To enhance local affordability. To foster inclusive communities.

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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.

Balancing trade-offs between the quantity, quality, and location of affordable housing (pointing at map)

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

Research shows that when residents of affordable housing in distressed neighborhoods move to low-poverty, resource-richA term to define neighborhoods that offer abundant amenities, such as access to quality schools and public libraries, streets and parks that are free from violence and provide a safe place to play, and fresh and healthy food. areas, they may experience meaningful improvements in mental and physical health, and even higher rates of college attendance and graduation and increased earnings over time.[3] Affordable housing located in amenity-rich areas allows families to access high-quality schools, public transit, and job centers, and limits their exposure to high levels of crime or environmental pollution. The benefits of these areas are particularly evident among children who move when they are very young.[4] However, the amenities and services that make resource-rich areas great places to live also have the effect of driving up land prices in these areas, making it more costly to develop dedicated affordable housing units and reducing the number of units that can be built with a fixed amount of subsidy. To maximize access to resource-rich areas, local jurisdictions may choose to focus on preserving existing housing that is affordable to lower-income households and located in those areas. Preservation may in some cases be less costly than building new units. (See related brief:  How should cities balance preserving existing affordable rental housing and building new affordable rental developments?) As with new construction, however, preservation of affordable homes in these areas may come at greater expense than preserving units in lower-cost areas. Preservation inventories enable local officials to quickly and easily identify assisted housing that may be vulnerable to loss when income restrictions expire. Cities, towns, and counties can also reach out to owners of “naturally affordable” properties in higher-cost areas to offer incentives for continued affordability. Local jurisdictions should also be actively involved in identifying neighborhoods that are gentrifying or are likely to do so in the coming years. By acting early and investing in areas that are in transition, it may be possible to secure land at lower prices. Cities, towns, and counties can be proactive in identifying and securing property in areas where amenities and services are likely to improve over time – such as sites near planned public transit stations or areas beginning to experience gentrification – before prices escalate substantially. In pursuing these opportunities, local jurisdictions face the challenge of trying to get ahead of the curve and predict which areas will become more desirable over time. Municipalites should be proactive but also realistic about their ability to effectively compete against the private sector, which may require a significant commitment of resources and willingness to accommodate high levels of risk that the neighborhood will not become a place that is appropriate for new residential development. Acquiring land after redevelopment has already begun in a neighborhood means taking on lower levels of risk but paying higher prices. Conversely, land acquired too early may need to be held for a long time before it becomes marketable, potentially at a high cost. Alternatively, or in addition, local jurisdictions can focus on capitalizing on rising demand for housing in particular neighborhoods by offering density bonusA zoning exception granted by a municipality to allow for more housing unit to be built on a given site, such as increase in dwelling units per acre, floor area ratio, or height. It is often granted to buildings that accomodate a fair share of affordable units for working and other incentives to incorporate affordable housing in market-rate development or establishing a mandatory inclusionary zoningRegulation or incentive to include units within a development for low- and moderate-income families. Also referred to as inclusionary housing. program. Some cities, towns, and counties also establish a local land bankPublic entities that acquire, manage, maintain, and repurpose distressed properties — particularly vacant, abandoned, and foreclosed ones. to hold and secure land that is not yet ripe for development, but shows promise for the future. Local jurisdictions have also had success in pursuing joint development agreements with local transit agencies. These agreements allow land owned by the transit agency to be acquired or leased, ideally at below-market prices, for development of affordable housing. The residents of such housing provide built-in ridership for the transit system, helping to advance housing, transit, and climate goals. Local jurisdictions can also be creative in identifying new development opportunities in existing high-cost areas by re-purposing surplus or under-utilized public land for affordable housing. In some cities, this has meant building low-cost units on top of a library or fire station, or otherwise co-locating affordable housing and public structures.

Other factors for cities, towns, and counties to consider when deciding how to balance quality, quantity, and location of affordable housing include:

  1. 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.)
  2. 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.
  3. 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.
  4. 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.

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