, 2011 hearing transcript contains extended testimony by leading subsidized-housing developers, housing administrators and affordability activists about the reasons why it is expensive and difficult to build new affordable housing in California. See http://www.treasurer.ca.gov/ctcac/staff/2011/20110914/transcript.pdf.

The RFP for a study that followed the hearing set a timetable entirely within 2012. It is still posted at http://www.hcd.ca.gov/2012_affordable_housing/Final_AH_cost_study_RFP.pdf.

Both the 2012 RFP and the final study included a section interpreting the notion of cost containment more broadly. In the final study, this section sets out a case for affordable housing as a means to reduce greenhouse gases, improve local economies, educate children into employable, manageable adults, and reduce the costs of police, medical and social programs that are commonly applied to lives disrupted by the lack of adequate housing.

A Los Angeles Times report that includes further summaries of the final study results is posted at http://lat.ms/1wDBSBz. Highlights as viewed by the National Housing & Rehabilitation Association are here.