NCSHA Releases Report on LIHTC Development Costs

The National Council of State Housing Agencies (NCSHA) recently released “Variation in Development Costs for LIHTC Projects,” a report by Abt Associates. The report examines the factors affecting the cost of developing affordable multifamily rental housing using the federal Low-Income Housing Tax Credit Program (LIHTC). Using data provided by 14 LIHTC syndicators, the researchers analyzed development cost data for more than 2,500 projects developed through the LIHTC program and placed into service between 2011 and 2016. These projects included over 160,000 housing units.

The report found:

• Location matters. Costs were higher for projects developed in principal cities of metropolitan areas, difficult development areas (DDAs), and qualified census tracts (QCTs). Costs were also higher for projects developed in New England, the Mid-Atlantic, and the Pacific regions, as compared with other regions. These relationships held true even when total development costs without land were analyzed, suggesting the higher cost of land is not the sole factor driving this finding. Nor is the finding due solely to differences in construction-cost wages, since the researchers controlled for state-level differences in these wages, which also had a significant effect on costs. One potential explanation is that developers adjust to higher land costs by employing different construction methods, like taller buildings and structured parking, which carry a higher cost.
• Project and unit size matter. Smaller projects were more expensive per unit to build than larger projects, likely due to the economies of scale of developing larger projects. Projects where the unit size averaged more than 2.5 bedrooms were also more expensive on a per-unit basis.
• Project type matters. New construction projects were substantially more expensive than projects developed by acquiring and rehabilitating existing structures. Projects with multiple financing sources were more expensive on a per-unit basis, which could be due to the challenges associated with assembling multiple financing sources or could be due to the need to find multiple financing sources to pay for higher-cost projects.

Concerning the total development costs (TDCs), the report also found:

• The median TDC per unit, inclusive of soft costs (e.g., fees for contractors, architects, and other professionals) and land costs, between 2011 and 2016 was $164,757, adjusted for construction cost inflation.
• The mean TDC per unit, inclusive of soft costs and land costs, between 2011 and 2016 was $182,498, adjusted for construction cost inflation.

These figures reflect TDCs for newly constructed buildings as well as rehabilitations of existing properties. The sample includes approximately 47 percent of the units in properties developed with 9 percent credits and 20 percent of the units in properties developed with 4 percent credits placed into service between 2011 and 2016. Every state was represented in the sample.