4 ms·

"100% affordable" means that every apartment is priced below market rate, and in this case is also below the cost of buying the land and constructing the apartm

by enf 10y ago

"100% affordable" means that every apartment is priced below market rate, and in this case is also below the cost of buying the land and constructing the apartment. The extra money has to come from somewhere. With "30% affordable," the extra money comes from making the other 70% of the apartments more expensive. With "100% affordable" there is no built-in source for the extra money so it needs to come from some other source.

ergothus 10y ago
Still lost. Is "market rate" what you'd otherwise pay for housing? If so, you can still sell that housing 100% below market rate (but above what is needed for maintenance costs) and make a profit in a scarce housing situation. You'd absolutely be below what someone getting market rate would get (be it by 100% market rate or a 30% below, 70% above ratio), but it'd still be profitable. Unless you mean that the cost of the land would be priced off of market rate, so the land cost alone would make this undoable. That makes sense.
- enf 10y ago
  Yes, market rate is what you would pay for other comparable apartments. The sheer cost of land is a big part of the problem, but so are the fixed costs of construction. If you are taking advantage of the density bonus, you are probably also having to move from wood-over-concrete construction to steel framing, the base cost of which doesn't pay off until you have a much taller building to spread the cost over, which is probably taller than you can legally build even with the density bonus. There are probably opportunities to forgo profit by charging something at or above your costs but less than the market might bear, but the costs of building are still so high that it's hard to get below the threshold to count as affordable even if you aren't trying to make any money.
eschaton 10y ago
You're conflating the cost to construct and maintain the landlord's building with the amount of money the landlord can charge to rent the apartments in it. The construction and maintenance costs just put a floor on the rent below which the landlord would lose money. The market-rate rent is otherwise unconstrained, and the difference is the landlord's profit. Just because the supervisors are saying they want below market rate housing doesn't mean they're saying they want landlords to actually lose money. They're instead saying they want landlords to be willing to make some amount less than the theoretical maximum profit on some number of units (whether 5% or 100% of units in a building) in exchange for being allowed to build a whole lot more of them. That doesn't seem like such an unfair trade-off.
- enf 10y ago
  "100% affordable" doesn't just mean "less expensive": it has legal significance. It means that it costs a household with 55% to 60% of area median income at most 30% of their income. There is a table of the allowable rents at http://sfmohcd.org/inclusionary-housing-bmr-rental-program-overview http://sfmohcd.org/inclusionary-housing-bmr-rental-program-o.... If you want to build a studio to rent at cost for $1070 a month, you need to be able to build it for around $230,000, which is basically unimaginable with current SF land and construction costs.
  - akiselev 10y ago
    Who builds a single studio in San Francisco? You'd build a hundred studios on 10 floors or something which means a maximum of $23 million. The land is a fixed expense since you're still buying x acres for the building and a lot of the costs going into planning and construction (permits, procurement, transportation, labor, etc) have large fixed costs but much smaller marginal costs and great efficiencies of scale. I don't know the cost per sq ft of the average project in SF but at 800 per studio (500 sq ft of space plus 300 for estimating overhead) you can spend almost $300 per sq ft. Assuming that number drops to 650 sq ft if you build a thousand studios you can now spend closer to $400 per sq ft which is in the realm of mid-2000s construction costs in Manhattan [1]. I'm pulling numbers out of my ass for the estimate but it should be clear how the math can still work out for developers. [1] http://therealdeal.com/issues_articles/nycs-construction-craze/ http://therealdeal.com/issues_articles/nycs-construction-cra...

by enf 10y ago

ergothus 10y ago

Still lost. Is "market rate" what you'd otherwise pay for housing? If so, you can still sell that housing 100% below market rate (but above what is needed for maintenance costs) and make a profit in a scarce housing situation. You'd absolutely be below what someone getting market rate would get (be it by 100% market rate or a 30% below, 70% above ratio), but it'd still be profitable. Unless you mean that the cost of the land would be priced off of market rate, so the land cost alone would make this undoable. That makes sense.

enf 10y ago
Yes, market rate is what you would pay for other comparable apartments. The sheer cost of land is a big part of the problem, but so are the fixed costs of construction. If you are taking advantage of the density bonus, you are probably also having to move from wood-over-concrete construction to steel framing, the base cost of which doesn't pay off until you have a much taller building to spread the cost over, which is probably taller than you can legally build even with the density bonus. There are probably opportunities to forgo profit by charging something at or above your costs but less than the market might bear, but the costs of building are still so high that it's hard to get below the threshold to count as affordable even if you aren't trying to make any money.

eschaton 10y ago

You're conflating the cost to construct and maintain the landlord's building with the amount of money the landlord can charge to rent the apartments in it. The construction and maintenance costs just put a floor on the rent below which the landlord would lose money. The market-rate rent is otherwise unconstrained, and the difference is the landlord's profit. Just because the supervisors are saying they want below market rate housing doesn't mean they're saying they want landlords to actually lose money. They're instead saying they want landlords to be willing to make some amount less than the theoretical maximum profit on some number of units (whether 5% or 100% of units in a building) in exchange for being allowed to build a whole lot more of them. That doesn't seem like such an unfair trade-off.

enf 10y ago
"100% affordable" doesn't just mean "less expensive": it has legal significance. It means that it costs a household with 55% to 60% of area median income at most 30% of their income. There is a table of the allowable rents at http://sfmohcd.org/inclusionary-housing-bmr-rental-program-overview http://sfmohcd.org/inclusionary-housing-bmr-rental-program-o.... If you want to build a studio to rent at cost for $1070 a month, you need to be able to build it for around $230,000, which is basically unimaginable with current SF land and construction costs.
- akiselev 10y ago
  Who builds a single studio in San Francisco? You'd build a hundred studios on 10 floors or something which means a maximum of $23 million. The land is a fixed expense since you're still buying x acres for the building and a lot of the costs going into planning and construction (permits, procurement, transportation, labor, etc) have large fixed costs but much smaller marginal costs and great efficiencies of scale. I don't know the cost per sq ft of the average project in SF but at 800 per studio (500 sq ft of space plus 300 for estimating overhead) you can spend almost $300 per sq ft. Assuming that number drops to 650 sq ft if you build a thousand studios you can now spend closer to $400 per sq ft which is in the realm of mid-2000s construction costs in Manhattan [1]. I'm pulling numbers out of my ass for the estimate but it should be clear how the math can still work out for developers. [1] http://therealdeal.com/issues_articles/nycs-construction-craze/ http://therealdeal.com/issues_articles/nycs-construction-cra...