Can “Less is More” Yield More for Less?: The Importance of Cost Effective Development & Design

Written by Hadiya Al-Idrissi

July 16, 2020

In March 2020, Hannah Hoyt from the Joint Centre for Housing Studies of Harvard University (in collaboration with NeighborWorks America) published the report “More for Less? An Inquiry into Design and Construction Strategies for Addressing Multifamily Housing Costs.” The report includes 30+ interviews from developers, architects, contractors & policy makers who discussed the challenges of increasing multifamily housing production in America. The report also includes a list of proposed strategies and precedents to meet the challenges of the rising costs. While all costs and data in the report are in American dollars, the same cost saving measures and recommendations for change are very much applicable to the Canadian housing context. Recommendations for cost saving and policy changes in the report echo the strategies we have developed at Cahdco based on our project experience, in addition to suggesting a few new tips.

Those interviewed in the report agreed on the following needs to address the rising cost of affordable housing in America:

  1. Need for significant policy changes;
  2. More federal support for housing;
  3. Local zoning changes to encourage housing production; and
  4. Job training programs to address shortages in trades.

Costs of Housing Context:

Why is housing so expensive to begin with? Simply put, the supply cannot meet the demand; housing production should be outpacing household formation by 30% (Figure 1).

Factors that contribute to the unaffordability of multifamily housing in America:

  • Wages have barely gone up in America since the 1970s; income increases have mostly accrued to high-income households
  • Rents are increasing at twice the rate of inflation
  • Vacancies are down
  • American Households are generally becoming smaller, which increases the amount of them formed as the population increases
  • Rising costs:
    • Land in fast-growing American cities is becoming more expensive
    • Per unit costs are outpacing inflation
  • Rising energy demand may exacerbate existing disparities in energy spending.

Figure 1

Project Costs:

The report gave a breakdown of a typical Project Budget:

  • Land Costs (the cost of the land and any remediation it requires, including site surveys and geotechnical studies)
  • Soft Costs (the costs of consultant contracts such as developers/architects/engineers, legal, financing & administration costs)
  • Hard Costs (the construction cost of the project that includes labour and building materials)

Breakdown of Major Costs for Multifamily Project Budget:

  Percentage of Overall Project Budget
Land Costs 10-20%
Soft Costs 20-30%
Hard Costs 60-70%

 

At Cahdco, we generally follow the same cost breakdown when building our capital budgets for projects. As the chart above indicates, reducing the hard costs can have the greatest impact on reducing the overall project budget.

The report noted that costs for American affordable housing in particular may be higher for a variety of reasons, including:

  • Longer time horizons for building performance and therefore investment in more durable (and expensive) construction materials with the goal of reducing replacement and operating costs;
  • Local requirements for additional building services, such as community facilities (or perhaps dedicated space for services for supportive housing);
  • Developer profit comes through developer fees, which are part of upfront soft costs, rather than rental income generated by operating the property;
  • Government financing of affordable housing projects requires the coordination of a range of debt and equity funding sources, which often necessitates significant spending on soft costs including legal, accounting or syndication fees.

Determining the characteristics of an affordable housing project in the earliest stages of feasibility can also greatly affect its financial viability in the end. Below is a diagram from the report illustrating some common characteristics that affect project costs (Figure 2):

Figure 2

Strategies from the Report to Respond to Rising American Multifamily Project Costs:

    • Land Costs:
      • Focus site selection process based on scale and constructability.
      • Develop on oddly-shaped lots or scattered sites.
      • Renovate, convert or co-locate housing with existing buildings.
    • Soft Costs:
      • Engage general contractors earlier and as partners in the design process.
      • Share more information with subcontractors to produce more accurate cost-estimating.
      • Provide more information on site conditions in public RFP processes.
    • Hard Costs:
      • Run site prep concurrent to RFP process.
      • Design to reduce foundation depth and complexity.
      • Reduce or remove structured parking.
      • Make a massing with a few big moves, rather than many small moves.
      • Simplify facades, while still creating variation through materials.
      • Let the structural grid guide plans and limit long-span spaces.
      • Investigate new techniques and materials.
      • Design unit layout and dimensions for flexibility and efficiency.
        • For example, reduce in-unit circulation space in favour of flexible space (Figure 3).

Figure 3

      • Specify materials for health, durability and cost.
      • Rotate and mirror to create variation with repetitive unit and building plans.
        • For example, (Figure 4 & 5).

Figure 4: Proposed multifamily housing project in Louisville, Kentucky, OJT Architects

Figure 5: Bastion is a 100-unit mixed-use housing development for veterans in New Orleans, OJT Architects

      • Stack, standardize and simplify: conveying, kitchens and bathrooms.
      • Invest upfront in building energy and water performance to encourage long-term savings.

Many of the above noted strategies have already been implemented in many Cahdco projects to increase cost efficiencies. However, a lot of work still lies in policy changes and effective support from all levels of government in terms of financing and cash flow. At the end of the day, the more money we can save on affordable housing projects, the more money we can put toward more affordable housing projects and finally start to shrink the gap between supply and demand.

For more information:

The report itself by Hannah Hoyt can be found here.

The Brookings Institute is also doing a 4-part summary of the summary of the report that can be found here.

Hadiya Al-Idrissi

Hadiya Al-Idrissi

Development Project Coordinator

July 16, 2020