In recent weeks, publications such as the Voice of San Diego and San Diego CityBeat have published articles on the cost of affordable-housing developments. A California state commission led by the treasurer was recently convened to review this issue. As a developer of affordable housing, I welcome this scrutiny. I hope that the legislative issues that drive up the costs of building affordable housing will come to light, and that reforms at the state level can be implemented to reduce restrictions. This would bring down costs of building affordable-housing projects.
Affordable-housing developments have public goals and additional requirements that are often associated with higher cost, such as the requirement to pay prevailing wages. Nonetheless, the cost to build affordable housing is not as “wildly inflated” as it has been presented in some cases.
The Price Is Right?
For example, my company Affirmed Housing Group’s downtown development Ten Fifty B was the subject of criticism in a recent article. Ten Fifty B is a high-rise tower in downtown that is 100 percent affordable. Development costs for Ten Fifty B were $350 per square foot, or $397,000 per apartment. It was suggested that a two-bedroom, market-rate apartment could be developed in downtown San Diego for $250,000 per unit. As a developer, I know that this is virtually impossible.
It is difficult to demonstrate, however, because market rate developers don’t share their financial information with the public. I have reached out to two of San Diego’s most prominent developers Sherman Harmer, president of Urban Housing Partners, and Perry Dealy, president of Dealy Development Inc. Both developers agreed that Ten Fifty B was very cost effective.
Mr. Harmer said: “The project is not only a great complement to the neighborhood, but a real asset to downtown. The price per square foot Ten Fifty B was built for was a remarkable value.”
Mr. Dealy said, “I am currently working on seven different type 1 projects downtown and the pro forma for a high-rise concrete frame structure is north of $450/square foot in all.”
Spreading the Wealth
Ten Fifty B is one example that not all affordable housing is more expensive than market-rate housing. Of course, there are affordable developments that do have higher costs due to added requirements. However, it is important to note that affordable housing also provides communitywide economic benefits which should be factored into the equation.
In San Diego, affordable housing achieves many of the “smart-growth” goals for our communities — making housing central to work and recreation. Many affordable developments are mixed-use, bringing valuable retail and restaurants into urban areas, removing blight, and providing neighborhood renewal. Most of the multifamily building permits issued during the recent economic downturn have been for affordable developments, which create jobs and positively impact the local economy. While some affordable developments may cost more than market rate, affordable housing often provides the intangible benefit of community renewal and economic growth.
Building affordable housing also offers the state an opportunity to leverage federal low-income-housing tax credits to create jobs and housing in local communities.
My firm and others are certainly mindful of rising costs to develop affordable housing. I welcome a review by our state Legislature on this issue. I am confident that it will be discovered that the majority of developers are wise stewards of their resources, building affordable housing within the parameters defined by legislation. I am eager to work with legislators to find ways to reduce restrictions on affordable developments, allowing developers to construct such developments in a more cost-effective manner.
Jim Silverwood is the president and CEO of Affirmed Housing Group.
