Sunday, 20 August 2017

How much should it cost to build affordable apartments in downtown Stockton?

There is no disputing that there is an affordable housing crisis in California, and finding more funds to subsidize affordable housing development will be a major focus of the state legislature this fall.  However, Governor Brown has been hesitant to support more funding for existing affordable housing programs until something is done to bring down the costs of these developments.  He is right to be concerned, the cost of developing income restricted rental units is significantly higher than the cost of building market rate housing.  It’s an issue that is starting to get scrutinized on a national level, but like most things housing, the issue is on another level in California.


This weekend, the Stockton Record ran a story about a $30 million proposal to build 62 affordable units on Miner Avenue in downtown Stockton.  That’s $483,000 per apartment, although the proposal includes 11,000 square feet of retail, so the apartment costs are probably closer to $400,000 per unit.  For comparison, you can buy a brand new single family home in Stockton right now for under $350,000.

To be fair, the cost of this Stockton affordable housing proposal is not unusual, and I am happy to see Cort and Ornellas’ efforts to expand housing in downtown Stockton.  In fact, just before this article ran in the Record, I had written half this blog post inspired by a similarly costly proposal in downtown Roseville.  

Part of the problem is that the government subsidizes most affordable housing projects with tax credits that must be packaged and resold to private investors.  This is a very costly way for the government to provide capital to these projects.  A recent investigative story on NPR’s Frontline describes why this system can be expensive, and how this system of finance is failing to build enough housing from a national perspective.  While much of the focus in California has been on reducing regulations to lower development cost for affordable housing, I think the approach to finance should also be reconsidered.  

I suspect there is much more to this story, and I wish I had more time to focus more deeply on these housing supply issues.  I know there are good people working on innovative approaches to reduce costs and expand supply.  In fact, I recently learned that Stockton’s David Garcia will be working with the Terner Center for Housing Innovation at UC-Berkeley which has assembled an interesting team and portfolio of projects.   


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Addendum 9/17:

Most people I have discussed this issue with recently have pointed first to prevailing wage requirements as the biggest cost driver, an important issue I somehow overlooked in the discussion above.  This article in the LA Times discusses the issue and has links to several studies of the topic.
http://www.latimes.com/politics/la-pol-sac-construction-workers-housing-20170512-htmlstory.html

About the Author

Ethan Jacob

Author & Editor

I am Ethan Jacob Executive Director of the Center for Business and Policy Research at the University of the Pacific, where I have a joint faculty appointment in the Eberhardt School of Business and the Public Policy Program in the McGeorge School of Law..

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