NCSHA Releases Key Study of Housing Credit Development Costs
Today, NCSHA released new independent research by Abt Associates on Housing Credit development costs across the nation. NCSHA commissioned the study, Variation in Development Costs for LIHTC Projects, which finds that for properties placed in service between 2011 and 2016, the median total development cost (TDC) per unit, inclusive of soft costs and land costs, was $164,757 and the mean TDC per unit was $182,498, adjusted for construction cost inflation. The research is based on nationwide data from more than 2,500 Housing Credit properties containing more than 160,000 units, representing approximately 47 percent of all 9 percent units and 20 percent of all 4 percent bond-financed units placed in service over the time period studied.
The findings of the Abt Associates report, along with NCSHA’s analysis of construction cost data from Dodge Data and Analytics and common estimates of soft costs and land costs, suggests that new construction of Housing Credit properties, on average, costs roughly the same as new development of apartments in the market at large, even as Housing Credit properties must by law meet many financing and policy requirements that generally do not apply to market-rate apartment buildings. The report, together with NCSHA’s analysis, also suggests that Housing Credit development costs have grown at a slower rate than development costs for apartments overall. NCSHA believes this is due in part to sound program administration by the states
The Abt Associates report analyzes cost changes over time, locational differences in costs, and the impact of various project characteristics on costs. It finds that:
- Location is a major driver of development costs, with higher costs for projects developed in New England, the Mid-Atlantic, and Pacific regions compared to other regions of the country. These relationships held true even when Abt analyzed total development costs without land, suggesting the higher cost of land is not the sole factor driving this finding. Costs were also higher for projects developed in principal cities of metropolitan areas and HUD-designated difficult development areas and qualified census tracts.
- Larger projects with more units are less expensive per unit to build than smaller projects with fewer units, likely due to economies of scale. Bedroom size also impacts cost, with projects with an average unit size of more than 2.5 bedrooms costing more on a per-unit basis than projects with fewer units.
- New construction is significantly more expensive than acquisition rehabilitation properties on average.
The Abt Associates report is the most comprehensive national study of its kind on the development cost of homes built with the Housing Credit. It underscores the cost-effective nature of the program and states’ successful efforts to ensure cost reasonableness as they seek to maximize Housing Credit resources.