Balancing trade offs between the quantity, quality, and location of affordable housing
Local jurisdictions face many challenges when deciding how to allocate scarce resources for the creation of new affordable housing. The decision of whether to accept a smaller number of affordable housing units in exchange for better-located and/or higher-quality units is often controversial and difficult to weigh. This brief provides guidance for communities facing these trade-offs.
Factors driving the cost of development
A variety of factors contribute to the cost of new single-family and multifamily homes. Many of these factors fall within the broad category of housing “quality”—that is, the combination of features that make a house or apartment building a safe, comfortable, and well-functioning place to live. Key determinants of housing quality that affect cost include the type of building materials used, particularly for major components like roofing, windows and doors, and siding, the level of interior and exterior finishes, the size of the unit(s), and the availability of amenities, such as a computer room or fitness center. The location of the development is the other major factor that drives costs and is reflected in the price of the land.
For affordable and market-rate homes alike, decisions about housing quality and location can result in substantial variation in project costs, even within the same jurisdiction. For example, homes built with triple-pane windows, ample insulation, and other energy-efficient upgrades typically have higher upfront costs than homes built to comply with minimum building codeA set of rules established by a government agency that specifies design, building procedures, and construction details. requirements. Similarly, the cost of land in neighborhoods with high-performing schools, low crime rates, and other sought-after features will generally raise per-unit development costs compared to building sites that can be acquired at less expense.
Quality and durability raise upfront costs
Housing quality is influenced by a range of variables, each of which contributes to the cost of development. For example, construction products, which include everything from flooring to insulation to roofing, are available in a variety of materials and at a wide range of price points. Some of this diversity is simply an effort to appeal to different aesthetic preferences. However, the variation also reflects real differences in quality, durability, and price—with higher-quality, more durable products generally coming at higher costs.
Project amenities are another driver of building quality and cost. Some developers choose to include common features, like computer rooms or community centers, in their developments. These amenities can contribute substantially to residents’ quality of life, particularly when they include educational programming or training. However, setting aside this space within a development limits revenue potential and may contribute to higher development costs.
When allocating available funds within a limited budget, developers and project sponsors should consider not only upfront costs, but also the long-term performance potential and life-cycle costs of operating and maintaining the building.
For example, when homes are built with low-quality products or construction techniques that cut corners, they may need major repairs or maintenance earlier and more frequently than higher-quality structures of comparable size, usage, and location. The use of lower-quality building materials may also result in higher operating costs once the property is occupied, thereby limiting over the long run the number of affordable units that the locality might be able to afford to build and maintain. For example, PVC or vinyl flooring may have a lower initial purchase price and installation cost than alternative materials, but a higher life-cycle cost due its shorter lifespan and higher maintenance requirements.[1] Homes that lack covered entries to exterior doors may be more vulnerable to water intrusion and rot along finishes and the joists that help to support the building.[2] At the other extreme, using extremely high-quality and durable construction techniques and materials can also serve to limit the number of affordable units by pushing up per-unit development costs.
Similarly, buildings that offer smaller units with few amenities or that have poor quality finishes may cost less to develop, but may have lower levels of resident satisfaction. Where alternatives are available, these properties may have high rates of tenant turnover, which can result in substantial management costs. Less desirable developments may also have lower rates of occupancy, which can ultimately impact their ongoing viability. Whether to develop a larger number of lower-quality units or a smaller number of higher-quality units is not a binary decision. Developers and project sponsors make hundreds of choices during the design and construction processes, each of which contributes in a small or large way to overall costs. In balancing decisions about construction quality and quantity of units, it should be possible to find a middle ground between meeting minimum standards to maximize production and offering the highest-quality materials and finishes but only serving a handful of households.
Local jurisdictions can help by establishing construction standards for affordable housing that find a middle ground between quality and affordability. In mixed-income developments, for example, cities, towns, and counties may permit builders to use lower-end finishes for affordable units but require the use of the same durable construction methods and materials throughout the development. Local officials can also help to facilitate partnerships between affordable housing owners and operators and service providers, in order to make additional resident services and amenities available to residents at lower cost.
The relative costs of preservation and land
Other factors for cities, towns, and counties to consider when deciding how to balance quality, quantity, and location of affordable housing include:
- In addition to upfront and long-term costs, the quality of construction and building materials may affect the safety and well-being of occupants. Well-constructed homes built with nontoxic materials provide a healthy and comfortable living environment, helping to reduce the risk that residents will suffer from asthma, headaches, and other serious health issues as a result of their housing. (See the related brief on Improving health of children and adults). High-quality construction is also more likely to withstand a natural disaster intact. (See the related brief on Enhancing resilience to flooding and other climate-related threats for more.)
- Local jurisdictions should also pay attention to design standards. Good design may lessen neighborhood opposition to affordable and higher-density housing, making it easier to create opportunities in amenity-rich areas.
- Some neighborhoods have certain key attributes of resource-rich areas without other amenities that drive up prices. These areas may be ripe for the development of affordable housing for specific populations. For example, neighborhoods with strong transit connectivity and access to medical care but poor quality schools may be good candidates for creation of affordable housing for seniors.
- Proposed affordable housing developments located outside of resource-rich areas may be easier to realize for reasons that go beyond project costs. For example, other neighborhoods may have more favorable land use policies already in place, or residents who are less likely to oppose proposed developments.
[1] Ackerman, Frank and Rachel Massey. The Economics of Phasing Out PVC. December 2003 (revised May 2006), Global Development and Environment Institute at Tufts University.
[2] NAHB Model Green Home Building Guidelines. 2006, National Association of Home Builders.
[3] See, for example, Turner, Margery Austin, Austin Nichols, and Jennifer Comey. Benefits of Living in High-Opportunity Neighborhoods: Insights from the Moving to Opportunity Demonstration. September 2012. Urban Institute.
[4] Chetty, Raj, Hendren, Nathaniel, and Lawrence F. Katz. “The Effects of Exposure to Better Neighborhoods on Children: New Evidence from the Moving to Opportunity Experiment.” American Economic Review 2016, 106(4): 855-902.