Development costs on Bay Area affordable resi tops $1 million per apartment

Seven projects break mark in San Francisco, San Jose, Oakland, Concord

Bay Area costs rising

The cost of building low-income housing in the Bay Area has now pushed past $1 million per unit on a number of projects spread throughout the region.

Seven subsidized housing projects from San Jose to San Francisco to the East Bay have passed the $1 million mark on per-unit costs, the Los Angeles Times reported. Each received state funding in the last two years and are being built or are close to breaking ground.

The soaring cost of affordable housing can be blamed on rising labor and material prices because of inflation, supply-chain problems and worker shortages during the COVID-19 pandemic. A Times analysis in 2020 also pointed to “numerous factors” within the control of state and local governments.

“That is untenable,” Assemblyman Tim Grayson (D-Concord), who is writing legislation aimed at simplifying state affordable housing financing, told the newspaper. “That is not a sustainable model. We have got to do something to reduce the cost.”

In comparison with private-sector development, publicly subsidized low-income housing can have more stringent environmental and labor standards.

Affordable housing projects often face high parking requirements, lengthy local approval processes and a byzantine bureaucracy to secure financing.

Despite promises by Gov. Gavin Newsom and state officials to control costs, there’s been no comprehensive change to the system, with as many as five state agencies doling out funds.

To support housing for low-income residents, federal, state and local governments provide direct financing and tax credits, which reduce what banks and large investors owe the Internal Revenue Service and the state treasury if they help pay for housing projects.

The funding requires developers to cap what tenants pay in rent.

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The seven Bay Area projects that now top $1 million per unit would be the costliest built in California and probably the country. Three are in San Francisco, two in Oakland and one apiece in San Jose and Concord. The most expensive is a rehabilitation of 69 public housing units in San Francisco at a cost of more than $1.2 million per apartment.

Another six affordable projects proposed for the Bay Area would exceed $1 million per unit cost.

A UC Berkeley’s Terner Center for Housing Innovation study on the cost to build low-income housing found that projects paying union-level wages could cost $50,000 more per apartment, while projects built to stricter environmental standards cost $17,000 more per apartment.

For each extra funding source, the average per-unit cost also increased by more than $6,000, according to a Times analysis. A major cost comes from developers paying attorneys and consultants to navigate state and local bureaucracies to secure financing.

[Los Angeles Times] – Dana Bartholomew

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