| Newton MA News and Politics BlogFormer City Councilor and long time affordable housing advocate Ted Hess-Mahan posted this on the Newton Civic Action Forum.  We’ve re-posted it here with his blessing.

 

I realize this is probably a lost cause, but I thought I would briefly explain the economics of creating affordable housing, and why it is so hard to build more of it.
 
In Newton, it costs, on average, over $500,000 to create each unit of affordable housing. Using HUD income and price limits, to be affordable to a family of four earning up to 80% of the area median income (AMI), the maximum price for a home is $288,700. For a family of four earning 50% AMI, the maximum price is $159,500. So, on average, the developer loses between $211,300 and $340,500 per affordable unit. The only way that a developer can make up for that is to create market rate units that are at least $212,000 and $341,000 above the cost of production. Assuming that the market rate units cost the same as affordable units to construct (which is not necessarily the case, but for the sake of argument let’s say it is), the price has to be at least $712,000 and $841,000 just to break even.
 
If you have ever been involved in creating affordable housing (which I am going to assume most of the people on this forum have never done), you would know this. The only way you get 100% affordable projects, like the West Newton Armory, is to reduce the land acquisition costs to nominal (e.g., $1) and to heavily subsidize the affordable units with public funding. Economically, there is no other way. If the city were acquiring the armory at fair market value, it would increase the cost of the project by about $5-6 million, which would have to be offset by public funding to make it 100% affordable. If there is no public funding available, then you cannot have a 100% affordable project, and you have to subsidize the affordable units with market rate units–just to break even.
 
Please think about that the next time you expound on how the city should require many more affordable units out of every project.