What Drives the High Cost of Affordable Housing

A combination of ineffective funding mechanisms, strict building regulations, and inflation are pushing per-unit construction costs higher.

1 minute read

January 23, 2024, 8:00 AM PST

By Diana Ionescu @aworkoffiction

Wood-framed four-story building under construction.

Christian Delbert / Adobe Stock

Writing in Crain’s Chicago Business, Judith Crown explains the various factors behind the high cost of affordable housing construction.

According to Crown, “Costs are driven by the byzantine rules of the federal tax credit system that require builders to assemble a ‘capital stack’ of funders, each with sets of fees and requirements. On top of that comes ever more rigorous government standards for accessibility, sustainability and design.”

Additionally, federal resources dedicated to affordable housing have not kept up with inflation, and the complex tax credit funding system comes with “incredibly high transaction costs.” Some experts say it would cost far less if the federal government directly subsidized affordable housing construction.  

Per-unit costs sometimes increase due to the addition of new infrastructure, but improvements such as new sidewalks can help make a housing development a vehicle for broader revitalization in the surrounding neighborhood. Modern affordable housing is also designed to blend in. “Planners want to get away from the institutional design of infamous public housing projects, such as the Robert Taylor Homes and Cabrini-Green. While these 1960s-era buildings aren't directly comparable to today's scaled-down affordable projects, there's a priority to design buildings that look like they're part of the neighborhood, architects say.”

Tuesday, January 16, 2024 in Crain's Chicago Business

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