The Myth of Affordable Housing

From The Real Estate Espresso Podcast Victor Menasce

Today we’re talking about affordable housing, and more specifically, whether the most viable path to creating new affordable housing might not be new construction at all.

There is a very common statement in the housing conversation, and it sounds something like this: We need more affordable housing, the implication being that therefore we need to build more affordable housing.

That sounds logical on the surface. But when you examine the economics, the statement begins to fall apart.

New construction today is expensive. Land is expensive. Labor is expensive. Materials are expensive. Insurance is expensive. Financing is expensive. Development charges, impact fees, utility connection fees, permitting delays, and code requirements all add cost before a single resident ever moves in.

When you add all of that together, the finished product has to command a certain rent just to be financially viable. That rent is often far above what most people would consider affordable.

This is the central contradiction in affordable housing policy. We ask developers to build affordable housing, but we impose a cost structure that requires market rents or government subsidy to make the project work.

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