Local affordable housing unit costs top $350,000

A common refrain within the affordable housing development community is that “if it were easy, everyone would do it.” Two experts detailed the complexities and costs for city council members Thursday.

The overarching goal was to better understand the inherent risks and challenges that prevent developers from creating much-needed, attainable homes. Those begin and end with money, as each unit now costs between $350,000 and $400,000 to build.

Amy Foster, housing and neighborhood services administrator, told the Housing, Land Use and Transportation Committee that the affordable housing “landscape is constantly changing.” She also noted that capping rents at 80% or 120% of the area median income (AMI) can make or break a deal.

Denise Kelly, an urban strategist and principal at Future City Consulting, and Steven Beal, owner and president of the Housing and Community Development consultancy firm, led committee members through an extensive presentation. Beal stressed the importance of local governments maximizing “every dollar you have available to contribute to affordable housing developments.”

“We don’t want to over-subsidize, nor do we want to under-subsidize a project,” Beal said. “We want to contribute what is actually needed and determine the true gap.”

The construction process begins with site selection and land acquisition, which Beal called a “source of significant risk and upfront costs.” He worked with a developer who spent nearly $1 million out of pocket and did not close on the property.

Feasibility studies, design and permitting, navigating zoning and environmental regulations and contractual negotiations add to the upfront costs. Beal said developers often seek market-rate rents to help compensate for those risks “on the back end.”

Kelly and Beal stressed the importance of strategic planning, collaboration, adaptability and applying industry best practices to create more affordable housing. “There’s no real straight path any longer; it takes a complex mix of investors, private capital, subsidies, incentives – anything that can impact the bottom line,” Kelly said.

While streamlining permitting processes provides a significant benefit, Kelly said zoning reform is “where you will find ways to increase housing.” She noted that Pinellas County lacks developable land and credited the city for allowing accessory dwelling units (ADUs) in more areas.

Kelly said modular construction can “massively” reduce costs. However, prefabricating housing components and assembling the parts on-site is “not really at scale here in Florida.”

The state lacks manufacturing facilities that create the “types of financial efficiencies that we’re looking for.” Modular construction also creates a “very cumbersome logistics process,” and most companies have a 500-mile travel limit.

“It’s a way to bring new industry to the state,” Kelly said of manufacturing facilities. “This is a way to create many aligned industries and economic impacts, beyond just a multi-family development.”

A crane lowers the bottom half portion of an Amherst Studio Built home onto its foundation at 3165 4th Avenue S. in St. Petersburg. Photo by Mark Parker.

She noted the opposing viewpoints within the development community regarding building in coastal high-hazard areas due to a lack of land. However, those projects would exacerbate soaring insurance costs, which often top $1,500 per unit.

Developments in flood-prone areas also require fill dirt to elevate the property. “There are so many costs associated with that,” Kelly said.

Environmentally sustainable construction in Tampa Bay is “even more critical.” Kelly said using concrete blocks rather than wood is “exponentially more expensive, but also necessary.” Beal said developers can also receive tax credits for “eco-friendly” projects.

The two also preached the benefits of local governments owning the land and leasing it to developers with affordability restrictions. Beal said that would negate high insurance and property tax costs and increase project feasibility.

Combining residential units with commercial and recreational spaces is another emerging trend. While locally common in market-rate and occasionally mixed-income developments, the practice is rare for strictly affordable housing projects.

“Mixed-use projects, I think, are really a very smart way to develop,” Kelly said. “I personally like to use the smallest footprint to preserve green space and park space, public realm space.”

She told the atypically quiet committee that current economic uncertainties make “every aspect of this even more challenging, from land acquisition to capitalization.” Projects that cater to those who earn up to 80% of the AMI – $66,800 for two people in St. Petersburg – are the most difficult, “but also more critical.”

The detailed presentation’s conclusion underscored that point. Beal walked council members through an example of a workforce housing development with 100 units capped at 120% of the AMI – $100,080 for two people in St. Petersburg.

Beal highlighted how the $52.5 million project would garner $3.3 million in annual rents. The developer must pay for insurance, property taxes, debt servicing and operations before applying any of that revenue to the total development cost.

“So, you can imagine going from 120% and making a requirement that the set-aside is 60% of the AMI,” Beal said. “It would look drastically different, and the deal, from a developer standpoint, would not pencil out without some significant form of subsidies.”