California’s recently passed Senate Bills 2 and 3 will raise several billion dollars in funding for affordable housing over the next ten years. But the Department of Housing and Community Development estimates we face a current shortfall of over two million units affordable to households traditionally served by these programs. The size of this deficit means we need to build as many units as we can with these funds, and quickly. Local government decisions can significantly reduce how much housing we can squeeze out of these critical new funds. I’d like to share with you findings from peer-reviewed studies that use the actual construction budgets of hundreds of affordable housing projects to measure these impacts.
These results also naturally apply to market-rate construction, meaning everyone can benefit from these lessons. Here are the key takeaways:
Let Developers Build Up and Up, Especially Near Transit. In a recent study, a colleague and I attempted to measure the impact of building near rail transit on affordable housing construction costs. We found developers were absorbing the higher land costs near rail by building taller on their sites, a policy goal of the state’s TOD program. We also found that for every 10% increase in the total number of homes in a project, costs went down by 1.8%, on average.
A forthcoming study in the Berkeley Planning Journal by researcher Scott Littlehale suggests the effect is higher: a 10% increase in homes reduces affordable project costs by 5.7%, on average. This concept applies to all housing, too: Berkeley’s Terner Center for Housing Innovation found that increasing site densities by 20% increases the likelihood sites will be developed by 25%. Density bonuses are an excellent way to take advantage of these effects.
Reduce Parking. Most planners know this by now, but the magnitude of parking’s impact on development costs is not fully appreciated. The Berkeley Planning Journal study estimates that parking ratios can increase affordable housing development costs between 25% and 40%.
A study by The Terner Center for Housing Innovation at UC Berkeley of market-rate and affordable units finds that reducing parking requirements by only 20% can greatly improve the likelihood of housing being built by up to 87%. These are astounding statistics that should reframe how local governments zone for housing.
Waive Impact Fees. Cities charge new developments for impacts to services like water, transport and stormwater. California jurisdictions charge some of the highest impact fees in the country. In a forthcoming study, I find these fees equal roughly 4.8% of affordable housing development costs in California, while Littlehale places the impact around 4%. This may seem small, but when you add this cost on top of every other local requirement and charge, local government fees can add up to a big impact. The Terner Center suggests impact fees in some Bay Area jurisdictions are as high as $40,000 a door.
With homeless Californians dying on our streets, should up to 40% of affordable housing dollars be spent on parking? Infrastructure is important, but should it we pay for it with our limited affordable housing dollars when millions of us are struggling to pay rent? Shouldn’t it be funded through more direct means?
And, finally, should taxpayers face a higher burden to pacify locals who hyperventilate over 3- and 4-story buildings in order to provide affordable housing in this crisis? On all three questions, I think the answer is no, and I hope the numbers provided here convince you to agree.
Matthew Palm has a Ph.D. in Geography from the University of California, Davis. His research focused on sustainable urban planning.
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