Affordable housing project costs increase with inflation

Like their constituents, county officials struggle to keep pace with soaring construction costs and high-interest rates due to historic inflation.

During Thursday’s board meeting, Pinellas County Commissioners unanimously approved providing an additional $1.56 million in funding for construction cost increases associated with the Seminole Square Apartments. The affordable housing development will feature 96 multi-family units, all reserved for households making at or below 80% of the area median income (AMI).

In February, commissioners approved $4 million in funding assistance for land acquisition at 2075 Seminole Blvd. in Largo. However, soaring construction costs put the project in limbo.

Commissioners voted on using additional Penny for Pinellas money for Seminole Square at Thursday’s meeting. However, County officials elaborated further on the impact of cost increases on affordable housing during a Sept. 15 work session discussion about the project.

Commission Chair Charlie Justice noted that continuously absorbing 16% to 18% cost increases would eventually come at the peril of future developments.

“At some point, something falls off,” said Justice. “Either a whole other project at the end doesn’t get funded at all, or we have to start deciding to curtail other projects.”

The future site of the Seminole Square Apartments, 2075 Seminole Blvd. in Largo. Screengrab.

At a time when the area needs housing the most, said County Administrator Barry Burton, officials must also deal with hyperinflation. He said his colleagues could stop subsidizing the affordable projects and wait for the possibility that costs decrease, but that is counterintuitive to addressing a critical need.

Despite potential objections from neighbors, Burton said the county must push density bonuses to make the cost per unit more feasible. Justice noted there are no easy answers for administrators, and Burton relayed having similar conversations with his staff.

“I will tell you – I pushed back on this one,” said Burton. “Why? Because we’re absorbing a huge percentage of the increase.”

City documents state that since the project’s application earlier this year, cost projections have jumped from $27.55 million to $30.76 million, or 11.6%. The developer renegotiated debt terms to mitigate $804,227 of the shortfall, and the City of Largo approved adding $840,000 to its previous offering.

The city’s total funding commitment is now $1.45 million, while the county provides $5.56 million.

“So, everyone is giving,” said Burton. “But just from a numbers standpoint, the developer at some point says, ‘ok, well, I can’t make it go.'”

Commissioner Dave Eggers expressed his concern that the developer, Archway Partners, was not contributing enough to the project cost. Burton reiterated that without substantial subsidization developers would walk away from affordable housing projects.

Eggers also questioned whether spending over $30 million for 96 units was a good value.

Bruce Bussey, community development manager, said that the project offering all of its units under 80% of the AMI is a significant factor when comparing Seminole Square to other developments. In addition to increasing construction and labor costs, Bussey noted that rising interest rates also contribute to the need for more funding.

“Over a million dollars of these increased costs are from interest impacts,” said Bussey. “That a year ago, when this application was first vetted, weren’t anticipated.”

The county previously provided about $25,000 per affordable unit in subsidies, explained Burton. Now, it is over $30,000.

St. Petersburg officials and developers are struggling with the same problem. Burton relayed a recent conversation with “a municipality that’s desperate to try to increase the number of affordable units,” and their proposals were over $70,000 per unit.

Eggers noted that the county would now provide nearly $60,000 per apartment at Seminole Square. “It comes back to the bigger question,” said Burton. “What are you willing to spend?”

Pinellas County Commissioners unanimously approved the funding increase.